Ornua advances from foreign markets to global concerns

Ornua's first foray into the United States was something of a failure. Ireland's largest dairy exporter, owner of the billion-euro Kerrygold brand, dipped its toe in the market in the early 1990s, selling cheese in the tri-state area.

However, it hit the wrong mark with consumers, who saw it as a novelty “Oirish” product rather than a premium food brand, derived from a traditional grass-based farming system, as the company had intended. Sales were also tied into Paddy’s Day and “it became sort of a clichéd version of Irish food”, says Róisín Hennerty, managing director of Ornua’s global foods division, the person credited with getting Kerrygold off the ground in the US.

Perhaps that’s a bit rich from a company whose marketing campaigns have thrived on selling Irish stereotypes to the world and French stereotypes to the Irish. Remember the “put a bit of butter on the spuds, Andre” adverts from the 1980s?

Irishness

There have been many different styles of Kerrygold adverts over the years, she says. “Have some played on our Irishness? Yes of course, but in a meaningful way that has helped the brand build a long-lasting affinity with consumers.”

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Either way, sales in the US never took off and the venture was quietly mothballed. It was a valuable, if expensive, lesson. The US market has been a tough nut to crack for Irish firms as C&C, Aryzta and, most recently, Greencore have found. All three were forced into high-profile retreats after sinking hundreds of millions into US ventures.

Ornua, formerly the Irish Dairy Board, returned to the US in late 1990s with a more focused strategy, involving high-end retailers and in-house tastings.

This time it pitched itself assiduously as a high-end dairy product, playing up its grass-fed, all-natural, hormone-free roots.

Its signature butter product, with the familiar gold leaf wrapping, is still on average 50 per cent more expensive than its main market rivals. Competing on price would have been difficult with the hefty tariffs that apply to European dairy imports.

With Hennerty at the helm, Kerrygold launched in summer this time to escape any association with Paddy's Day, and in California, the state most associated with foodie trends.

One of the chief obstacles initially was the lack of a natural connection in peoples' minds between Ireland and good food, she says. Images of blight-hit potatoes and cornbeef and cabbage were more common than high-end dairy products.

“Our focus was to bring people back into the idea that Irish food is a high-quality offering,” she says.

At the time, butter was also still seen as the bad guy. “But we knew there was a core segment of consumers that valued premium, and felt butter had a place in their diet in moderation. So we played to that.”

The company also played to the growing demand for whole foods, a reaction to the over-processed nature of the US food industry. A backlash against high-intensity farming, particularly in dairy, also played into its hands with the Ireland’s small farm, grass-based model seen as a counterpoint.

“It was recognising that a growing cohort of consumers were returning to products that had transparency and traceability,” Hennerty says.What Ornua couldn’t have predicted was how these health-conscious, affluent Californian trends would go mainstream. Sales took off. It is now the number two butter brand in the US behind market incumbent Land O’Lakes, selling roughly 2.6 million packets a week.

The US is also now Kerrygold's second largest market behind Germany, where it has been the the number one butter brand for several years. A standard 250g block of Kerrygold butter was the fastest-selling food or drink item on German supermarket shelves last year, selling out more quickly than a one litre bottle of Coca-Cola.

Price-conscious Germans

Kerrygold launched in Germany in 1973, again pitching itself at the high-end – “The green isle’s gold”. It has achieved what many thought near impossible, selling a premium-priced product to price-conscious Germans .

As Ornua celebrated Kerrygold’s new billion-euro status last month, staff received a rather special thumbs up in the form of handwritten letter from a an ex-employee, Tony O’Reilly. As a smooth-talking 26-year-old back in 1962, O’Reilly, as head of what was then An Bórd Bainne, set up the Kerrygold brand, convincing the city elders of the dairy industry to change tack and amalgamate under one umbrella brand.

At the time, the industry was fragmented across roughly 100 co-ops and producing way more milk than the domestic market could consume.

