Putting a face on dairy

- From cold counter to food culture

Team: Where is Bohn?
Ingmar Oemig, Bsc.IBP | Jeppe Schmidt, Bsc BA
Fil Jonas Jerlang, Bsc.IBP | Rikke Helvind, Bsc.
IBP
Moving closer to the customers by opening Nordic Roots by Arla Café
concept will allow Arla to become a part of younger consumers food culture
‘How can Arla Foods Ensure that dairy and the Arla Brand is relevant for younger consumers in
Europe so that it can deliver on the 2020 growth target and build a strong and sustainable
future?’
TODA TOMORROW IMPAC
Y T
• The global dairy market is a big and growing • Moving closer to customers by opening 41
market Nordic Roots by Arla café concepts
• Arla is the 4th largest in a consolidated • Creating dairy based food experience out of
industry the everyday in-home food
• Young customers are turning from milk and • Achieving a two-way customer demand feedback
dairy. channel
• Arla’s relevance for young customers at • Make dairy relevant in the young generations
risk food culture

MOVING CLOSER TO THE CUSTOMERS BECOME A PART OF THEIR FOOD CULTURE

1 2
Dairy based Let the customers Food experiences shape
Opening 41 Nordic Roots by Arla café concepts
educate you food culture at home
experiences
Breakfast based Milk focused
Meal inspirational
meals Coffee
range

Influencing dairy based food culture

… will enable Arla to stay relevant to the younger consumers in Europe

Executive Insights Recommendation Impact Summary |2
Arla’s products are nutritious, but are perceived as everyday home-products
and do not capture the healthy-living trend amongst the young generation
While dairy products may be nutritious and good for …thus being perceived as a home-use product, missing
your health they are not percieved as ”healthy living” out on the high-end customer dairy experiences
Perception of dairy products by Arla
50%

Dairy perceived as
products for everyday
use – a natural part
of the breakfast
table…
15%

… but, meals, especially

breakfast, are being
good for you assosicate dairy with healthy
living
consumed away from home,
on the go and in other
forms…
Young people in Britain: 45% percieved lactose
intolerance vs. 12% actual lactose intolerance
... Making out-of-house
Diary health proposition: full of nutritients eating the place
Healthy living trend: avoid carbs, gluten, where young people
lactose etc. get their food
experience and trends
are created
• Source: Case Material; Arla Foods Ingredients Press release, 2017; Euromonitor, Eating Habits: Global Survey, 2017.

Executive Insights Recommendation Impact Summary |3

The younger generation’s behavior and perception is highly influenced by
online trends, especially social media
Online trends for the young generation Evidence Implication

+30% 49% Percentage of their • Presence on social media is important to stay relevant to
Young people are much more purchases influenced by
consumers
influenced by social media 19% social media • Any brand, product category or company that want to be in the mind
than older generations of the young generation must be present in the social media reality
Other Groups Millennials

Persons influenced by
… and their consumer social media are 6x • If the young consumer is not familiar with the product from social
behavior is increasingly more likely to spend media and other online experiences, they will be less likely to
significantly more and purchase the product
influenced by online
often, than non
influenced

+55% Instagram accounts

800 (million) (55% CAGR)
Social media, especially • Behavior is influenced by popularity on social media.
Instagram, is the • Trends can begin on social media such as ”ice bucket challenge” or
208 million post with
biggest behavior 90 ”clean eating” and ”better me”
#Food since 2010
influencer
jan '13 sep '17
”What we eat to who we • Content must be user generated from network or influencers to be
Friends and influencers’ Integrated and/or primary part of marketing sleep with, and even the trustworthy and remain credible
behavior on social media is 85% way we feel, is • What the reality is on social media and what is trending is affecting
replacing existing expert significantly influenced by everyday life decisions of the users
systems those around us’ on the • Trendsetters and influencers are important even though they are a
media” – James Fowler minority of customers

• Source: Deloitte, Navigating the Digital Divide, 2017; Fowler, Connected: the surprising power of our social networks, 2016; Statista, 2017

Executive Insights Recommendation Impact Summary |4

Millennials see food as a way of self-expression, having out-of-home
experiences as the driver for trends within food and drinks
Self-expression beyond nutrition drives behavior, Café visits and other out-of-home experiences are setting
making looks and image important the trends for what millennials see as cool and healthy food

91% of pictures under #healthydrinks

Café’s and other are coffee/tea or juice
life-style eateries Starbucks
are becoming the
medium for - #1 FB check-ins
discovering and in US in 2015
sharing the food - A range of
experience, with healthy options
visuals beyond
everyday food

Food has Health & wellness Joe & the Juice

increasingly has become a
become a lifestyle, driving trend in - “Cool vibe” biggest
a way of self- Europe. Creating a costumer perception
expression demand for a - 85% of customers
beyond the healthy image from perceive as healthy
traditional the food you eat
nutritional value

• Source: Qvartz, Joe is more important than his Juice, 2018; Germany Trade & Invest, Industry-overview Food & Beverage, 2017; Euromonitor, Coffeeshops around the world 2016, 2016

Executive Insights Recommendation Impact Summary |5

Arla must provide food experiences and not just packaged dairy products to
stay relevant
While customers are the same for dairy based retail and food-experience,
some further capabilities are needed for Arla to compete
Customer capabilities
Separate markets with
One Market
Customer potential cost leadership

Cost and Capability sharing

servicing
capabilities
Food experience concepts
e.g. Carolines køkken Food
Production capabilities experiences

Last step preparation

of Separate markets Separate markets with
food potential for bundling
Downstream Distribution
network

Extensive product range

Customer sharing

Executive Insights Recommendation Impact Summary |6

In order to provide food experiences and thereby enhance brand perception,
Arla should establish a physical presence through branded cafés
Brand awareness Financial impact Feasibility Synergies
Criteria for outreach  Long-term reach  Incremental sales  Company fit  Increased
strategy  Positive  Degree of  In line with customer
perception cannibalization capabilities touchpoints

