The Health and Wellness Industry

Arla Foods UK is a private company and subordinate of the Swedish-Danish Arla Group, a cooperative society based in Denmark (Hu 32). The primary activities of the company in the United Kingdom entail the supply of milk to retailers and production of an assortment of brands for households. The brands include Arla, Skyr, and Anchor. The support activities, on the other hand, involve raising awareness with consumers on the benefits of healthy and nutritional eating.

Arla’s value chain starts at the farm where the firm oversees the milk production process through its Alargarden process and regular audits (Watson, Collier, and Preedy 89). The company then collects the milk in pools and transports it to its dairy processors. Arla processes the milk and converts it into other dairy products trading under its brands. Finally, it distributes its goods worldwide. The company’s competitive advantage is its ability to control its value chain and process high quality natural and highly nutritious offerings to its clientele (Euromonitor International, SWOT 1). The company’s transparency policy with labelling and processes also gives Arla an edge over its competitors (Johnsson-Sederholm and Du 14).

Regarding the position of the company in the UK market, Arla is the largest supply of fresh milk and cream and accounts for 44% of the market share (Lund and Weise 2011). Current data indicates that Arla produces at least 2.2 billion litres of milk each year. Local consumers consume most of the milk with the most successful brand being Lactofree (Belfast Telegraph n.p). The success has encouraged the company to produce other products that are mostly lactose-free, such as cheese and yoghurt (Puranam, and Vanneste 38).

Arla sees itself as a company that manufactures the ideal products for a dairy products customer. The company sees itself as health conscious, nutrition centred, customer focused and one that represents the contemporary zeitgeist (Edal 40). The company represents a people who value freedom of dietary choice, value transparency, prefer simple lifestyles by eating foods with shorter ingredient lists and look to lead healthier lives.

Industry Analysis, Success and Survival Factors

Porter’s five forces

The threat of new entrants

There is a moderate threat for new entrants in the industry. Profitable markets that yield high returns attracts new firms, however, the industry has barriers of entry such as high capital requirements, high technology requirements, high supplier switching costs reduce the threat for new entrants (Cameron 25). However, new entrants may sway other new entrants as they may easily decrease the market share and profitability of the new company before it gets to grow its market share.

The threat of substitute products and services

There is a moderate threat from substitute products for the health and wellness industry. The substitutes to organic health and wellness products may include organic tea, organic coffee, organic fruit and vegetable juice, and non-cola carbonates (Euromonitor International, Organic Opportunities 11). Developed countries consume more dairy products that their developing counterparts due to a higher disposable income and better dairy farming techniques which make them produce more. However, more and more people in the developed nations are moving towards dairy alternatives such as non-dairy milk and also adopting several dietary lifestyles such as vegan diet which do not favour the consumption of dairy products. Others replace dairy products with calcium supplements. Accordingly, the threat of non-dairy substitutes in developed countries remains high. However, the threat for substituting dairy products with non-dairy in developing countries remains low. The cost of non-dairy substitutes in developing countries is out of reach for many citizens. Besides, the alternatives are generally lowly stocked and generally unavailable. Further, there is little knowledge about non-dairy alternatives in developing countries due to little exposure as well as little freedom to shift towards diverse dietary lifestyles.

Buyers bargaining power

The bargaining power of consumers or buyers is high when they have many alternatives to choose from; can exert pressure on businesses to provide higher quality products and can push for lower prices (Scott and Greene 118). Health and wellness dairy products consumers have moderate bargaining power. The consumers have a wide range of milk and dairy organic offerings at their disposal and can also influence businesses to provide higher quality products through health awareness associations and by demanding transparency in labelling. However, they have limited influence on price offerings.

Bargaining power of suppliers

According to Dam and Larsen (54), the bargaining power of a supplier varies according to the number of buyers they serve, the extent of their influence on the quality, price and availability of products. The bargaining power of organic milk suppliers in the UK is moderate. The industry players set high-quality requirements on milk and enter into exclusive long-term contracts that fix the prices of milk along with limiting a farmer’s dealership with other cooperatives.

The intensity of competitive rivalry

There is high competitive rivalry intensity in the UK’s health and wellness industry. The industry has many local and international companies in operation such as Coca-Cola, and Danone among others who are constantly trying to increase their profitability and steal market share from others. The companies engage in fierce advertisements seeking to depict their products as the best. They are also constantly innovating and designing new products targeted at meeting the specific market needs (Coetzee 11). Accordingly, companies in the industry must continuously develop strategies to keep recent and adapt with new industry developments.

