Danish Cheese Industry

Danish Cheese industry

Introduction

The danish cheese industry is not the most profitable out there. There is a small estimated growth of 2% for the next decade, nonetheless, it is vital for with the EU. I have found articles that date back to 1949 where the danish milk and cheese industry trades occur meaning that this industry has a long standing history, professionalism and know-how. Eight years ago during the Nordost Coppenhagen convention the following figures were given about the danish milk industry; 97% goes to cooperative dairies of which 87% comes out as cheese. According to a research done by Hamish Renton leading a marketing and research firm, there is expected shifts within this industry such as merger and take over from Chinese and Indian producers to receive know how in exchange for bigger worldwide market shares, however, the European market will most likely supply itself. He also stated that the EU quota will be underfilled by 9% running into 2015 from 2014. Cheese will remain price sensitive and any change will have a change by the consumers mind possibly looking for substitutes. There should also be cuts in intervention supports.

Analysing through porters 5forces

The forces is a popular tool to analyse the potentials of an industry.

The Danish Milk and cheese industry is most profitable with exports throughout the EU with around 50% for the UK and has been for more then a decade according to the World Food and Agricultural Organisation. The firms are private owned and weave sustained small profits. The new super and hypermarkets retail sales was a large transit for this industry. There was no door to door delivery system and profits were at large due to economies of scale. Mechanisation of milking cows and reduced cost of labour was also shift towards increasing profits, however, the retail sector soon began to squeeze as they had the buying power and this has had drastic effects in being able to wield healthy profits.
New entrants
In the past 50 years there has been many new cheese farms in Denmark to the trust of their technology from the UK and other European countries. The milk and cheese industry is old and has traditions and there there is a clear trend that it is mostly family owned and only in the last last 10 years has there been a partial shift from this.
Substitutes
Substitutes for dairy would be vegetables, fruit, poultry, soya products nearly anything in a retail store including abstinence. Supermarkets such as Tesco or Auchan have several hundred products that can be used as substitues including other cheeses. Buyer power
The buying power of large supermarkets (Tesco, Sainsbury, Dansk Supermarket A/S )are strong enough to constantly demand lower prices for cheese, however, it is also in their best interests to have higher quality cheese types that yield better profits for both sides and the danish industry has a good balance of both from the “Blue Castello” till the “Samso”.

Supplier power
The raw material that is most important to making cheese is milk. LYSTBJERGGAARD – DENMARK is a milk farm producing 3m kilos of milk/ year from 220cows and a regular supplier to produce cheese. I believe the cheese producers have a good supplier power, however, with already more then a 1000cooperatives in the 1900 having a bad reputation towards one suppliers could quickly go viral today. The milk and cheese producers probably have good relationships due to history and the need for one another.

Competitive rivalry
Due to the industry being most profitable during export which is for the EU market we have to look at the EU market competititors as a whole.
A research done by Mario Tommaso titled Dairy cooperatives in the EU there is only a ver small percentage of Danish firms running as cooperatives, and I would estimate this to be a good direct competitive advantage for them against the Danish industry. However, according to another article by Christophe Lafougère titled “World and EU dairy through 2016” there has been a shift from the souther regions towards the northern regions due to the souther regions have intensive farming schedules and the north having less intensive ones. This allows more rural areas to be used for cow pasturing.

Danish Cheese Industry with STEEPLED

An External Environment analysis tool

Fig.1 Macro Environment, Industry, Firm

Fig. 1. StrategicManagement 13 Feb 2013[Image]At: http://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.html (Accessed on 01.11.13).

Factors
What 's Happening
Impact
Time
Options
Social
Increasing population
Higher need for cheese
Mid – term
Increase population, seize better market shares
Technological

Economic
Growth, increase demand, export
Higher demand
Mid term
Increase productions
Environmental
Intense farming increase
Could effect milk productions
Long term
Increase quality
Political
New EU regualtions
Change in production methods
Long term
New investments
Legal
Corporate governance, Support towards northern milk producers
Higher profits
Mid term
Re-invest, expand
Ethical
Stealing technology and know how
Non-EU countries enter market
Long Term
Mergers before occurrence, increase awareness, preparation, security

Conclusion

The danish cheese industry has a lot of support from the people and is a valued industry for the country. 77% of cheese was exported in 2003. This probably constitutes a vital percentage of total exports for Denmark. If the danish cheese production or milk production would be disrupted by other players entering the market their strategic capabilities would be put to test. They have competitive advantage, experience and organizational knowledge. Having strong ties with the milk industry their supply chain is also strong. So, both internally and externally they seem to be versatile. There will probably be new technological benefits that will further increase milk productions from heards and will surely benefit the cheese manufacturers. The core competence also have a role for the cheese industry. Experience and management which is quite possibly part of a family have an extra added motivation too, however, there are some adverse effects of this such as not having the best fit for the job. I believe understanding is vital and if it is a family business then close ties with the product sold is more of a benefit then a set back.

Harvard References History of the Danish dairy industry - Home. 2013. History of the Danish dairy industry – Home.[ONLINE]Available at: http://www.danishdairyboard.dk/History/History_of_the_Danish_dairy_industry.aspx. [Accessed 1 November 2013].
Marketing Team. 2013. Marketing Team. [ONLINE] Available at:http://www.hamishrenton.com/aboutus. [Accessed 1 November 2013].
Dairy Coopoeratives in the EU 2011. Mario Tommaso. [ONLINE] Available at:http://ec.europa.eu/agriculture/milk/background/jm-2011-07-06/15-cogeca_en.pdf [Accessed 1 November 2013].

http://ec.europa.eu/agriculture/milk/background/jm-2012-12-12/01-gira_en.pdf http://retailindustry.about.com/od/worldslargestretailers/a/denmark_2010_largest_retailers_world.htm http://www.milkproduction.com/Farms-startpage/Lystbjerggaard---Denmark/ http://www.strategicmanagementinsight.com/tools/pest-pestel-analysis.html http://www.kcheese.com/Denmark.htm http://www.slideshare.net/lconner/steeple http://www.umsl.edu/~naumannj/Geography%20PowerPoint%20Slides/northern%20europe/denmark%20-%20cheese.pdf http://lifestyle.iloveindia.com/lounge/danish-cheese-3590.html

References: History of the Danish dairy industry - Home. 2013. History of the Danish dairy industry – Home.[ONLINE]Available at: http://www.danishdairyboard.dk/History/History_of_the_Danish_dairy_industry.aspx. [Accessed 1 November 2013]. Marketing Team