Four U.S. companies make the list in a year that saw most industry giants battle challenging conditions.
Switzerland-based Nestlé and French giants Danone and Lactalis topped Rabobank’s annual survey of the world’s 20 largest dairy companies.
Released today, the report says the last 18 months have seen most of these players battle challenging conditions, with weak economies and supply constraints undermining sales growth in key markets.
Against this backdrop, mergers and acquisitions have become an attractive route to growth and profitability. But, Rabobank adds, with billion-dollar deals increasingly hard to come by, dairy giants will need to acquire or tie up with more companies to sustain the same rates of growth in future. Those adept at acquiring and embracing new businesses will remain well positioned to survive and thrive.
"Once again, giants Nestlé, Danone and Lactalis top the list, showing that the world’s largest dairy companies are reasonably entrenched," says Rabobank analyst Tim Hunt. "We continue to see some companies outperform their peers in sheer growth terms."
Hunt points to Chinese giants Yili and Mengniu, which saw their sales expand by 14% and 20% respectively, with Yili entering the top 10 for the first time ever.
Four U.S. companies made the list: Dairy Farmers of America (#6); Dean Foods (#9); Kraft Foods (#17); and Schreiber Foods (#19).
Canada’s Saputo continued its march up the list to push to eighth place, in part due to several recent acquisitions. Meiji and Morinaga slipped down the list largely due to the sharp decline in the value of the Yen (in which most of their products are sold).
2013 was a challenging year for most of the world’s major dairy companies, with stagnant sales volumes in most OECD (Organization for Economic Cooperation and Development) dairy markets. Acquisitions have become a more attractive route to grow sales, and in 2013, there were 124 dairy transactions, up from 111 in 2012 and the highest since 2007.
Positioning for maximum effectiveness in the expanding Chinese market remains prominent. In 2013, joint ventures were announced between Mengniu and Whitewave and COFCO and Danone while Yili announced a partnership agreement with Dairy Farmers of America. Mengniu took a stake in China Modern Dairy to secure raw milk supply. A further joint venture is pending between FrieslandCampina and Huishan.
Despite the increase in transactions, the dairy sector saw no billion-dollar deals in the 12 months to June 30, 2014. While underlying growth will pick up in coming years, many markets will not return to the rapid growth rates seen before 2008. In this context, mergers, acquisitions and joint ventures will remain a key avenue to growth and profitability.
"The catch is that the number of attractive targets is shrinking and multiples have risen," Hunt says. "With billion-dollar value deals harder to come by, dairy giants will need to acquire or tie up with more companies than in the past to sustain the same rates of growth."
Founded over a century ago, Rabobank is one of the largest banks in the world, with nearly $1 trillion in assets and operations in more than 40 countries.