Swiss dairy giant Emmi is a virtual unknown in the UK. So what will the acquisition of Onken bring? Quite a lot, says Stuart Smith
Caffè Latte is a nice, niche iced-coffee brand, with near universal listings in the multiples offsetting a severely limited range, SKU-wise.
But for all its dominance in its home market, the Swiss-based owner Emmi doesn't have a great deal to say for itself in the UK.
Until now, that is, with the acquisition of premium adult yoghurt brand Onken last week set to transform its operations both here and in Germany. It's not hard to see the appeal. Emmi, through organic growth and acquisition, has developed into a powerful force in Switzerland, selling a wide range of dairy and dairy-related products, from premium yoghurts to Swiss cheeses, muesli, through to dessert brands such as Carameltöpfi, and a more extensive portfolio of Caffè Latte ready-to-drink iced coffees.
The Swiss eat huge amounts of dairy products twice as much yoghurt per head as us, and nearly four times as much cheese. But theirs is a small country, with a population of under eight million, and Emmi has reached market saturation. Worse, deregulation of Swiss dairy lines means foreign exporters of food will find it easier to chip away at Emmi's share.
So it has had little choice but to expand abroad. The most notable acquisitions were Italian dairy company Trentinalatte in 2006 and Roth Cheese in the US in 2009. Other targets include Benelux, Austria and, of course, Germany and the UK. Currently, only 27% of Emmi's sales are generated abroad; the aim is that should be 50% in seven years at the outside.
The acquisition of the Onken brand, formerly owned by Dr Oetker, is an important milestone. It's a sizeable business in its own right, with a turnover of about £48m, mainly generated in Britain and Germany. Emmi is thought to have paid Dr Oetker about £34m, according to Zurcher Kantonalbank analyst Patrick Schwendimannn.
What matters here is size. It is difficult and expensive to grow by organic means alone in foreign markets where your presence is relatively unknown. To date, Emmi's total UK sales are thought to be about £7m a tiny part of its £1.65bn net annual revenue. That tends to constrain how much it can spend on marketing a problem in a dairy market as cut-throat as the UK's. Its biggest campaign this year has been a £500,000 TV drive for Caffè Latte in the London area.
The Onken brand immediately ups Emmi's game both in the UK and Germany in terms of scale of operations and access to invaluable distribution outlets. According to Emmi chief executive Urs Riedener: "Onken is number one in the UK and number three in Germany for large pots of yoghurt. This strong brand will enable us to consolidate our market position in two of our key markets."
Riedener goes on to observe that "the UK is characterised by a high degree of affinity for Swissness" by which he appears to mean UK consumers are prepared to pay slightly more for high-quality products. He also points out a glaring market opportunity for Emmi: with dairy consumption per head so low, Britain has the highest growth potential in Europe.
What he does not mean, according to Emmi group communications director Esther Gerster, is that Onken will get the full Swiss rebrand treatment. The company is emphatic that Onken will remain what it is a fresh, natural yoghurt made at the traditional Onken plant in North-Rhine-Westphalia. Although Onken is likely to benefit from NPD over time, Gerster is coy about scale and timetable and points out the deal is still subject to regulatory approval. Emmi's existing range of Swiss yoghurts has higher-margin probiotic variants.
More important than the branding issue is the critical mass the deal offers, the access to near-universal distribution, the category fit with existing Emmi lines, and the consequent opportunity to market in the UK and Germany a range of other Swiss-sourced Emmi products, as yet undisclosed.
None of which, of course, guarantees the new owner will coax a better performance out of the acquired brand. Onken has not been an abject failure under Dr Oetker, but nor has it been a roaring success. Sales of Onken Biopot last year were down 1.2%) in a market up 1.7% [Nielsen MAT 2 October].
