Dairy's new big deal

Ronald Kers isn’t quite sure what all the fuss is about.

In his office in Market Drayton, the conversation has just turned to Müller’s acquisition of Robert Wiseman Dairies earlier this year. It’s a deal that took many in the British dairy industry by surprise.

For although further consolidation in UK dairy had long been expected, few would have bet on a yoghurt maker and a liquid milk company coming together. The synergies just didn’t appear to add up. Can he, at last, put a stop to the collective head-scratching?

“Oh, but it’s a no-brainer,” says Kers, deadpan. “We want to become the biggest dairy company in the UK, and to do that we have to be in the biggest dairy category, which is liquid milk.”

It’s a deceptively simple statement, which belies the scale of Kers’s ambition. Müller UK and Wiseman have a combined turnover of £1.5bn, putting Kers’s
group a fair distance behind the soon-to-be-merged Arla/Milk Link, which is set to generate £2bn a year, and roughly on a par with Dairy Crest.

Finding at least a further £500m isn’t going to be easy, but Kers says anyone doubting Müller’s ability to rise to the very top need only look at its parent company, Germany’s Müller Group, to realise he means serious business.

“People in this country think of Müller as a yoghurt company, but within the group we have great expertise in various products, and in developing a business,” he says. Müller’s Leppersdorf plant in Germany embodies this expertise in action.

“It’s one of the biggest - if not the biggest - dairy factories in the world, and they make milk, UHT milk, yoghurt, cheese, milk powders, whey protein and even biogas,” says Kers. “They get the maximum value out of every drop of milk, and that’s ultimately the model the UK will follow.”

Following the Leppersdorf blueprint doesn’t mean Müller UK is going to replicate the factory and its product portfolio to a T, “but it provides for an interesting
benchmark and gives us something to think about for the future,” he explains. Still, even if Leppersdorf is just a vague indication of Müller’s UK ambitions,
having a yoghurt business and - through Wiseman - a liquid milk business is only going to take Kers so far.

The next acquisition can surely be only a matter of time. Kers laughs. “I wouldn’t come to that conclusion, but I can understand why you would,” he says.

Müller has, in fact, made two acquisitions in 2012. In addition to Wiseman, it bought the Minsterley desserts factory from Greencore. Now Kers is focused
on integrating these properly, he stresses.

“If the last months are a bit of a track record for how we’re doing things, we’ll be active over the next three years, but I wouldn’t say we’re about to make another acquisition any time soon. Plus, there are different ways to win in the market - there are also joint ventures, partnerships and Greenfield.”

Still, Müller is “alive to opportunities”, as Kers puts it, outside its current portfolio. “We’re now very big in milk, yoghurts and desserts, so everything we don’t
yet do is of interest one way or another,” he says. “The Müller family are entrepreneurs who invest in various businesses. That’s constantly part of the Müller
Group DNA.”

A Müller with interests beyond yoghurts and desserts may be part and parcel of the German market, but it’s still very new for the UK, so what role can the
British dairy industry expect the newly diversified Müller to play? What’s the Müller perspective on farmgate prices on liquid milk, which made farmers take to the streets this summer?

The focus has to be on market forces, says Kers. “I have a lot of sympathy for what I hear from farmers, but that is what the value of milk is at the moment,
taking into account bulk cream prices and the price we sell to retailers.” But there’s also an element of “irrationality” in the UK liquid milk market that irks him.

“Of course, retail prices are for retailers to decide, but do I find it rational that prices are going down when costs to retailers, farmers and processors are going up, and do I find it rational that some farmers on retailer contracts get a higher price for their milk than those who aren’t? No, I don’t. Bulk cream prices going up will help, but fundamentally there’s still this irrationality in the market.”

Kers doesn’t pretend he has an easy solution but says new added-value milks - such as the Wiseman-backed A2 - are a start. “A2 is an opportunity to create more value by giving benefits to consumers and increasing value in the supply chain. Everyone wins.”