Evaluation of strategic options

Sustainable brand awareness Financial impact Feasibility Synergies Final assessment

Possible short-term


Brand
awareness, but not
ambassadors sustainable as stand-alone

New brand communication


Brick and mortar
presence channel, cross selling
across Europe


With fluctuating trends,
New product lines introducing new products
may not be long-term viable

Brand-sharing
partnerships  High growth potential, low
impact on brand value

Executive Insights Recommendation Impact Summary |7

The presence of Nordic Roots by Arla cafés will establish a new
communication channel and make dairy relevant for the youth of Europe
Through Nordic Roots by Arla cafés, Arla will enter the out-of-home Ensuring full control of a key trust building arena for Arla directly
1 life style experiences with a relevant value proposition 3 to consumers

• Nordic styled cafés

opening 7am
• Serving to-go and in • Facilitating customer Trust building
store eating Meeting on-the-go experiences within an Arla
preferences, creating channel with
environment
environment for • Responsible and in control of outreach to
• Fast-paced customers, experiences customer satisfaction young
not eating breakfast at segment
home

Selling a wide array diary products, Arla can tailor meals to expose Allowing for initiatives in order to enhance costumer loyalty and
product lines promoting Inner Strength creating an Arla community
2 4
Breakfast Coffee

Yogurt, granola Quality coffee

Bread and cheese
Complete meal Complimentary milk • Direct
combos touchpoints • Loyalty discounts
with customers promoting cross selling
Ensuring high quality of • Customer through product lines
suppliers feedback • Nordic Roots
All milk products Community
available Positioning Nordic
Roots as the
LactoFree, skinny conscience
etc. choice

Milk assortment Organic focus These initiatives will both improve brand perception and ensure
incremental revenue for the future
Executive Insights Recommendation Impact Summary |8
The café atmosphere should be build on Arla’s core values to differentiate
the concept supporting the story of natural and healthy dairy products
“Great brands talk to basic human emotions”

Warm inclusive
• Minimalistic design
• Raw wood
Nordic heritage

Hive of activity
• Arla recopies
• Dairy nutrition facts

Inner Strength

Sustainable living
• Farmer stories
• Supply chain info
• Organic The warm hive of activity will strengthen the
brand essence giving the brand voice and
Closer to nature promise, thus recognition and affiliation towards
Arla
• Kaarthik Subramini – Senior Vice President MYPC and Arlla Brand, Arla Foods

Executive Insights Recommendation Impact Summary |9

After a pilot launch in London and Berlin, Nordic Roots by Arla should be
expanded to all seven core markets

Flagship type cafés 3 2020

Opening of 27 stores
Prime locations including Denmark, Finland
and Sweden
6 core Large markets

markets Best
2019
Cities with 1m inhabitants or 1
2
more 1 Expansion to Belgium and
Holland, continuous roll-out
# of stores mkt size Arla 2017sales in UK and Germany
17 8,3bn 370m 1 Low brand awareness
16 3
16bn 201m 2 2 High Coffee Consumption
1 3 2018
4 13
6
4 1
1bn 30m 1 Proof of concept from pilot 1
1
1 shop in London and Berlin
0,6bn 15m 2
Customer feedback on concept
1 1,5bn 549m
Employee feedback on
1 2,9bn 1bn concept
1
2,3bn 173m

Executive Insights Recommendation Impact Summary | 10

 The Nordic Roots Café will change the customer journey and create
spillover to the traditional channels due to more visibility
During a week, the customer Anna familiarize herself with the possibilities
of the Nordic Roots by Arla and spread the word through So-Me
The “Word of Mouth”, media and general acceptance will increase the
Brand awareness and communications channel creating a wide spill
over

Saturday
Country wide
Sees the Sunday Country wide spillover influencers
Nordic
Visit Café for
Roots by brunch - Takes Social Media
Arla pictures Friends
friends
Wide café reach and family Local news
Monday
Upload Wednesday Friends Words of
Takes magazines
yesterdays and family mouth
yoghurt to Second café reach Location-
picture on
go from the based push
SoMe
café – Snap notification
Influencers
chat Eye catcher
Thursday
Friday
Direct café
Grocery Visits Recommendations
shopping with Upload reach
inspiration & homemade Physical
buy Arla yoghurt ball -
product Friends presents
starts to ask

Executive Insights Recommendation Impact Summary | 11

Arla should leverage on influencers to build hype around new Nordic Roots
by Arla
• Influencers with healthy, nutritious image
How to reach millennials: and qualified knowledge within the area
• Can effectively generate brand awareness
Young people are more influenced and influence purchase decisions among
theirs peer and followers
by So-Me than older generations • Clear link between the ambassadors’ daily
Influencers behavior on So-Me life and habits; and the Nordic roots
café’s value of “Healthy sustainable
is replacing existing expert solutions”
systems
• Outdoor fitness events will include the
What values to communicate: customer directly in the “Inner Strength” value.
• Collaborating with the influencers will create
Nordic heritage bigger traction on the events
• This support the “Natural Arla life style” bringing
Inner Strength you closer to nature

Close to nature
• Sponsoring global sport events will put the
Arla’s products are a trendy and nutritious Arla values in the global spotlight
• Creating an global image of Arla equals
all- round lifestyle: exiting and healthy lifestyle will create trickle
“What you need to take on life!” down on local incentives
• At these events pop-up Nordic root by
Arla can be present

Executive Insights Recommendation Impact Summary | 12

 Demand for products sold in cafés is not crucial as long as spill-over effect
on brand recognition and awareness remains high
2020
6 weeks 6 months 2019
Implementation

1. Build retail capabilities Hire staff

Source non-
dairy
products
2. Open stores Open in Open 12 new Open 27 new cafés
Find prime city locations London and cafés UK, DE & UK, DE, NL, BE, FI, DK
Berlin NL & SE

