CEOs of Dairy Companies Are Seeing Growth

Dairy is the largest and fastest-growing category in the food and beverages sector, according to an analysis by Boston Consulting Group. BCG cites analysts who suggest the market could grow by 10% a year for the next five years, with revenues reaching more than $800 billion by 2020.

The growth isn’t occurring so much in mature markets such as the U.S. and Europe where volumes are actually stagnating. It’s happening in emerging markets such as China, where hordes of people have only just started developing a taste for traditional Western diets.

The problem is these markets remain largely undeveloped, with limited transportation, distribution and retail infrastructure, Boston Consulting says. There’s also limited consumer awareness of dairy products in many parts of Asia—and products produced locally must be drawn from a fragmented supply base.

If you ever needed reliable, seamless supply chains, look no further than dairy. Perishable products like milk, cheese and yogurt are highly sensitive to bacterial contamination, so it’s challenging even in the most advanced markets to consistently offer a high-quality product through the so-called “cold supply chain”.

Unreliable supply sources are thought to be behind the 2008 melamine contamination of Chinese milk that killed six people, sickened 300,000 babies and sent the market share of local milk formula providers plummeting.

Competition is also a concern. A host of established companies such as Nestle, Kraft, Dean, Saputo and Fonterra are jostling with niche players for business, while outsiders such as Coca-Cola are starting to dip their toes into dairy.

Boston Consulting advises business leaders to consider offering longer-life milk products, though they’ll need to be wary of new product innovations to gain a competitive edge. One company, for example, won market share by offering milk with a three-week shelf life rather than the two-week industry norm, it says.

CEOs in the dairy sector also will have to apply a ruthless focus on operational efficiencies to adapt to industry margins that are traditionally in the 0%-5% range, and may even want to consider M&A to scale up.

“Partnership has been a common path to penetrating emerging dairy markets, such as China,” it says. “For example, a global company can provide its know-how of fine-tuned innovation process, while the local entity brings its knowledge of the local consumer and its market access—or even its agile innovation practices.”