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Beating the competition of imports. The experience of dairy processors in Poland supplying the supermarkets. The -WB-CEI-FAO Workshop on Agriculture, Agri-Business and the Retail Sector in South-East Europe Sarajevo, May 24-26,2004. Situation in Poland before 1989.

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Beating the competition of imports.The experience of dairy processors in Poland supplying the supermarkets

The -WB-CEI-FAO Workshop on Agriculture, Agri-Business and the Retail Sector in South-East Europe Sarajevo, May 24-26,2004

situation in poland before 1989
Situation in Poland before 1989
  • More than 350 dairy processing co-operative organised in Central Association of Dairy Co-operatives
  • Strict regional allocation of milk collection and product distribution
    • No competition
  • All local dairies produced the same products to supply the local markets
    • Short product shelf life
    • Cheese, butter, SMP production in some regions of Poland with milk overproduction
    • High seasonality of production

Beating the competion of imports Piotr Maj

situation in poland before 19891
Situation in Poland before 1989
  • Dairy products distribution organised by regional dairy warehouses belonged to Central Association (storage and product transfer)
    • Local distribution organised by local dairies
  • Government established prices (relatively low) for dairy products and raw milk (relatively high)
    • very high production subsidies
    • Huge consumption of dairy products

Beating the competion of imports Piotr Maj

consequences
Consequences
  • Dairy co-operatives had to process more than better
    • Relatively low quality of products
  • Dairy co-operatives had no experience in competition on market
  • Production subsidies (difference between sales volume and costs of production)

Beating the competion of imports Piotr Maj

recession times in early 90
Recession times in early ’90
  • Politically driven changes in economy
    • Dissolution of Central Association, each cooperative became independent
    • Small increase in number of processors (co-operatives, private and foreign)
  • Huge inflation
    • Very though time for companies with investment credits
  • Termination of production subsidies
    • Huge increase in dairy product prices(1300%) and rapid decrease in demand
    • Raw milk prices fall dawn

Beating the competion of imports Piotr Maj

number of milk producers and raw milk supply in 1989 2002
Number of milk producers and raw milk supply in 1989-2002

Beating the competion of imports Piotr Maj

recession times in early 901
Recession times in early ’90
  • Market became competitive
  • Poland became open for foreign companies (multinationals)
    • With much better resource and market experience
  • Large import of new dairy products
    • Polish processors faced modern products, nice packed, professionally introduced on market and with much better quality

Beating the competion of imports Piotr Maj

recession times in early 902
Recession times in early ’90
  • Changes in distribution
    • Dairy industry lost its distribution chains
    • Former co-operative and state retailers lost their position
      • Private warehouse and retail became more important
    • Some dairies kept their local markets other try expansion (less or more successful)

Beating the competion of imports Piotr Maj

number of retail outlets
Number of retail outlets

Beating the competion of imports Piotr Maj

changes in distribution during last 10 years
Changes in distribution during last 10 years
  • Concentration of wholesalers
    • Some of them bankrupt
  • Rapid expansion of multinational chains
      • 30% to 50% dairy products are presently distributed by
    • Cash and carry
    • Hypermarkets
    • Supermarkets chains
    • Discount stores
  • Concentration of Polish retailers

Beating the competion of imports Piotr Maj

changes in consumer paterns
Changes in consumer paterns
  • New products promoted by foreign companies
    • Competition hawever they have also built new categories of products
  • Consumer became more conscious of product range availability, quality and brand
  • New trends in nutrition
  • Convenient packages
  • Expecting more value added products

Beating the competion of imports Piotr Maj

other issues
Other issues
  • Foreign companies grew together with retailers for decades
  • Polish producers (not only dairies) had to face large retailers in just few years
    • Very well trained stuff
    • Luck of experience in dealing with specific requirements
    • Difficult negotiations

Beating the competion of imports Piotr Maj

first strategies developed by polish dairy companies
First strategies developed by Polish dairy companies
  • Product differentiation strategy
  • Cost and price leading strategy
  • Market penetration
  • Foreign investor
    • Or alliance with foreign companies
  • Concentration (not successful on beginning)

Beating the competion of imports Piotr Maj

crucial marketing factors seen by polish dairies vs foreign companies
Wide product assortment

Effective distribution channels

Total market share and sales scale

Volume of processed milk

Marketing based strategy

Sales volume and market share

Sales promotion

Sales structure

profitability

Crucial marketing factors seen by Polish dairies vs. foreign companies

Beating the competion of imports Piotr Maj

main sources of polish dairy development
Main sources of Polish dairy development
  • „Environment”
    • Adequate natural environment
    • Milk production was always important stable source of farmers income
    • Private structure of Polish farms
      • Large state and co-operative farms closed their production
    • High unemployment- luck of other income source

Beating the competion of imports Piotr Maj

main sources of polish dairy development1
Main sources of Polish dairy development
  • Ability of fast adjustment to fast moving market conditions and fast changing consumer (and also customer) needs
    • Managerial skills and leadership
      • Involving personnel and farmers
  • Lower dairy product prices - low cost production
    • Raw milk price
    • Lower trade and marketing costs

