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62 Appendix 1: Interview with Martin Falch Jakobsen – Business Development Manager
What is your general opinion about Chile as a potential new market for Arla Foods?
Chile is an attractive country in the Latin American Region, because you have relatively interesting market sizes and category mixes while at the same time you don’t have very high level of inflation or high crime rates unlike other areas in the region. But one of the reflections is that in LATAM we really want to do a lot but we need to maintain our resource focus, and identify top priority and lower priority countries.
What are your ideas around internationalization in markets so different from companies’ home markets, such as the case of Arla Foods in Chile?
It can be interesting to have a distributor setup where you identify a strong distributor and have an export business to them. If you get the right ones it can be a really strong proposition. You basically go into the market, get a partner building up some of the
“space” categories such as cheese and milk powder that can potentially lift some volumes before going in with the more value added prods so try to build up base positions to see how it runs. If you see a high growth potential and you can see there is a huge opportunity for doing something more in Chile then it will be taking the next step after that. You don’t tap into full potential but have the opportunity to assess the market.
This gradual approach has been used [by Arla Foods] in many markets. First export, you learn about duty structure and this kind of things, and next step you may have a dedicated person to work with that market. When it grows sufficiently large you can have a person that sits locally in that market. Maybe 1 or 2 employees.
A region like LATAM is very new to us. You could start small and then incrementally when you assess potential and right partners. Definitely a low risk and logical way of doing it. The only issue is that in many of these markets there are many aggressive competitors, doing a big consolidation game in. They have different approaches, for instance going full front in a high potential market rather than gradually scaling up
63 activities. So they buy their way of having a platform, the idea is that they expect to build a lot of synergies on that platform and brands. You need the necessary funding for this. Since in Arla we are a cooperative we need to be very sharp when doing M&A because it’s lot of money that you get to invest.
What are the characteristics that make a local player a good partner for Arla Foods?
It’s important to define criteria we want from them, what we are looking for. It might be that we need somebody strong in distribution, strong capabilities in modern trade, how many outlets they reach.
Beyond that you will try to find someone with experience in dairy products distribution.
You need someone to handle this kind of products in terms of transportation, cooling, merchandising team that nurses the products in the store. If you don’t have it in LATAM, due to different ethics the competitors will just push your products away from the shelf. It’s also important to find somebody with non-overlapping categories, as they wouldn’t have incentive for cannibalize.
Also, ethics need to be included in the criteria, so that we don’t run into CSR issues. It’s also good to find soon somebody who would be up for a JV later on, otherwise it can be time-and-resource-consuming to start again later. It is always a risk to start with a new distributor.
In some markets you just go in with premium products but it might not work everywhere. It can happen that if you want to be taken seriously by distributors you need to build up some volumes for the Arla brand first. It has to be volume driven or it’s going to be hard to convince a distributor to put a small pack of our premium products on their shelves, as it means low margins for them. If you drive scales in the distributors business they will be more inclined to get more premium prods for us. It can be hard to get a distributor agreement if you don’t build a credible volume.
64 Appendix 2: Interview with Guillermo Molina – Export Manager in Latin America Region
Overall, what are the things to keep in mind when entering the Chilean market?
Chile is a very stable country unlike other areas in the region. It very important to know that Chile presents some “western trends”. For instance, the retailing landscape is dominated by modern trade retail channels such as supermarkets and hypermarkets.
Unlike other countries in Latin America, most Chilean consumers use credit cards.
Concerning Arla Foods market entry in Chile, I believe it is very important to be below the line, to have people in the stores to ensure your products are on the shelves. A lot of companies have these professional merchandisers in the stores, so if you don’t have yours, your products will be pushed off the shelves.
Arla is not known in Chile, so we need in-store promotion, and also social media advertisement because it is not very expensive and people in Chile use them a lot. For instance they use Facebook, twitter, and so on. Promotion in television and newspaper is very expensive, so you need to consider whether you want to invest a lot of money in marketing.
How do you think competitors would react to Arla’s entyr in chile?
The market is very price-sensitive, and I would expect these competitors to react to our entry by lowering prices, offer giveaways. I don’t believe they will use promotion and media. They will mainly act on pricing, in different ways. With discounts, giving more
samples in the stores, and so on.
This is in a way logical, as they have production facilities in Chile and therefore have lower costs than entrants and they don’t pay import taxes to get the milk into the country.
We are seeing this kind of behavior in other countries in the region.
How do you think national regulation would impact Arla Foods’ business in Chile?
It is very important to verify that packaging and label comply with national regulation, as in LATAM each country has got its own regulation on food. We might achieve