3. Marketing Marketing paign

Cam
Irreversible investment €600k €600k €3.6m €8.1m

Risk scenarios Mitigation strategy

1
 If brand value of physical presence remains high, run stores with
High

Low demand for physical

loss as spillover effects outweigh total costs
dairy cafés
Impact on brand/sales

2
 Identify which levers customers value in brand
Risks

1
2
 Set high standards for customer experience, focus on experience
Bad in-store experience
and quality before costs
spills over on brand  Give shop managers autonomy to resolve front line issues
3
Existing partnerships  Take loss of partnerships and focus on strategies that generate own
Low

3
dissaprove of new concept
brand equity instead of licensing other brands
Low Probability High (Starbucks)

Executive Insights Recommendation Impact Summary | 13

New stores will be profitable by 2020, increase branded Arla sales by
€519m and make the Arla brand relevant for consumers
The Arla brand will grow by € 519m … while creating a profitable café And make the Arla brand relevant
in Europe… business within three years and recognizable for consumers

Café business revenue and EBIT:

56,57
Meet: meet customers in
41
branded flag-ship cafés
6,23

Communicate: new channel

19,32 for two way communication

Reach: Reach 100m

1,38
European customers through
(0,38)
(1,02) new concept
Revenue EBIT

2018 2019 2020

Key assumptions: Cost drivers: Expected effect of cafés on Arla brand*

 3% market growth across segments  Rent 3500 €/m2 pr. year  Nearby consumers 100% increase in spending on Arla
 Avg. Basket size €7  COGS 25% of revenue  Same county as café 54% increase in spending on Arla
 Avg. Annual transactions pr café 197k  Wages and other OPEX € 445k  Same country as café 20% increase in spending Arla
• *Only 15% of network effects expected in mature markets DK and SE, 50% of network effects in FI
• Euromonitor – Coffee consumption; Arla Annual report 2016, Case material, Starbucks Annual report 2017; Espresso House data; British Land – Physical stores are an engine of growth

Executive Insights Recommendation Impact Summary | 14

Putting a face on dairy – a solution catering to the trends of young
consumers by being part of their food culture with 41 café concepts outlets
We have identified three key trends for younger To move closer to customers and become part of their
1 consumers, which Arla must cater to to stay relevant 2 food culture Arla must open 41 Nordic Roots Café
concepts
• Nordic styled cafés
Young consumers are moving away from the traditional meals at opening 7am
home • Serving to-go and in
store eating Breakfast Coffee
Young consumer have their behaviour highly shaped by friends
and trendsetter’s activities on social media
• Ensuring customer relevance
• Building direct customer touch
Young consumers see food as more than just nutrition – it is part of points and feedback
their identity. Making them seek food experiences – not just meals channels Milk Organic
assortment focus
Which will make Arla and dairy a part of young
3 consumers food culture, and thereby stay relevant to 4 Securing growth and adding € 519m of incremental revenue
them
Flexible and on the go Generating revenue
meals through new channels

Spark user generated content Sparking demand for dairy

on social media in existing channels

Create dairy based food experiences Creating better connection and

– influencing food culture feedback from customers

Executive Insights Recommendation Impact Summary | 15

 Bastian Emil Jørgensen Rasmus Brock Michelsen Victor Karlshøj Julegaard Jacob Scheel-Bech
Stud.polit Stud.polit Stud.polit Stud.polit
University of University of Copenhagen University of Copenhagen University of
Copenhagen Copenhagen
Executive Summary
By implementing the ECO strategy Arla can deliver on its Good Growth
2020 goals and secure growth in the future

Situation Complication Recommendation Impact

• New consumer trends • Arla is a market leader
challenge the but has lost ground to
established dairy its competitors in recent
market products years.
• Millennials demand new • Arla has experienced
products that meet declining revenue in
their needs for nutrition changing markets and
and quality struggle to retain
historical customer base
• Demand for milk
declines while there • How does Arla Foods
is an increase in the increase its Arla brand
demand of other dairy value for vibrant young
products consumers and thereby
increase revenue by
500 EURm in Europe
within three years?
• We recommend that
• The solution will ensure that Arla can
Arla implement the ECO
strategy to reach its deliver on its Good Growth 2020 goals
Good Growth 2020 while becoming a trusted and relevant
goals: brand for younger consumers in Europe
1) Energy Meals – New • Arla Brand revenue in Europe will grow
dairy distribution from 2.4 bnEUR to 2,9 bnEUR in 2020
channels reaching
out to millennials on
the move with a
healthy and fresh
snack +21
2) eCommerce – % 2.93
cooperating with 2.68 2
relevant incumbent 2.43 2
partners 2
3) Online marketing – to
reach millennials 2018 2019 2020

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 What characterizes the European dairy market?
New consumer trends challenge the
established dairy market products

The millennials are a new generation of consumers with new Demand for milk declines while there is an increase in the
1 2 demand other dairy products
demands to dairy products
Danish Market development 2015-2021E 2015
Trend #1 Trend #2 +4%
The millennials are more demanding New eating habits challenge 2021
+1% 39 41
about foods’ content with respect to the -7%
nutrition and environmental impact traditional use of dairy products
28 28 +12%
25 24 +3%
Trend #3 Trend #4 13 14
People and opinions on social The millennials do not buy their 11 11
media affect the millennials’ products through traditional
perception of dairy products channels
significantly Milk Yougurt Butter Cheese Other dairy

3 Dairy products are mainly sold through retailers with high market 4 Value-creation within the dairy industry is downstream
power

• 75 pct. of all dairy products are sold
through traditional retailers which give
them huge market power
• Private label products challenge the
established brands as consumers
are very price sensitive
• Retailers have engaged in price • The high-margin products within the dairy industry are branded products.
wars that have decreased revenue • Branding is a desirable way to go when increasing value of milk
in the dairy industry production.
• There is no pan-European brand
• Costumers in different markets prefer
local brands