Limitations of the analysis

There are, however, some limitations of Porter’s five forces analysis. Accordingly, it may not be appropriate to Porterise the industry entirely. The model does not clearly define the industry. The health and wellness industry is very broad and has many business lines in the dairy, juices, coffee, and tea among others. All the business lines have different dynamics and thus it would not be appropriate to generalize all the dynamics into one. Another limitation is that the model basis its analysis on past data which may not accurately predict the future. Accordingly, investors seeking to analyse the industry should use the model together with others such as the SWOT and simulation analysis to get a better understanding of the industry.

PEST analysis

PEST refers to the unique factors that are political, economic, social, and technological. It is used to analyse the external environment of the industry.

According to Choo and Bontis (31), political factors refer to the specific regulations and policies set by the government, for example, taxes, tariffs, and environmental regulations. The UK health and wellness industry is currently experiencing uncertainty with Brexit (O’Carroll n.p). The industry players have teamed up with farmers and peers across Europe to build support for delivering strong evidence-based arguments with politicians and policy formulators on the final trade deal between the EU and UK (Arla, Annual Report 21).

Economic factors are those that have an impact on an industry’s financial environment. They include inflation, exchanges rates, and capital markets requirements (McKeown 68). The UK health and wellness industry is subject to exchange rate fluctuations as it exports a substantial part of their produce to external markets.

Social factors refer to a society’s lifestyle, customs and value dynamics affecting an industry (Hutchinson 102). In the UK, customers are increasingly driving production policies to shape the industry’s offerings. Such include the need for more healthy-natural products, transparency in labelling, products with fewer artificial ingredients, and products fitting various consumer patterns such as vegan products (Arla, Annual Report 18).

Technological factors incorporate the advancements and developments that impact on the way an industry operates. Currently, e-commerce continues to disrupt the traditional mode of shopping as a substantial segment of consumers change their shopping patterns to trade and transact through the internet (Cummings and Worley 36). Accordantly, companies have had to develop coping mechanisms to align with the new trends.

Success and Survival Factors

Success Factors

The analysis relies on the Rockart’s critical success factors model to examine the success and survival factors. According to the model, success factors are the characteristics that enable a company to post exceptional financial returns (Grunert and Ellegaard 12). Arla has established and managed to scale relationships of trust with its major suppliers and farmers thereby ensuring loyalty with the segments (Euromonitor International, SWOT 2). The company also applies advanced technology with its processes. For instance, the company employs the Arlagarden process that allows the company and consumers track the processing of dairy products from the farm to the fork. Arla also adopts strong product differentiation to provide several bespoke offerings that suit the needs of specific needs of various consumer segments (Arla, Annual Report 32).

Survival Factors

Rockart’s model defines survival factors as the strategies adopted to enable a competing organisation to make acceptable financial returns (Grunert and Ellegaard 14). Arla has the basic technological capacity needed for processing dairy products that meet the customer’s minimum needs (Fjetland 106). The company also has a financial base that can allow it to pursue new opportunities to foster growth and thereby remain a growing concern. Arla also has a good local and regional franchise that allows it to generate sustainable revenue and profits (Roadmap Dairy n.p). For instance, the company forged alliances with buyers such as Morrisons, Starbucks and e-commerce providers to enable it to navigate the market and scale its revenues (O’Carroll n.p).

Organisation Strategy

Resource Based View (RBV)

A Resource-Based View is a managerial tool for assessing the potential of a firm’s strategic resources to deliver competitive advantage to the organisation. A firm can assess its resources against the Valuable, Rare, Imitable and Organization (VRIO) criteria to determine their suitability (Boxall 180). This section shall analyse Arla’s resources and capabilities using the VRIO framework.

Resources

Arla has a valuable human resource workforce with over 19,000 employees sourced through an external recruitment consultant (Arla, Annual Report 74). The employees are highly talented and global leaders in their field.

The company’s valuable resources include a rare milk processing volume of 13.9 billion kilograms and revenue of 10.3 billion Euros (Arla, Annual Report 4). The company also owns a valuable and highly equipped modern dairy farm with production in 9 countries. The company also has a valuable global distribution network covering 120 countries (Lund and Weise 41).

