Many multinational dairy players’ expansion strategies are aiming to capture wide consumer bases in emerging regions, which, in theory, offer rapid growth opportunities. However, they also face a number of challenges, including the perishable nature of core dairy products and the complex and costly infrastructure the products require to reach consumers. A packaging innovation to extend the shelf life of yoghurt to six months without refrigeration from Venezuela’s Empresas Polar could offer some success in tackling these particular challenges. This innovation is worth considering by other dairy manufacturers aiming to reach low-income consumers in regions not served by refrigerated distribution channels, such as various African and Southeast Asian markets. However, such target markets still need to be carefully evaluated given the temperature-sensitive nature of yoghurt products at consumption.
10 Markets with Lowest Level of Refrigerator Possession Rate – 2013
Source: Euromonitor International
Curbing Costs and Capturing Low-Income Consumers
The packaging innovation being used by Empresas Polar is a barrier technology which blocks light so as to extend shelf life without refrigeration. This offers a number of advantages, for example the utilisation of the more developed ambient distribution chain and traditional retail outlets without cool storage facilities to better inventory control for retailers. Cost savings made through this less expensive and less complex supply chain allow the company to keep unit prices affordable for low-income consumers, which still account for the majority of volume growth in emerging markets.
Implications for Profitability and Category Development
Empresas Polar’s technological innovation could have further significance for the industry. The fact that it has chosen to launch the new packaging solution in yoghurt, rather than for example in the more commoditised milk market, means sustainably higher profit margins for the company and a growth driver for the category. Yoghurt in Venezuela is forecast a 3% CAGR to 2018 but a 4% CAGR globally over the same period, meaning room for growth particularly in developing markets with infrastructural challenges.
Yoghurt remains a modestly sized dairy category in many of the target markets on which multinational dairy players are currently focusing. For example, in the autumn of 2013, both Arla Foods and Danone invested in expansion in African markets such as Nigeria, Ghana, Côte d’Ivoire, Liberia, Burkina Faso, Benin and Togo, where infrastructural challenges remain significant but the potential consumer base is vast, young and open to new and nutritious products.
This new packaging solution could have good potential in terms of reaching new consumer bases, but further market characteristics need to be evaluated, such as the penetration of domestic fridges. Although the unopened product’s shelf life has been extended to six months without refrigeration, once the PET bottle is opened the product should be stored in the fridge, also because yoghurt products are best served chilled. Countries with very hot climates and low levels of domestic fridge ownership are therefore not the best target markets for such packaging innovation in yoghurt.
Remaining Challenges in Marketing Fresh Dairy Products in Markets with a Less Developed Infrastructure
For companies like Danone and Arla, adapting their portfolios and distribution strategies to the relatively low spending power of consumers in new markets such as West Africa will be crucial to achieving sustainable growth. However, ultimately, companies aim to roll out their core portfolios, which, if including yoghurt and fresh dairy, need a helping hand from innovations to overcome challenges such as the lack of a cool storage supply chain. The packaging innovation Empresas Polar has introduced in Venezuela has strong potential in some markets with a less developed supply chain and retail infrastructure but may not be the perfect solution for dairy products in all developing economies.