Source: Case material, team analysis

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 What characterizes Arla’s situation and what are the main challenges ahead?
Arla has experienced declining revenue in changing
markets and struggle to retain historical customer base

Arla is a market leader but has lost ground To secure sustainable growth, Arla has four ambitious goals in its
1 2
to its competitors in recent years ”Good Growth 2020” strategy
- Arla holds the 4th largest milk pool in the world In 2016, Arla initiated the Good Growth 2020 to secure the four goals in
- Global players in the dairy industry have 2020:
increased revenue while Arla has experienced a
decline Organic growth of 4% and > 25% 500 mio. EUR increased revenue of
+7% revenue share outside Europe Arla brands in Europe
25
2013
20 Peer Group Performance to be 3-5% above
Revenue (EURbn)

2016 Revenue from brands >45%

average

15
+10%
-3%
3 To achieve these goals four key challenges must be addressed
10
Consumers’ relation to food is changing rapidly
5 +10%
Changing media consumption requires new ways of engaging with costumers

0 Arla must achieve category leadership and sell through new channels

Arla must rebuild the erosion of trust between consumers and big brands

Source: Case material, team analysis, annual reports from Danone, FrieslandCampina and
Tine

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 What characterizes the millennials’ dairy consumption?
Millennials demand new products that meet
their needs for nutrition, origin and quality

1 Millennials buy less milk and more yoghurt 3 Newer Arla products appeal to the quality-oriented millennials

Yearly consumption growth (%), 2010 - 2016 How do selected products meet the High-quality products are most appealing
demands of millennials on to millennials
-5 different parameters?
Milk

-1 Quality
Yoghur

9
4
Mini-meal   
t

4
Other

dairy

Millennials
2 All
Origin   
Healthy   

Pragmatism
Millennials have different eating habits

Idealism
2

Meals are replaced with mini-meals Trendy   

More aware of origin (organic)

More aware of nutrition Arla’s newest products such as Arla

Protein, Skyr, as well as MLK and other
Food needs to be trendy organic products appeal to millennials
Source: Case material, Statistics Denmark, team analysis
Price

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
How can Arla meet its goals?
The ECO strategy will reach out to young consumer segments through
new distribution channels and marketing
Solution
1 Must win battles 2 ECO – “Energy Meals, eCommerce and Online Marketing”

#1 - The Arla brand

Marketing targeting youth
• Millennials are difficult to capture and convince by conventional media.
• Ensure that dairy and the Arla However,
brand is trusted and relevant they are easy to access through social media
for younger consumers in • Sponsored bloggers, YouTubers, Instagramers and sport stars promote Arla to
Europe reach a targeted audience

#2 – Revenue increase
‘Arla Energy Meals’
• Easy access vending machines placed at strategic location meeting the
• 500mEUR incremental
customers on the move with a healthy snack alternative to breakfast
increase in revenue in Europe • Products offered are Arla Skyr, Arla Protein, Arla Lactofree and similar Arla
with Arla brand by 2020
brands.
• 300mEUR revenue increase by 2020

#3 – Organic growth
Increasing focus on E-commerce
• Organic growth should account • Consumers are increasingly buying groceries online
for 4% per year • Increased power of products offered to end consumers
• Increased focus on delivering fresh products
• Increased revenue of 200 mEUR by 2020

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
How is Arla going to brand its products towards the millennials?
With a change of marketing channel, Arla can reach the
millenials through global channels and local promoters

The millenials are present on new media with …which give Arla new marketing opportunities to reach
1 high reachability… 2
100,000+ recurrent consumers

Millenials are difficult to capture and convince NUTRITION ARLA APP

LET THE USERS SPEAK
by conventional marketing…
Brand an Arla nutrition app to
Sponsored bloggers, YouTubers
show millenials the benefits
Millennials 37% 11% 19% 33% and Instagramers promote Arla to
of nutrious dairy products
reach a targeted audience
Generation X 29% 12% 18% 41%

Baby boomers 24% 8% 16% 53%

TV PC TARGETED MARKETING

Radio Smartphone / Tablet Utilize big data for targeted

marketing through Arla app and
…However, they are easy to access on social media SPONSOR ATHLETES social media
27
Let athletes and sport stars
13 promote Arla products on social
8 ACT LOCAL – THINK GLOBAL
media to strength the Arla
brand Millenials are culturally similar across
Broadcast News Paper Social European borders. Arla should however
Media engage with local promoters through global
channels to maximize attention
Source: Digital resource, team analysis

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
How can Arla increase sales to new young consumers through new channels?
By implementing ‘Arla Energy Meals’ with innovative and
customized products, Arla will access millennials where they
are
Setting up ‘Arla Energy Meals’ in highly attractive locations… 3 An app will further improve costumer’s experience
1

Increase sales by reaching out to Arla Energy Meals

millennials on the move with a
healthy and fresh snack CUSTOMIZED DEALS CUSTOMER REQUEST
By setting up ‘Arla Energy Meals’ at
gyms, train stations and universities, Customers will get information Customers will be able to
Arla will target consumers at their on new products and discounts request products ensuring
locations creating a opportunity for from their local vending high customer
millennials to eat breakfast or catch machines satisfaction and having
a snack. the right products at each
vending machine
2 …with products specifically tailored to local demand.