Back on more familiar Müller territory - yoghurts and desserts - the company is also changing rapidly under Kers’s leadership. Since the start of his tenure, in January, he has bought the Minsterley desserts factory, scrapped a £25m ad campaign and laid the foundations for Müller to become a player in the UK’s £288m own-label yoghurts and desserts market.

These changes were necessary not because there was anything wrong with the old Müller set-up – he’s always viewed it as “a gem of a business” and signed up to run it even before the German team had got the Wiseman deal in the bag – but because the ambitions are now much bigger.

Take desserts. Müller has long been successful in marketing and selling Cadbury desserts, but it used to sub-contract the manufacturing. That just didn’t make any sense, says Kers. “I felt we had to do much more – really own the production capabilities to develop products and bring our own innovations to market. So I changed the Müller plan for desserts and as a result we’ve acquired Minsterley.”

With Minsterley now part of the Müller stable, Kers is keen to explore opportunities beyond Cadbury – some of the Müller yoghurt brands could work well in desserts, he says – and triple the size of the Müller desserts business to 240 million pots a year in the next four years.

On the own-label front, meanwhile, Kers believes Müller – to date a purely branded player in the UK – was simply missing a trick. With about 50% of the UK’s yoghurts and desserts being imported from the Continent, the case for Müller to move into own label is overwhelming, he says.

“If you have that many imports, it means there’s an inefficiency in the system because logistics costs are a big factor. We have the biggest yoghurt factory in the country, plus we know retailers and consumers are very interested in products produced in the UK, so it’s a fabulous opportunity for us.”

Are there not risks in potentially cannibalising Müller sales? Kers is convinced he can make it work. ”It comes back to differentiation. There’s a job to make sure the brands stay ahead and justify a premium, and we’ll make sure our products are superior to our private label offering.”

As part of that, Kers wants to redefine what the Müller brand stands for and give it a stronger focus on pleasure.

“Over the last few years, Müller has drifted a little bit – we tried to get into health, because health was a big trend, but in future the brand will be much more about taste and indulgence,” he says.

This is also where the ill-fated, £25m Wünderful Stuff campaign comes in. Launched with great fanfare last autumn, the ads were unceremoniously scrapped at Kers’s behest within weeks. It’s a fair chunk of money to throw away – although Kers insists he pulled the plug long before all of the £25m had been spent – so why did he feel the campaign was so wrong for the brand?

“It was just not creating the sales momentum we had expected,” he says. “We also got some feedback internally and from some of our customers, and it just didn’t feel right anymore.”

Müller milk
With pleasure the new focus, Kers is also open to extending the brand into new product categories, with flavoured milk a clear area of interest. Müller briefly dipped its toes in the market last year, selling imported products from Germany, but pulled the range after less than six months. Some would suggest the quick demise of the milks shows there isn’t much of a market for them, but Kers says it simply shows Müller wasn’t trying hard enough.

“It was half-baked. When you import the product it’s not the same as actually producing it here and being really behind it. We lacked conviction.”

With Wiseman now part of the family, it sounds like Müller may give it another try. He stops short of confirming plans for a Müller-branded flavoured milk, but unprompted says: “The obvious question everyone will ask is, can Müller come back to do a branded milk offering? It could be an interesting area.”

It’s not the only obvious question. Müller’s overnight transition from yoghurt stalwart to ambitious dairy all-rounder is going to throw up questions as to the company’s next move for some time. There’s a different wind blowing in Market Drayton, Kers says, and the Wiseman deal is only the start.

“There’s a huge culture change happening on the inside at Müller. We are getting to be more decisive, action-oriented and ambitious, whereas we used to be very much a sleeping giant.”

It’s an environment that clearly thrills Kers, who describes himself as “demanding and action-oriented”. “I sometimes like to stir up the pot a little bit,” he says.

If the past nine months are anything to go by, he’s going to need a bigger spoon.