Arla Foods has stated that its performance in the first half of 2023 was impacted by continued inflationary pressures, declining dairy commodity prices, and a shift in consumer behaviour towards discounters and own-label products.
Net revenue for Arla Foods UK was up 16.9% to £1.37bn (€1.6bn), boosted by higher prices. However, revenue from its brands fell 5.2% after volumes were impacted by changing consumer patterns during the cost of living crisis. However, the company noted that conditions were starting to improve towards the end of the period.
Total Arla Brands saw a 0.7% decline in volumes in the UK, while the Starbucks brand continued to deliver a strong performance with growth of over 19%, driven by growing in-home and on-the-go consumption.
Jonathan Dixon, senior VP of sales at Arla Foods UK, commented: “During the first half of 2023, we continued to see inflationary pressure resulting in consumers moving towards discount channels and private label products.
“However, we have started to see our brand performance improve towards the end of the first half year due to significant investment in our brands and our continued innovation in the dairy aisle. This focus on growing our branded business in the short and long-term is already seeing positive growth for our Starbucks and Arla Protein brands, and the improved performance across our brands is sustaining as we now have moved into the second half of the year.”
In volatile market conditions, Arla’s foodservice business in the UK experienced a volume decline of 1.8%, compared to 19.0% growth in the first half of 2022, where the surge in demand was due to Covid restrictions easing. Arla said it expects to see positive growth in its UK foodservice business in the second half of the year.
Arla’s group revenue was up 10.7% to €7.1bn, primarily driven by earlier implemented price increases in retail and foodservice. Brand revenue grew by 6.9%, driven by its Lurpak (+7.2%) and Arla (+3.6%) lines. However, EBITDA for the first half fell 36% to €161m.
Looking ahead, Arla expects inflation to soften but noted that commodity markets continue to be marked by uncertainty.
“We anticipate that inflation and its influence on consumer patterns will continue to mark the remaining part of 2023, putting pressure on branded volumes in most markets. However, we expect an increase in the underlying category growth to contribute to branded growth slowly picking up again,” said Peder Tuborgh, Arla Foods CEO.
The group lowered its sales outlook for 2023 to between €13.2bn and €13.7bn from €13.6bn to €14.2bn seen in February because of the continued uncertainty in the market.
NAM Implications:
- Arla patently managing expectations.
- But rivals are bound to see and seek opportunities going forward…
- …by brand and channel.
- Watch this space…