A.I. and Big Data will ensure MAP OF LOCATIONS PAYMENT FROM APP
customer demands are reached
Each ‘Arla Energy Meals’ will provide A map will provide the customer The app will be the payment
Arla with key insides from local with directions to the local ‘Arla method to ensure cash-free
markets, telling which products are Energy Meals’ and with vending machines
selling, missing or expired ensuring information on available
that Arla to reach local demands. products

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 How should Arla enter and operate vending machines and what is the potential outcome?
Arla should find a strategic partner with capabilities
to ensure operational efficiency and fast revenue increase

2 The vending machine strategy will increase rev. by 300 EURm

1 Finding a operational partner will limit risk and maximize
outcome
Synergies w. 165 300
Potentials Arla Importance Find
Process current
partner Capability for partner? U
business
success
Vending K

Operations G
Branding / E
 75
Marketing BE &
Digital service /
 NE FI
Date management 60
SE
D
Logistics  K
2019 2020 2021 Total Revenue
added
Possible business models for Arla
• Arla should enter a Joint Venture with Selecta, the largest vending Current market
•Increased revenue shares determines
of 300 EURm of number
Energy of vending
Meal machines
activities basedin on…
short term
machine operator in Europe, and thus mitigate operational difficulties. of three years (one for each EURm)
• We recommend that Arla internalize important knowledge and competences • A machine can generate approx. 0,125 EURm a year after three years
by setting up a Big Data and Analytics department in Arla for further product • Implementation will be 20 % of total machines 1st year, 25% 2nd year, and the
enhancement. remaining 55% the third year.
• Also, marketing is a key competence. Thus, Arla is the perfect owner of this
task

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 How can Arla utilize new opportunities within digitalization of retail?
Ecommerce
- Arla should utilize the growing digitalization trend to grasp market
shares
Utilizing these opportunities can be done
by strategically partnering with established
1 Consumers are increasingly buying groceries online… 3 e-commerce companies

Generation Z (15-20) 28 55
Millennials (21-34) 30 57
Increased power
Generation X (35-49) 22 57 of products offered
to end-consumers
Baby Boomers (50-64) 17 48
Silent Generation 9 35
(65+)
Already using Willing to use
Source: The Nielsen Company Increased focus
(2015) of delivering fresh
2 … moreover Arla can simplify supply chain to reach products
4 … which provides Arla with strong allies
end consumers quicker
against the private label brands
Ecommerce shortens the time
from farm to end consumer and - Although dependent on hyper- and supermarkets,
provide customers with more fresh utilizing strategic ecommerce partnerships
products in line with Arla’s ”24- provides possibility for power of products offered Increased
hours” campaign revenue of 200
mEUR

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
What is the strategic and financial impact of the ECO strategy?
The ECO strategy will enhance Good Growth 2020 goals and
put Arla in a strong financial position for the future

To achieve the goals in the Good Growth 2020 and secure future
1 sustainable growth the ECO strategy must…

...build on the Arla

brand

…address consumer trends 
…be scalable to achieve success in all
markets

The ECO strategy secures growth in Arla’s major
2 European markets… 3 …and puts Arla in a strong financial position for the future

36 6
225

revenue
Added
E-commerce 45
225

76
113 Arla Energy
Meals
20 pct. 113
2.932

45 Growth of Arla®
36 2.43 76
6 brands in 2
Europe
U D S GE F BE N

7
201
K
U
K
D
E
S
R
GE
I
F
NL
BE &
E
2020
K K E R I & L

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 How and when should Arla implement the ECO strategy?
Arla should find a strategic partner with capabilities
to ensure operational efficiency and fast revenue increase
Strategic
Action 2018 2019 2020 2021

Digital Marketing Engage with consumers on new channels

Invest heavily into marketing of Arla Conduct marketing that
converts
Energy Meals Energy Meals

traditional costumers to the new channels

Ecommerce
Find Vendor Operator Digital Start-up of Arla Focus on big cities and Roll out to smaller institutions and minor cities
and initiate partnership development Energy Meal JV large institutions

Start-up of new distribution channels Commercialize

Utilize strategies
commercial insights from EnergyScale
Mealnew
and digital
develop strengths andportfolio
a product internationalize
that
Enter partner-agreements for eCommerce-suppliers
engages the up-to-date trends of the diary market

Initiate contact to partners Build meaningful relations Develop technical platforms Commercialize Evaluation
with stakeholders to optimize business

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 What are the risks and how to mitigate?
There are potential risk factors which can be mitigated by
lobbyism, yearly evaluation and constant development

1 There are three major risk factors… 2 …that must be mitigated to secure that XX strategy is an
success
Major risks:
A number of minor and major risk factors are identified and evaluated Brexit
according to their impact and likelihood 1
The uncertainty regarding Brexit and protectionism can make Arla’s enter into the e-
commerce business i Britain difficult. Lobbyism and local partners can mitigate this
risk
2 Unattrative vendor machine locations
Reputation or financial result
The vendor machines are not generating enough revenue due to its location.
Yearly evaluation of the locations based on big data should mitigate this risk.
High 3 1 Minor risks:

3 Partner letdown
The partner Selecta does not live up to Arla’s expectations. This is not very
5 likely because Selecta is an established player in the market.
Impact

Moderate 4 2
6 4 E-commerce sites begin to sell their own private label products
Product development is not the core competency of e-commerce sites. Arla’s
brand must be strong in order to build costumer loyalty.
Low
5 Slow adoption of vendor machines
Young costumers are quick to adopt new distribution channels and technology
Low Moderate High so this is not a major risk.

6 Technology obsolecence
Likelihood Arla should constantly develop its digital
solutions

1
EX. SUMMARY SITUATION ANALYSI RECOMMENDATION IMPAC IMPLEMENTATION RISK
 Grow by
DAIRYing

Christian Kærgaard Pedersen Lasse Holm Nielsen Mathias Overgård Rasmus Davidsen Rejnhardt
MSc. in Finance MSc. in Business Intelligence MSc. in Business Intelligence MSc. in Finance & Strategic Management
Key findings | Arla increases revenue by €502m in
2020
Implementing the growth plan will deliver on the Good Growth2020
targets
How can Arla Foods ensure that dairy and the Arla® brand is trusted and
relevant for younger consumers in Europe so that it can deliver on the Good
Growth 2020 targets and build a strong, sustainable foundation for the future?