Arla also maintains valuable complementors for its business. They include suppliers, customers, researchers and distribution networks. The company networks with key partners and scientists in the food science and technology field, farmer-owners and customers such as retailers like Morrisons and Starbucks (Laszlo and Nadya 117). Besides, it continues to cultivate a relationship with the major global e-commerce platforms.

Capabilities

Arla has a rare innovative ability and employs 150 research and development experts from all over the world in its global innovation centre in Arhus, Denmark (Arla, Annual Report 74). The innovation centre acts as the central hub for research and development for new products, packaging methods, and exploring new sales channels.

The company has a valuable transparency program, Arlagarden (Arla, Annual Report 38). The program works with farmers to ensure a milk composition that meets the customers’ needs, food safety practices at the farm to ensure safe milk production practices, animal welfare geared towards ensuring the meeting of the animals’ psychological and behavioural needs and environmental considerations aimed at reducing the environmental impact of farms.

Arla has an organisation position that provides for building new ventures and partnerships all over the world. Arla realises that emerging and developing economies will contribute to 50% of the globe’s GDP by 2030 and will host 86% of the world’s population (Laszlo and Nadya 119). Accordantly, Arla is shifting its market frontiers with its presence in China, Germany, Sub Saharan Africa, South East Asia and the Middle East and North Africa.

The Culture, Systems, Structure, and Human Resource of Arla Foods

Culture Web

The culture web is a management model for assessing an organisation’s cultural assumptions and practices (Trkman 126). The model covers stories, symbols, power structure, control systems and routines.

Regional and national contexts are necessary dynamics to consider as they may have social values that differ across borders (Ghemawat 41). Arla is a multinational company that fosters inclusion and diversity in its operations. The company seeks to understand the regional culture, and value differences in the countries it operates. It also designs products and aligns its operational and engagement policy to match the host’s state (Porter 32). For instance, Arla was the first company to issue an apology to Muslim clerics and its Muslim clientele in the Middle East following a profane advertisement that led to the boycott of Danish products in 2006 (Abosag 369; Frandsen and Johansen 8).

Regarding symbols, the company has a ‘Farmer-Owned’ marque on 90% of its product’s packaging (Arla Food Ingredients 3). The symbol represents an aggressive farmer-owned campaign geared towards raising consumer awareness, on the values underlying its products. The logo also differentiates Arla’s products from those of its competitor’s thereby instilling trust in its products.

Arla’s heritage dwells on the desire for success, hard work, customer satisfaction and growth. The company’s heritage dates back to the 1880s when Swedish and Danish dairy farmers combined forces to produce high-quality dairy products and create new opportunities for growth (Arla 38). The year also marked the development of Arla’s organisational structure which the company continues to develop to date through integration.

Arla’s company routines encompass practising systematic operational procedures, continual optimisation of the company’s value chain, fostering responsibility, engagement and open-mindedness, executing sound risk management practices and comprehensive quality awareness and making sure that all employees understand and abide by Arla’s code of conduct (Arla 56).

Arla power rests with the owners. The owners delegate their authority to the executive management team to oversee the company’s day to day activities (McKeown 7). The company adopts a hierarchical power structure. The power structure is such that leaders convey directions and guidelines to lower level workers.

Arla control systems include internal and external audits and documented verification procedures. The company conducts quality chemical, physical and microbial inspections on its raw materials and finished goods according to documented test methods and guidelines (Arla Food Ingredients 6). Arla also conducts internal audits to evaluate compliance of its processes and liaises with external auditors to audit factories for compliance with local laws and procedures.

ABCDE

Autonomy refers to the freedom from external influence. Arla grants its employees a high level of independence to make their own decisions. Autonomous employees feel trusted and recognise that their choices contribute to the organisation’s overall success (Scott and Greene 129). Accordantly they are more concerned about their work. Autonomous employees are also more creative and often take the initiative by themselves and hence motivation.

Bureaucracy is a managerial concept that adopts a pyramidal command structure. Bureaucratic organisations are highly organized with high degrees of formality in their operations (Armstrong and Taylor 123). The companies have specialised systems and processes designed to foster uniformity and control within an organisation. Arla has systematic processes governing all its processes (Arla Food Ingredients 8). The systems include quality assurance processes; food safety and food security provisions; infrastructure and production facilities regulations and production environment guidelines.