Beating the competion of imports Piotr Maj

main sources of polish dairy development2
Main sources of Polish dairy development
  • Developing in short time resources to produce new dairy products and introducing them on market
    • Investment in new production lines
    • Changes in technology and packaging
    • Improving distribution
    • Developing marketing activities

Beating the competion of imports Piotr Maj

main sources of polish dairy development3
Main sources of Polish dairy development
  • Economic, marketing and management advisory and training
    • Not only source of knowledge but also information and experience exchange
  • Farmers training
    • Developing quality of raw milk
    • Concentration of milk production

Beating the competion of imports Piotr Maj

main sources of polish dairy development4
Main sources of Polish dairy development
  • Publicity, influence on political decisions
    • Influence on trade barriers (custom tax etc.)
      • Some of foreign producers had to move some production to Poland
    • International negotiations (EU accession)
    • Agriculture policy intervention on dairy product market
      • Stabilising farmers and processors income and ensuring investment
    • Dairy products generic promotion

Beating the competion of imports Piotr Maj

main barriers of development
Main barriers of development
  • Unwilgness to concentration
    • Wrong experiences from past
    • Personal aspects
  • “Production oriented” management
    • Difficult to implement new marketing activities or management rules
  • Not enough financial resources

Beating the competion of imports Piotr Maj

financing of development both on farm and processing level
Financing of development (both on farm and processing level)
  • “Internal” financing – farmers
    • Low price paid for farmers
    • Long period of payments
    • Shares paid by farmers
  • lower than nominal credit rate loans sponsored by Polish government
  • SAPARD, PHARE programs
  • Suppliers

Beating the competion of imports Piotr Maj

slide22
Many Polish processors started to compete with imported products or produced in Poland by multination companies
    • Not only price but also as product and service quality
  • Developing HACCP programs and quality standards (egg. ISO certification), investing in brand building allowed Polish dairy processors to became partners to distribution chains.
    • Some companies decided to produce product under distributors brand (own label)

Beating the competion of imports Piotr Maj

types of successful companies
Types of successful companies
  • Large, national scale processors
    • Big volume of production (economy of scale)
      • Big chains need stability of deliveries
    • Few production specialised factories
    • Active national promotion
    • Large resources (financial, production, human etc.)
    • Wide product range

Beating the competion of imports Piotr Maj

types of successful companies1
Types of successful companies
  • Local companies
    • Very high local awareness (local publicity)
    • Very effective local direct distribution
    • Often very flexible and more fast in their activities on local market
    • regional products
      • Entering in one retail outlet of chain often opens opportunity for further expansion

Beating the competion of imports Piotr Maj

types of successful companies2
Types of successful companies
  • Niche product companies
    • Lower volumes
    • Few niche products
    • High margin
    • However still satisfying consumers (and those customers)

Beating the competion of imports Piotr Maj

brand is always an asset
Brand is always an asset
  • Consumer (and consequently distributors) are willing to pay better price for product
    • Better margin for producer
    • Retailers must have those products on their shelf's
  • Recognised brand helps to introduce new products on the market

Beating the competion of imports Piotr Maj

importance of raw milk and working together with farmer
Importance of raw milk and working together with farmer
  • Better price allows to pay more for raw milk
    • That allows farmer to invest and produce more and better
  • Milk price based on quality
  • On time payments
  • Better service and advisory – compensate payments
    • Feeding, fertilisers.
    • Training
  • Implementing higher level of raw milk standard

Beating the competion of imports Piotr Maj

quality and product standard
Quality and product standard
  • Safety of product (HACCP)
  • Product has to be the same all time
  • Essential to keep recognised brand on market for long time
  • Wide understand quality
    • Service
    • Distribution
    • Sales activities

Beating the competion of imports Piotr Maj

quality and product standard1
Quality and product standard
  • Developing of new standards of co-operation with large retail distributors
    • Own label products
    • Implementing of EDI standard

Beating the competion of imports Piotr Maj

edi standard need co operation of both sides
EDI Standard –need co-operation of both sides
  • Speed up sales procedures
    • Ordering and invoicing
  • Workload reduction
  • Cost reduction
  • Better information flow (eg. sales and stocks level)
  • However needs additional investments
    • Web sites the most simple way

Beating the competion of imports Piotr Maj

slide31
Companies with proper quality, brand, consumer willing to buy product, volume (market share etc.), market and customer oriented –are and will stay in business.
  • For discount stores some aspects are less important but safety of product and deliveries stability - always.

Beating the competion of imports Piotr Maj

threats
Threats
  • Cost advantage of dairy production will decrease
  • Polish dairy processor are still not enough market oriented
  • Concentration of dairy production is still to law (both on farm and processor level)
  • Competition from EU companies

Beating the competion of imports Piotr Maj