66
Arla aims to keep growing organically in Europe…
Europe is the core market for Arla
% Debunking the ”Lactose-
The Western Europe dairy market is declining
Arla Foods EU’s intolerance myth”
share of revenue Arla is heavily impacted by the negative growth

-7
… but shifting consumer attitudes are threatening the future …
% Non-dairy products are experiencing growth
Revenue Customers are consuming dairy products in new ways

Grow by
development New channels are influencing young consumers
Winning the influencing game

13
… calling for a change of focus in communication …
Too many self-diagnosed lactose-intolerant consumers
DAIRYi
EURm Traditional marketing channels and role-models are outdated
Partnership Arla’s values do not shine through to customers ng
investment
Rebuilding trust through
502
… resulting in significant financial impact
Growth plan initiated from 2018 transparency
EURm Financial impact already in 2019
revenue increase Value added will increase significantly towards 2020

2
Setting the Stage | European division is heavilypressured by emerging trends
Arla’s current strategy is soon pastits expiration date, making it highly relevant to take action
now
The Western Europe dairy market is experiencing negative …which is mainly due to changing consumer
growth… trends
EURbn
-2.1%

105.1 106.4 Healty snacking culture

103.5 102.9

Eating on the go Niche players are

entering the market
by satisfying new
Changed food perception demands

2014 2015 2016 2017

Never before has the Less trust
Dairy Western Europe
European dairy industry
been as competitive as it is
today. Industry growth is
New consumer trendsareheavily impacting Arla Foods slowing and consumers are …and thecurrent strategy in Europe is soon past its expiration
Europe… becoming ever more diverse. date
EURbn Peder Tuborgh
CEO, Arla Foods
+13%
-10%
7.0 6.8
6.3
In order to meet the ambitious
Good Growth 2020,
Arla must take action
in the European markets
1.3 1.3 1.4

2014 2015 2016

Arla Foods Europe Arla Foods International

Note(s):
Source(s): Case material, Euromonitor 3
Insights | Arla’s unique value propositions and emerging trends
Arla’s value propositions are well in line with the emerging consumer and market
trends
”Our Character” is Arla’s core values which arefacilitated by 8 unique value propositions1 Emerging trendsare impactingthe way food is produced and consumed

Best-in-class innovation centre Farmer owned Trends

Owns dedicated R&D centre that Owned by the farmer, enabling a Match
explores alternative products by long-term focus on value
tracking key insights from each creation Healthy snacking
market
culture (i.e. clean

eating) Eating on the

Quality products Strong traditions

Consu
go (less focus on
As one of the market Having existed since 1881,

mer
leading companies, Arla has Arla has its roots in the breakfast)
a solid product portfolio Scandinavian traditions
Transformation of food

perception
“Creating the future of
dairy to bring health Non-diary demand (e.g.
Concept developer and inspiration to the Responsible partner
world, naturally” plant-based food) Peer-to-
Products improve retail A responsible partner with
peer advice and opinions as
shops product strong focus on UN’s

Mark
offerings sustainable goals influencers Higher

et
education level
Efficient logistics set-up “Inner strength”
Less trust in food
Has a European logistic network that Products appeal to consumers’
enables delivery to retail shops within inner self by providing a healthy Arla is able to address thedue
providers keytoemerging trends
24 hours choice in their daily lives
scandals

Environmental
Despite the fact that consumers buy alternative products, Arla has the right value propositions to match the emerging trends in the industry
conscious

Unpredictable and busy

everyday life
Note(s): 1) Arla’s values constituted by three key actions, Lead – Sense – Create, supported by several actions Source(s):
Case material, www.arla.com, Report: ”Deloitte: Global Dairy Sector – Trends and Opportunities, January 2017” 4
Food fulfils a functional
Insights | Brand perception is highly dispersed in Arla’s core European markets
Arla must look into communicating its core values to improve consumers’ brand
perception
The core values of Arla have not made a significant impact on consumers’ brand …and the effects of the current brand strategy differs across
perception countries2
Family Authentic & Organic Better Better Good for
Key brand image measures 1 suitable range you
trustworthy range quality
Best fit
with values
Max = 75
% agree

80 75

70 65 Max = 50
60
51 50 49 Max = 45
Max = 43
50 43 45
39 37 37
40 36
33 33 33
28 32 30 28
30 26
22 Max = 33 Max = 33
16 17
20 12
Min = 36
10
n/a
0
Min = 28 Min = 28
Family suitable Authentic & Organic range Better range Better quality Good for you
Trustworthy
Min = 16 Min = 17
Min = 12
= Red = Grey = Blue = Black

The employed communication strategy of Arla has not been successfully deployed, Not only have Arla’s core values been poorly communicated, the brand perception
leaving room for informing the consumers better about the brand furthermore differs across Arla’s core European markets

Note(s): 1) Ranking based on consumers perception of the Arla brand (max score = 100%), 2) Scores based on highest and lowest score for each country
Source(s): Case material 5
Insights | Key moves by closest competitors
Arla cannot survive a pricing war with its key competitors and needs to compete on their own
terms

Ownership Private (owned by farmers) Private Public Private

Produ
ct Dairy Plants Dairy Plants Dairy Plants Dairy Plants
range

Focus on developing premium dairy Primarily focused on dairy products Diversified product portfolio, Focus on developing premium dairy
products including plant-based products and products
Strate Experiments with chilled products
medical nutrition products
gic Strong focus on R&D, but only Lower cost-base due to ownership
Lower cost-base due to ownership
related to the dairy category Lower cost-base due to ownership structure
consid structure
structure
e-
rations
Leverage innovative product
Previous portfolio and continuous application Danone has bought new emerging players
to new products
strategic Danone, Lactalis and Müller are able to push through lower prices
decisio Create a story line that enables Rebranding and economies of scale are top of the agenda to maximize profits following acquisitions
ns them to charge premium
prices