With the advent of EU membership in the 1970s, An Bórd Bainne was sold by the government to the co-ops and retains the legal status of a co-op itself. By the 1980s, some of the bigger players in the dairy sector such as Kerry began to secure business and develop marketing strategies outside its umbrella, which led to tensions. It adopted the name Irish Dairy Board in 1994 but rebranded as Ornua, a day ahead of the removal of EU milk quotas in 2015.

Its primary function is to market and sell Irish dairy produce abroad on behalf of its members, nowadays a 33-strong group of co-ops, processors and food firms. It processes nearly 45 per cent of the Republic’s near eight billion litre milk pool and has annual turnover of over €2 billion.

It has proved one of the great success stories of Irish industry. Even when the Irish economy was on its knees after the 2008 financial crash, the food industry here, led by the likes of Ornua, continued to expand, bolstered by demand from Asia and the lifting of longstanding EU milk quotas.

However, being successful can make you a target. Last year Ornua found itself embroiled in a legal case connected to its global marketing campaign for Kerrygold, which plays up the grass-fed nature of the cows that supply its milk. This is what makes the butter yellow in colour and taste better, the company claims.

However, the legal case taken in California claimed this constituted “false and misleading advertising” as Irish cows eat other materials, such as grain or soya, when weather is bad and some of these feeds can be genetically modified. While the case was thrown out, the publicity around it wasn’t helpful.

Tensions

Another potential spanner in the works stems from one of its own shareholders, Glanbia, which has been marketing its own dairy brand, Truly Grass Fed, seemingly playing up the purity of its own product.

Tensions between it and Glanbia, a 25 per cent stakeholder in Ornua, resulted in an Ornua shareholders’ meeting being cancelled last December.

Hennerty dismisses the idea of a cuckoo in the nest, insisting the issue has been over-egged in the media. “The noise and the controversy in Ireland is more around governance-led issues at board level,” she says, insisting relations are good while hinting the Truly Grass Fed debacle may simply be a smokescreen for other smouldering issues.

As of last month, Ornua had stockpiled nearly 40,000 tonnes of product, mainly cheese, in the UK ahead of the possibility of a crash-out Brexit, allowing it to supply UK customers for about six months in the event of a major disruption to trade.

It exports 80,000 tonnes of cheese annually to the UK and its Pilgrim’s Choice brand is the UK’s second best-selling cheddar cheese product.

Hennery says planning for an event where the outcomes are still unclear has been a significant challenge. “Our primary focus has been to work closely with our key UK customers and suppliers to ensure security of supply and to minimise the short-term impacts on our collective businesses,” she says. “The UK remains a key strategic market for Ornua and any change in the status quo will create competitive challenges for Irish dairy exports.”

The UK government recently published a list of indicative tariffs that would apply to food imports in the event of a no-deal Brexit, which would see a tariff of €221 imposed on every tonne of imported cheddar and €600 on every tonne of imported butter.

This would add about €55 million to Ornua’s cost base, most of which would have to be absorbed by the consumer, posing a serious, if not dire, threat to UK sales.

Ireland’s food industry trades on the idea of Ireland as a pristine pasture, unspoilt by heavy industry, something that plays particularly well with the Germans. But the State’s record on climate change and sustainability is completely at odds with this.

“We have a responsibility. We’re Ireland’s most visible dairy brand. It’s critically important to us that we embrace the change that needs to happen,” Hennerty says, before listing off the company’s sustainability credentials. “We need to be part of the action-driven initiatives to reduce emissions,” she says.

But reducing emissions may ultimately require slowing milk production, which most in the industry seem to skirt around.

So what’s next for Ornua and Kerrygold? Asia? “Ten years ago we sat down and said where’s the next Germany going to be. But the next Germany was Germany,” she says, noting sales have doubled there since 2008.

She highlights the opportunity for further expansion in the US where the company “still has a relatively limited shelf presence”.

“We also want to be known as a dairy brand rather than a butter brand and we’ve a journey to go to get there still.”