Cage food analyst James Amoroso reckons the deal will do Emmi more good in Germany than the UK, where Onken faces Müller, Nestlé, Danone, Yeo Valley, and own label. Arguably, however, Dr Oetker did not exploit Onken's full UK potential because it was never that interested in yoghurt. According to Richard Ilsley, Dr Oetker's UK MD (ambient and chilled), his company bought the family-owned German Onken business in 2004 not for its yoghurts, but its mousses. Chilled desserts, such as frozen pizzas and ambient baking products, are a core Dr Oetker category in the UK and Germany, whereas fresh dairy products are not. So while, in Germany, the Onken name provides valuable leverage for chilled dessert sales, in Britain it has never had the same resonance. The brand means yoghurts, not puddings and Dr Oetker has done little to persuade us otherwise.
Ilsley says Emmi approached Dr Oetker with a deal in mind, rather than the other way round. And that it then made an offer the current owner could not refuse. All that may prove, however, is that Emmi had done careful homework beforehand. It knew Dr Oetker saw no further use for the brand as a yoghurt: in Britain because the chilled desserts had been a flop; in Germany because they had been a brilliant success.
Post-deal, Oetker has implicitly acknowledged this by quitting UK chilled desserts. Some 19 people employed in the UK yoghurt business are being transferred to Emmi. The future of the two marketers dedicated to UK chilled desserts is less clear.
Dr Oetker may also be making a virtue of another necessity. The family currently represented by chairman Richard Oetker is the brand in this sprawling yet closely held German 8bn conglomerate with interests that range from shipping, to banking, beer, to sparkling wine, spirits and food (this last accounting for about a quarter of turnover). The family sets the strategy, and that can involve juggling the portfolio from country to country.
Nearly two years ago Dr Oetker fundamentally altered the focus of its UK interests by acquiring Schwan's European frozen pizza-making operation, better known in the UK as the Chicago Town brand. Overnight, Dr Oetker's UK sector share shot up from 13% to 43%, giving it a dominant position. The timing was opportune: people had begun trading down to the sector, which had experienced years of decline, during the recession. Dr Oetker could use its newly enhanced market power to improve profitability by scaling back discounting in a promotion-blighted market while successfully upping the ante in advertising and NPD.
The fact that rival Northern Foods, with its Goodfella's pizza offer, appeared so weak, has helped it to accelerate further. With Northern set to merge with own-label specialist Greencore, it now has more cash to defend its market-leading position.
Caffè Latte is a nice, niche iced-coffee brand, with near universal listings in the multiples offsetting a severely limited range, SKU-wise.
But for all its dominance in its home market, the Swiss-based owner Emmi doesn't have a great deal to say for itself in the UK.
Until now, that is, with the acquisition of premium adult yoghurt brand Onken last week set to transform its operations both here and in Germany. It's not hard to see the appeal. Emmi, through organic growth and acquisition, has developed into a powerful force in Switzerland, selling a wide range of dairy and dairy-related products, from premium yoghurts to Swiss cheeses, muesli, through to dessert brands such as Carameltöpfi, and a more extensive portfolio of Caffè Latte ready-to-drink iced coffees.
The Swiss eat huge amounts of dairy products twice as much yoghurt per head as us, and nearly four times as much cheese. But theirs is a small country, with a population of under eight million, and Emmi has reached market saturation. Worse, deregulation of Swiss dairy lines means foreign exporters of food will find it easier to chip away at Emmi's share.
So it has had little choice but to expand abroad. The most notable acquisitions were Italian dairy company Trentinalatte in 2006 and Roth Cheese in the US in 2009. Other targets include Benelux, Austria and, of course, Germany and the UK. Currently, only 27% of Emmi's sales are generated abroad; the aim is that should be 50% in seven years at the outside.
The acquisition of the Onken brand, formerly owned by Dr Oetker, is an important milestone. It's a sizeable business in its own right, with a turnover of about £48m, mainly generated in Britain and Germany. Emmi is thought to have paid Dr Oetker about £34m, according to Zurcher Kantonalbank analyst Patrick Schwendimannn.
What matters here is size. It is difficult and expensive to grow by organic means alone in foreign markets where your presence is relatively unknown. To date, Emmi's total UK sales are thought to be about £7m a tiny part of its £1.65bn net annual revenue. That tends to constrain how much it can spend on marketing a problem in a dairy market as cut-throat as the UK's. Its biggest campaign this year has been a £500,000 TV drive for Caffè Latte in the London area.