Key competitors are able to use price as a key differentiator in terms of winning over customers, and has no incentive to promote “the good” of dairy,
and thus Arla must leverage its premium brand by focusing on telling the right story behind the Arla brand

Note(s):
Source(s): Case material, company websites 6
Insights | The decision-making process has changed in today’s business environment
Arla must regain control of the influencing game as new influencers define the norms in today’s
market
New young consumers have emerged in the …however, Arla’s model is focused around old influencers such as
market… parents…
Young Path Finders
“Traditionally, dairy
Relatively young, and very keen on trying new consumption habits have
things within budget been passed on from
9 out of 10 finds
parents to children”
Prefers healthy, organic and natural food an online review
38% 62% equally important
as personal
recommendations

Life Jugglers
Live busy lives and have made it a top priority to
live a healthy lifestyle
Achieved through exercising and cooking fresh Influencer Family
Mass media Friends
28% 72%
natural food TV/Radio Mouth to mouth
Source Mouth to mouth

…but the landscape has changed into social media being the main source of
Optimistic Experience Seekers information
Optimistic and positive experienced people trying “Globalization and
to have as much fun as possible digitalization of consumer
opinions drive the changing
Prefer to buy well-known brands and are not that 61% 39% narrative about health and
interested in a healthy lifestyle 49% of Twitter sustainability.”
users rely on Soeren Bill – Dire ctor
recommendations
Commercial Operat i
from influencers
Stressed and Struggling I ons nternational,
oodsArla F
Budget-constrained individuals worried about their
future
Living a simple lifestyle and enjoying ready-made 45% 55%
dishes and simple food
Influencer Role Models Targeted Marketing Public Attitude
Source Social media Social media/e-mail Social Media

Note(s):
Source(s): Case material, Format Research, US 2015: ”Twitter Influencer Attitudes, Perceptions, Formats”, Bright Local: ”Local Consumer Review Survey 2014” 7
Grow by DAIRYing | Evaluation of possiblesolutions to Arla’s key problems
The chosen solution should focus on alignment of communication on a Pan-European level
Several solutions are suggested to solve thecurrent issues.. …where one of the solutions meets
the key criteria

Solutions eliminated due to low strategic fit and/or low impact

A B
Align Pan-European A
Grow Dairy categories Grow Dairy categories
Continuous focus on communication


Centralize communication Arla currently possess expert knowledge within new product development,
different dairy categories
of all Arla brands with hence the full potential has been accounted for in current budgets
e.g. milk-based
beverages a focus on
improvement of brand C
Arla Education
perception among
Good fit with Arla values focusing on nutritional learning


customers

Develop Arla “schools”

Strategic fit

to improve general D Co-brand Arla

knowledge concerning
Inconsistencies of core values between Arla and the suggested companies


health issues
Not enough impact to drive €500 m revenue growth

E
Grow Non-Dairy categories
D High impact makes it attractive for both Arla and competitors


Co-brand Arla

global firms e.g.

Coca cola and Red Bull E Solution with greatest strategic fit and highest impact
Grow Non-Dairy
categories
Either buy niche B
players or build Align Pan-European communication
a new product A good fit with the current values of Arla as an innovative and scalable brand
line communication is inevitable in the urge of reaching Good Growth 2020 goals
Impact is expected to be extensive as the solution influences all current
Impact products under the Arla brand

Note(s):
Source(s): Case material 8
Grow by DAIRYing | Key components
Three steps must be initiated to deploy the growth
plan
Initiatives What Why
? ?

Increase future pool of

potential customers by testing
Free lactose-intolerance tests,
customers for lactose-
both on the spot and as take-
intolerance
home
Use the gathered data to reveal
Debunking the 6 months presence in
that many customers are self-
‘Lactose intolerance supermarkets
diagnosed incorrectly regarding
myth’ lactose-intolerance

Partnerships with current role

Associate the Arla brand with
models for younger customers
trusted influencers
Zlatan Ibrahimović, Caroline
Social Media has become a key
Wozniacki and Christian
driver of interaction with young
Winning the Eriksen are prospects for
consumers in Europe
influencing Social Media campaigns
game

QR codes on milk-cartons
The values of Arla should be
aimed to trace the “story of
recognized easily and
the milk”
differentiate Arla from its
Data is collected continously, competitors
Rebuilding and consumers are able to
Focus on ethical issues relates to
trust through track the dairy product’s
the future consumer
transparency journey from farm to shelf

Note(s):
Source(s): Case material, Report: ”Deloitte: Global Dairy Sector – Trends and Opportunities, January 2017” 9
Grow by DAIRYing | Extending the expiration
date
The plan supports the Good Growth plan by addressing current problems in alignment with core
values
The three initiatives will help Arla solve the current …while being aligned with Arla’s …and taking important steps to stay
problems… values… competitive

Proble Initiatives solving the Initiativ Values fitting

ms problem e initiative
Expand potential
1 1
market
Decreased trust in
dairy products
Debunking
Debunking Influencer

Change in consumer
preferences
2
% Increase market
share

Debunking Transparency Influencer

3 3 Connecting with
Lack of connection customers
to younger
consumers
Influencer Transparency

+ + =

CURRENT PROBLEMS SOLVED ALIGNMENT WITH VALUES STAYING COMPETITIVE EXTENDING THE EXPIRATION DATE

Note(s):
Source(s): Case material 10
Risks | 7 identified risks
Arla should proactively take action to mitigate the key risks associatedwith ‘Grow by
DAIRYing’
There are3 main risks associatedwith the proposed strategy… ... and Arla holds the levers to mitigate these keyrisks

Type of risk Impact Risk mitigating activities

Private labels The milk will be sold

winning the as private label and Making sure that milk is not seen as
dairy market thus less premium a commodity through clear
products sold resulting communication of premium features
in lower margins

