Premium brand such as Kerrygold shows the value of marketing
Published 25/04/2013 | 05:00
Butter is butter, right? Apparently not, especially if you stick a Kerrygold label on the box. How else does one explain why Kerrygold butter retails at a 100pc premium over its closest rival in the US?
What's even more astounding about this quintessentially Irish product is the fact that it has clocked double digit growth in the US for the last five years. It's quite the combo – plain old Irish butter, in a wrapper that's been around for the best part of half a century, in a market that has no shortage of local competition.
No wonder the annual report of the brand's owner, the Irish Dairy Board (IDB), made for impressive reading earlier this month.
Earnings on its turnover of €2bn are up 11pc and there was growth in all its core markets.
Chief executive Kevin Lane, pictured below, was understandably bullish about the prospects for the future.
He comes from an ambitious background, rising through the ranks of the ISEQ's favourite food company, Kerry plc over the course of a 22-year career with the ingredients giant.
Three years ago when the Brosna native took on the politically delicate position at the top of the IDB, some wondered if it was the right move for the go-getter schooled in Denis Brosnan's "Kerry way".
Originally established by the State over half a century ago to market surplus butter from Ireland's web of small dairy co-ops, the IDB has evolved to the point where it is now effectively owned by the 13 dairy processors that make up the majority of the Irish dairy industry.
The one key exception is Lane's former employer, Kerry, who pulled out of the IDB nearly a quarter of a century ago.
The move by Kerry started a worrying trend for the IDB, where the once small-town, provincial dairy co-ops began to realise that they had developed enough scale and clout to be able to market their own produce, cut out the middleman and develop tight relationships with international customers.
Mr Lane maintains that the IDB has marketed a steady 60pc of the country's dairy output since 2010, but the drift of individual co-ops out from under the IDB's marketing wing appears to be continuing. In the last two years alone, the country's second largest dairy co-op, Lakeland Dairies, has seen its sales through the IDB slip by 19pc.
And as Irish dairy processors continue to get bigger (Kerry took over Newmarket and Connacht Gold took over Donegal Creameries last year, while Glanbia are currently eyeing up Wexford), they are only going to become more confident players in their own right.
The farmers, who in turn own the dairy co-ops, and so indirectly own the IDB, also question the rationale of sending their dairy output through a centralised marketing company. The fewer middlemen that are getting a cut out of their milk, the better the returns. If their own co-ops are big enough to develop relationships with customers all over the world, why should they continue supporting the IDB that could end up competing with their own co-op for lucrative contracts?
Mr Lane would have been well aware of all of these issues before he took over from Noel Coakley in January 2010.
But it is more likely that he had his eyes fixed on the prize of huge increases in national milk output after EU quota restrictions are lifted in 2015.
Industry leaders have been targeting a 50pc increase in output by 2020, and Mr Lane claims he can handle all of it.
"We won't settle for just 60pc of the increased volumes over the coming years."
Presumably this is why he has spent millions on developing 26 new sales teams in cities everywhere from the Congo to Moscow.
And while Mr Lane is aiming to double his sales force over the next three years, he also believes that there is still plenty of growth potential in their well-established markets in the US, Germany and Britain.
With this in mind, Mr Lane is gearing up to launch the likes of Dubliner cheese on the UK market, albeit under one of their existing UK brands, such as Pilgrim's Choice. "Dubliner as a brand might be a bit too Irish for that particular market, but the product is spot on," he admits.
Despite the myriad of spreads and low-fat options that line the supermarket shelves, Mr Lane also believes there is scope for further product development here to tap into concerns about convenience and obesity. "We're bigger on product development than research because there is only 23 months before quotas go. Research is a much longer project."
But it is the newer markets in the Middle East, Africa, Russia and China that the IDB chief is most enthused about.
"We can't keep doing what we did in the past. So we're very focused on new markets that the Irish dairy industry has traditionally ignored. We're on the verge of launching a type of cream cheese known as Labneh in the Middle East. If we get it right, there's a potential market worth hundreds of millions," he claims.