Organisational culture refers to a business’s model of defining the specific behaviour patterns, rituals, rules and identity applicable within the company’s business environment. Culture controls thus seek to foster uniformity in behavioural patterns (Al-Mudimigh et al. 312). Arla achieves culture controls through implied social norms, rules and regulations and role modelling. For instance, Arla advocates for collaboration at the workplace to achieve better performance, the company also conducts new employee induction to acculturate them according to the company’s philosophy (Arla, CSR 30).

Devolution refers to the delegation of power to lower levels. Devolution of power ensures skill development, loyalty and career growth opportunities. It also ensures efficiency in production s as decision making is quick (Scott and Greene 119). Arla adopts a hierarchical management system that assigns s clear roles to its employees and leaders. The process ensures that the company hires competent managers with specific skill sets to match their departmental needs (Arla CSR 35).

Economic incentives refer to monetary compensation schemes geared toward fostering job satisfaction and motivation for employees. Arla offers competitive economic incentives to its staff to encourage high performance, loyalty and value creation (Cummings and Worley 96). The company provides an internationally benchmarked remuneration package that balances fixed and variable pay. The company continually reviews its package with external advisors based on current market data.

HRM Causal Model

The HRM causal model lays out the cause and effect chains and provides that causality flows from HR processes to performance. Consequently, HR contributes to a company’s feasibility and may set a base for sustained competitive advantage. Arla’s HR practises concern recruitment, selection, induction, training and development, performance management and remuneration (Trkman 230). The company conducts a thorough recruitment process to select employees that meet its needs. The HR then inducts the selected employees through the company’s values, processes, philosophies and code of conduct (Sekhar 71). The employees then get thorough training in their respective fields to align with the organisational process. Arla also regularly appraises its staff on their job for potential development and remunerates them competitively.

Critical Appraisal

Fit

Success factors refer to the characteristics that enable a company to post excellent financial returns. Arla has established a global brand operating in more than 120 countries commanding a 3% global market share (Arla, Annal Report 5). Accordantly, the company can compete favourably with other global brands in the UK.

Additionally, Arla adopts strong differentiation to counter the threat of substitution for its health and wellness products (Arla, Annual Report 34). The company has also managed to scale its revenues and develop strong buyer relationships with major retailers in the UK owing to its maturity.

Besides, Arla had an HR structure tailored to recruit and maintained highly talented members of staff to propel the company to prosperity (Arla, Annual Report 49). Also, the company’s bureaucratic systems serve to consistency and quality in production to align with the company’s goals of becoming a global market leader in the health and wellness industry.

Distinctiveness

Arla has a clear differentiation advantage. The company is a leader in the organic health and wellness market. The company produces products that are natural and nutritional. The company’s organic health and wellness offerings have few threats to substitutes (Euromonitor International, SWOT 1). Accordantly, customers, have a narrow choice of products to purchase. The distinctiveness of its products, therefore, gives Arla a competitive advantage in the industry.

Customers also prefer Arla’s products for its transparency in labelling. Arla also brands 90% of its products with the ‘Farmers-owned” logo (Arla Food Ingredients 3). The logo differentiates its packaging, raises consumer awareness and instils trust in Arla’s products.

Arla also fosters autonomous employees which is a departure from the traditional model of management. The autonomy bolsters creativity, initiative and responsibility. Ultimately, autonomous employees contribute to the company’s profitability and success.

Sustainability

Arla adopts several sustainable policies in its operations. For instance, the company fosters strong relationships with its key industry stakeholders such as farmers and customers. The company also continues to expand to other markets and forge new partnerships to ensure sustainable growth in future (Lazslo and Nadya 52).

Additionally, Arla offers competitive economic incentives to its employees and managers. The incentives serve to attract and retain a talented pool of workers who are committed to the organisation’s success and growth.

Conclusion

Arla Foods is a market leader in the dairy industry in the United Kingdom. The company managed to achieve its target through acquisition and mergers. Also, its organisational culture, structure, and systems align with the company’s strategic goals. Consequently, the firm is likely to continue its market leadership. However, the company faces several strategic issues such as poor hedging resulting in losses accustomed by exchange rate fluctuations and inflation.

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