Data regulations makes

it impossible to use the
collected data as
intended Private labels winning
the dairy market

Cost of transparency The appointed It can hurt the image

Likelihoo

process underestimated The appointed influencer(s) of Arla if the Thorough market experiment to
influencer(s) has less has less appeal influencer(s)
is mismatch pinpoint the effect of different
appeal
and influencers
d

estimated pull effect

Non-dairy products will be overestimated
capturing the market

Non-dairy The oversupply of milk

products will increase due to Convincing public how good a

substitute for meat dairy products
capturing the lower demand, which
Lactose-intolerance test
are
Farmers unwilling to market will both damage Arla
positives larger than
increase transparency estimated in terms of reaching
both its societal and
financial goals
Impact

Note(s):
Source(s): Case material 11
Implementation | ‘Grow by DAIRYing’ is fully implemented in
2019
The plan requires high initial focus to achieve the full benefits of the
strategy
Initiatives 201 201 202
8 9 0

• Establish partnerships with companies specialized in testing allergic reactions

Debunkin

• Plan the campaign in terms of location, duration and staffing

g

• Execute the plan

• Conduct experiments with young consumers and their response to different influencers
Influencing

• Negotiate with selected influencers and identify KPI’s for the campaign
game

• Executing the plan and monitoring of performance

• Finding IT consultancy specialized in setting up new processes

Transparenc

• Identify desired process and employ an agile development approach to reach the goals
y

•• Go-live across
Executing production
the plan sites and of
and monitoring facilities
performance

In order to reach the overall goals of Good Growth 2020, Arla must deploy ressources early 2018

Note(s):
Source(s): Case material 12
Impact | Arla reaches total revenue of EUR 2.9bn in 2020
‘Grow by DAIRYing’ makes sure that Arla reaches its goals in 2020 and lays the foundation for the
future
The Arla brand in the EU is projected to grow at a CAGR of 5% from 2016 to
2020

2.90 Diary market growth of 1.6%

0.14
Initiates ‘Grow Takeover of market shares through ‘Rebuilding trust through transparency’
CAGR
by on 5% Actively increase market value by initiating ‘Debunking the ”Lactose-
DAIRYing’ 0.25 intolerance myth”
Partnerships leading to a revenue effect of €141.3m³
0.06
2.40 0.05

‘Grow by DAIRYing’ leads to a financial impact of €501.6m in revenue

2016 2017 2018 2019 2020 2020 end

Case study from Lurpak ‘Game on, Cooks’Campaign in 2016

1 2 3 Marketing
Lurpak UK Estimating
revenue incremental rev.
spending
€1,582m 35%
Total butter 10.9x
=
Increase in
market
sales
€7.6m
x Return on invested
«

Lurpak marketing spending²

marketing¹
20.2% €83m
Market Incremental
share revenue

Note(s): 1) Assuming Lurpak receives 6.5% of the UK markting budget of EUR 117m based on global budget and UK revenue split, 2) Incremental revenue/marketing spending, 3) Based on a €13m budget
Source(s): Case material, Arla’s Annual Report 2016, Euromonitor, Statista: “Leading butter brands in the UK”, 2016 13
Key findings | Arla increases revenue with €502m in
2020
Implementing the growth plan will deliver on the Good Growth2020
targets
How can Arla Foods ensure that dairy and the Arla® brand is trusted and
relevant for younger consumers in Europe so that it can deliver on the Good
Growth 2020 targets and build a strong, sustainable foundation for the future?

47
Arla aims to keep growing organically in Europe…
» Europe is the core market for Arla
%
» The Western Europe dairy market is declining Debunking the ”Lactose-
EU, Brand share » Arla is heavily impacted by the negative growth
intolerance myth”

-7
… but shifting consumer attitudes is threatening the future …
% » Non-dairy products are experiencing growth
Revenue » Customers are consuming dairy products in new ways
» New authorities are influencing young consumers
Grow by
development
Winning the influencing game

12
… calling for a change of focus in communication …
» Too many self-diagnosed lactose-intolerant consumers
» Traditional marketing channels and role-models are outdated
DAIRYi
EUR m
Marketing » Arla’s values are not strongly shining through to customers ng
campaign

525
… resulting in a significant financial impact Showcasing Arla’s values
» Increase through transparency
EUR m » Growth
revenue increase » Dollars

14
Appendix | Underlying assumptions
Sensitivity analysis shows that the incremental revenue is between EUR 379.1 –
626.2m
Arla facesrisks from several scenarios towards Good Growth …. with key value-adds in the final
2020…. phase

Change in underlying
growth
-1.0% -0.5% Base 0.5% 1.0% EURbn 2016 2017 2018 2019 2020
40.0% 37.5% 35.0% 32.5% 30.0%

379.1 431.8 485.3 539.5 594.5 Revenue 2.40 2.45 2.51 2.76 2.90

387.3 440.1 493.6 547.8 602.9 Increase in revenue 0.05 0.06 0.25 0.14
Effect of marketing

395.3 448.0 501.6 555.9 610.9 Underlying growth rate¹ 2.0% 2.5% 4.5% 5.0%
campaign

402.9 455.7 509.3 563.6 618.7 Market growth 1.6% 1.6% 1.6% 1.6%

Revenue from 0.14

410.2 463.1 516.7 571.1 626.2
partnerships

‘Grow by DAIRYing’ needs to be executed thoroughly to minimize risk of not achieving Communicating value proposition and increasing market size by involving lactose-
key 2020 goals intolerance believers, ensure Arla’s Good Growth plan by increasing the brand equity

Note(s): 1) Based on European dairy market growth, and the initiatives; ‘Debunking the ”Lactose-intolerance myth”’, and ‘Rebuilding Trust through Transparency’
Source(s): Case material, Euromonitor, Statista: “Leading butter brands in the UK” 15