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Euromonitor International’s new global cheese research provides the latest insight on how the cheese industry is expected to perform in 2015 and identifies the key prospects through to 2020.
According to Euromonitor’s forecast rankings of the top future cheese markets, new winners and losers will emerge. While the US and France will remain the largest cheese markets in the world, Germany and the UK will drop down the rankings and the Latin America and Middle East and Africa regions will prosper. As purchasing power increases and consumers are increasingly swapping home-made dairy for processed and packaged products, a large demand for future cheese sales will come from markets such as Brazil, Mexico, Kenya and Iran – all rising up the rankings. Half of new sales will come from Latin America and the Middle East and Africa over 2015-2020 representing US$8.5 billion.
Source: Euromonitor International
With so much focus on the Middle East and Africa and Latin America being the top future cheese markets, M&A will feature strongly in the years to come. Manufacturers trying to gain a foothold through existing distribution networks, as evidenced strongly by Lactalis over the last two years, will be the ones to lead global cheese sales. The retail landscape in emerging markets is less modernised where cheese sales through independent small grocers still make up 25% for Latin America and 30% for the Middle East and Africa. In contrast, this is just under 10% for North America and Western Europe. This retail structure is complicated with a limited number of chained supermarkets. In fact, in Saudi Arabia 65% of supermarkets are represented by individual small players; this is even higher in Algeria at 96%, which makes a simple distribution network almost impossible. Therefore acquisition of or joint ventures with local players who have access to an existing distribution network is very important.
A recent example of gaining access through local players is Arla’s joint venture with Egyptian dairy Juhayna. Given the fact that Egypt also has few chained supermarkets, Arla gains access through Juhayana’s “neatly-masked distribution net”, and Arla will “be able to reach all corners of Egypt”, according to a spokesperson from Arla.
With low brand loyalty and increasing private label sales, the retail environment will be challenging for many cheese manufacturers. Securing listings at the large grocery retail chains is highly important in cheese as consumers have low brand loyalty. Therefore if a brand loses a listing, consumers are more likely to buy an alternative brand at the same store than to change their shopping routines to buy the brand somewhere else. In the UK, the announcement of Tesco reducing its number of SKUs to extend a simpler product offer and expand shelf space for private label poses a strong threat, especially to cheese players. There have already been some pretty significant losses, with Lactalis’s Rachel yoghurt brand one of the brands to lose its listing at the supermarket and as a direct result, according to local press, 45 jobs were also lost.
As a result of low brand loyalty and an increased risk of private label gaining share, the vast majority of new product launches over the last year in developed markets are centred on value creation.
These particular types of product launches are an attempt to sell higher margin products that are at the same time different to private label. With brand loyalty being very low and private label share in cheese being as high as 33% in North America and 24% in Western Europe, value creating will remain very important in the future. Here, the retail landscape is characterised by consolidation in order to improve profit margins.