Apocalypse Files - Issue #5 - Lactalis - English version
In each issue (bi-monthly), we'll explore the threats to the current business model of a company or of an entire industry, the forces that could take them down or drive systemic changes, and most importantly we'll imagine possible solutions, looking at new and evolving trends, untapped niches, new business models or venture opportunities...
In this fifth edition, we'll be taking a look at a behemoth of the French dairy industry that manages to remain quite secretive: Lactalis. Welcome to the Apocalypse Files.
Born to Be Wild
Starting as a simple producer of camemberts in 1933, Lactalis has become the world leader of dairy products. President, Galbani, Lactel...with around 50 brands in its portfolios, Lactalis products are everywhere. The firm has developed both internal growth with its own brands such as President and external growth with several acquisitions such as Kraft-Heinz's cheese division in 2020.
In a rare occurrence, even after 80 years of existence and sustained growth, Lactalis is still exclusively owned by the founding family. The success story of this family business seems based on action rather than words: you are more likely to see Emmanuel Besnier, incumbent President and majority shareholder, at the Laval headquarters or even at one of the Lactalis factories than in front of the cameras. An atypical choice in our over-mediatized society.
The company is deeply rooted at a local scale, with over 70 production sites all over France. The group has always been a proponent of a decentralized industrial strategy: for its flagship brands, Lactalis favors several production sites on a more human scale rather than just one giant plant. This strategy is a strength and a weakness for the group, creating great complexity in the supply chain and limiting traceability.
In the face of growing consumer demand for transparency, local sourcing, and the rise of sustainability concerns in the general public purchasing behaviors, will Lactalis manage to better communicate and earn consumer trust despite its complex supply chain?
Ain't Nothing Like the Real Thing
France may be the country of cheese with more than 1000 cheeses, but milk consumption has been decreasing with a decline of 25% over the past 15 years, to reach an amount of 45 liters per capita in 2018. In comparison, Finland, one of the countries with the highest milk consumption, the inhabitants consume on average 130 liters per year.
The disenchantment for dairy products can be explained by multiple factors: the rise of flexitarian diet, the increasing concern for animal welfare, and changes in eating habits, notably the reduction of breakfast time. Structural challenges also exist: the industry suffers from a scandal-ridden image and is highly criticized for its opacity, leading to still more erosion of the milk consumer base.
While the French consume dairy products less frequently, they are looking for better milk quality and are asking for higher transparency. With this objective in mind, in 2016, the French government launched an experimental phase on a decree requiring manufacturers to inform the origin of the milk on the labels of milk and processed milk-based products. At their own level, consumers are expressing their demands by supporting organic milk and local initiatives: organic ranges are booming (despite a decrease since the covid crisis), with annual growth in organic milk consumption of over 10% compared to a negative consumption growth around 3% for the global sector. Ultra-local brands such as Le Lait Ile-de-France, a milk 100% produced in the Yvelines, are disrupting the market.
Industrialists have adapted quickly since today 97% of the milk consumed in France comes from France. Unfortunately for processed products such as cheese, yogurts, or ready meals, the origin is still often missing. So what are the solutions for Lactalis to address consumers' desire for higher transparency ?
If you are a company manufacturing processed products, how can you adjust your supply chain to easily communicate accurate information to consumers? These don't apply exclusively to the dairy industry, any company with a complex and multinational supply chain could follow one of those development paths.
White Room
Modernize information gathering. Even though it is not always possible to simplify the supply chain, there are ways to make it more transparent through efficient data collection tools. Agri-food companies are now using RFID tags and QR codes to be able to track what is happening, where and when along the supply chain. French poultry provider Sénécal has been partnering with UBI Solutions to follow their supply chain from the farm to the store. They have even taken the next step and made those data accessible to consumers to foster trust and back claims such as "produced locally" with hard data, leading to sales growth.
Enhance transparency. Consumers take access to information for granted. But with fake news and the multiplication of information sources, they have developed a sharp critical mind about the accuracy of the information provided to them and have a higher demand for easily accessible and impartial information with tools such as Yuka. The blockchain, by monitoring the actions of each author, could be used as a tool to provide information on the products, guarantee a certain level of impartiality and make each actor of the supply chain even more accountable for his actions. Nevertheless, in the agri-food supply chain, blockchain is still in its infancy. Carrefour, is the first and only French distributor that implemented blockchain since 2018 for its range Filière Qualité Carrefour, with a first pilot on Auvergne chickens in 2018.
Lead rather than follow. The 2016 decree on the origin of dairy products emanated from a wish expressed by the population for more transparency. Lactalis immediately initiated legal proceedings to invalidate this decree, which the group considered impossible to comply with due to the complexity of its supply chain. Lactalis’ reaction to this decree is indicative of the complexity for industrialists to anticipate public authorities and consumers' trends. Market and competitive intelligence are essential tools to remain an industry leader. What makes the difference between a key player and a follower is its ability to anticipate consumer demands at the right time and to develop processes and products capable of meeting these expectations rather than looking for ways to bypass or slow down change. L'Appel des près, a milk brand launched in 2017 by Lactalis producing only in Brittany and Pays de la Loire and whose remuneration to farmers is communicated on the packaging, is symbolic of this consumer trend oriented approach.
Scale best practices from POC to group policy. The learnings from a specific brand or even just a range inside a brand can be useful to the whole portfolio. Knowledge sharing is a key factor of innovation. Uncertainty is inherent to innovation but it can be controlled through learning from brands at the forefront of the portfolio and small-scale pilot launches. Get inspired to go faster, further and cheaper. Galbani could for example get inspired by the processes put in place by President, to deliver a higher level of information about the products and their origin. Nowadays, flagship products of the President brand, such as camembert and butter, carry precise information on the origin of the milk and/or the place of production, whereas Galbani does not communicate any information on the sourcing of the ingredients of its mozzarella, even on its organic range.
The trends and consumer expectations facing Lactalis are not specific to the dairy industry but apply to all the major agri-food groups. The key to longevity for these companies lies in how they approach these challenges. Tomorrow's leading companies will face them head first, by putting sustainable practices at the heart of their values, and therefore anticipating changes rather than being threatened by changing consumer expectations and regulations.
That's all folks!
PS: If you haven't guessed, all paragraph titles are from singles in the 1968 Billboard Hot 100, the year Michel Besnier founded President because "France is the country of presidents, everyone is a president! From the fishing, the boulistes, to the veterans association."
Agree? Disagree? Anything to add?
Have an industry or company in mind you want us to look at? Let us know and we'll add it to our roaster: it might be the focus of our next issue!