The Onken brand immediately ups Emmi's game both in the UK and Germany in terms of scale of operations and access to invaluable distribution outlets. According to Emmi chief executive Urs Riedener: "Onken is number one in the UK and number three in Germany for large pots of yoghurt. This strong brand will enable us to consolidate our market position in two of our key markets."
Riedener goes on to observe that "the UK is characterised by a high degree of affinity for Swissness" by which he appears to mean UK consumers are prepared to pay slightly more for high-quality products. He also points out a glaring market opportunity for Emmi: with dairy consumption per head so low, Britain has the highest growth potential in Europe.
What he does not mean, according to Emmi group communications director Esther Gerster, is that Onken will get the full Swiss rebrand treatment. The company is emphatic that Onken will remain what it is a fresh, natural yoghurt made at the traditional Onken plant in North-Rhine-Westphalia. Although Onken is likely to benefit from NPD over time, Gerster is coy about scale and timetable and points out the deal is still subject to regulatory approval. Emmi's existing range of Swiss yoghurts has higher-margin probiotic variants.
More important than the branding issue is the critical mass the deal offers, the access to near-universal distribution, the category fit with existing Emmi lines, and the consequent opportunity to market in the UK and Germany a range of other Swiss-sourced Emmi products, as yet undisclosed.
None of which, of course, guarantees the new owner will coax a better performance out of the acquired brand. Onken has not been an abject failure under Dr Oetker, but nor has it been a roaring success. Sales of Onken Biopot last year were down 1.2%) in a market up 1.7% [Nielsen MAT 2 October].
Cage food analyst James Amoroso reckons the deal will do Emmi more good in Germany than the UK, where Onken faces Müller, Nestlé, Danone, Yeo Valley, and own label. Arguably, however, Dr Oetker did not exploit Onken's full UK potential because it was never that interested in yoghurt. According to Richard Ilsley, Dr Oetker's UK MD (ambient and chilled), his company bought the family-owned German Onken business in 2004 not for its yoghurts, but its mousses. Chilled desserts, such as frozen pizzas and ambient baking products, are a core Dr Oetker category in the UK and Germany, whereas fresh dairy products are not. So while, in Germany, the Onken name provides valuable leverage for chilled dessert sales, in Britain it has never had the same resonance. The brand means yoghurts, not puddings and Dr Oetker has done little to persuade us otherwise.
Ilsley says Emmi approached Dr Oetker with a deal in mind, rather than the other way round. And that it then made an offer the current owner could not refuse. All that may prove, however, is that Emmi had done careful homework beforehand. It knew Dr Oetker saw no further use for the brand as a yoghurt: in Britain because the chilled desserts had been a flop; in Germany because they had been a brilliant success.
Post-deal, Oetker has implicitly acknowledged this by quitting UK chilled desserts. Some 19 people employed in the UK yoghurt business are being transferred to Emmi. The future of the two marketers dedicated to UK chilled desserts is less clear.
Dr Oetker may also be making a virtue of another necessity. The family currently represented by chairman Richard Oetker is the brand in this sprawling yet closely held German 8bn conglomerate with interests that range from shipping, to banking, beer, to sparkling wine, spirits and food (this last accounting for about a quarter of turnover). The family sets the strategy, and that can involve juggling the portfolio from country to country.
Nearly two years ago Dr Oetker fundamentally altered the focus of its UK interests by acquiring Schwan's European frozen pizza-making operation, better known in the UK as the Chicago Town brand. Overnight, Dr Oetker's UK sector share shot up from 13% to 43%, giving it a dominant position. The timing was opportune: people had begun trading down to the sector, which had experienced years of decline, during the recession. Dr Oetker could use its newly enhanced market power to improve profitability by scaling back discounting in a promotion-blighted market while successfully upping the ante in advertising and NPD.
The fact that rival Northern Foods, with its Goodfella's pizza offer, appeared so weak, has helped it to accelerate further. With Northern set to merge with own-label specialist Greencore, it now has more cash to defend its market-leading position.
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