Arla Foods has reported that the first half of 2023 was dominated by continued inflationary pressure, declining dairy commodity prices, and a shift in consumer behaviors toward discount channels and private label products.
This impacted Arla’s performance in the first half of 2023. However, Arla group revenue was €7 billion for the first half of 2023, a 10.7% increase compared to €6.3 billion in the first half of 2022, primarily driven by earlier implemented price increases in Arla’s retail and foodservice.
Branded revenue grew by 6.9%, driven by Lurpak with 7.2% and the Arla brand with 3.6%.
The cooperative was able to soften the negative impact of the market dynamics and deliver a performance price of 49.7 Eur-cent/kg milk, enabling a half-year supplementary payment to farmer owners of 1 Euro-cent/kg milk based on the half-year volumes as planned.
Milk price affected by declining dairy commodities
Driven by changes in commodity prices, Arla’s milk price dropped from its all-time high, seeking a new balance in a market where milk production is increasing and consumers are spending less.
Arla’s average pre-paid milk price increased to 48.2 euro-cent/kg in the first half of 2023 compared to 46.6 euro-cent/kg in the first half of 2022 and 52.0 euro-cent/kg for the full 2022 year.
“As anticipated, the market conditions put our branded products under pressure. However, we managed to protect our relative market shares against our competitors, and I am pleased that we were able to secure group earnings, a competitive milk price and a half-year supplementary payment to our farmer owners of 1.0 euro-cent/kg milk based on the half-year volumes as planned,” says Arla Foods CEO, Peder Tuborgh.
Brand performance
After years of extraordinarily high growth in branded volumes, growth rates were impacted by changing consumer patterns, notes the company.
Strategic branded volume growth landed at -6.0% in the first half of 2023 (adjusted for the impact from Arla’s former Russian business, which was divested in the first half of 2022).
This was primarily driven by a drop in volumes in Europe of 5.7% and a 4.0% decrease in international volumes.
“During the first half of 2023, we continued to see inflationary pressure resulting in consumers moving toward discount channels and private label products and putting a pressure on our branded products,” says Arla CFO Torben Dahl Nyholm.
In Europe, a few brands managed to maintain strong volume growth in an unpredictable market.
However, Arla’s strategic investments delivered strong volume growth, with the Starbucks business growing by 21.6% and ArlaProtein by 51.6%.
Meanwhile, the Starbucks business and Puck (spreadable cream cheese) achieved a 3.3% growth in branded volumes.
Arla’s foodservice business experienced volume growth of -1.8%, compared to 19.0% in the first half of 2022, where the surge in demand due to COVID-19 lockdown rebounds resulted in exceptionally high figures. Positive growth numbers are expected again in the second half of the year.
Arla Foods Ingredients increased revenue by 10.8% to €513 million compared to €463 million in the same period last year. The value-added whey protein product volumes grew by 5.2%.
