Müller Milk & Ingredients has followed warnings the liquid milk sector is on the verge of a new crisis by launching a £100m “cost and margin improvement” programme.
The dairy giant said the programme, dubbed Project Darwin, included a “comprehensive review” of every aspect of its operations, from logistics and manufacturing to back office, people organisation, products and customer relationships.
The 12-month project is already underway and would help to “simplify the business, reduce cost and further improve customer focus and accountability”, MMI said. It follows a similar cost-cutting move by Arla last April.
Any cost savings would be spread over two years, said MMI chief executive Patrick Müller, who also refused to rule out the prospect of job cuts or site closures. However, he stressed no decisions had yet been made.
“From a manufacturing and logistics point of view, we are as efficient as we can be,” Müller told The Grocer. “We have probably got the best invested network in the UK.”
But he warned “how we operate doesn’t allow us to make a profit”, leading to the need to take “tough choices” to simplify the business and ensure it would still “be here in 10 years”.
Müller said the business was “already reviewing relations with retailers”, and confirmed some milk supply deals could be renegotiated. MMI had also made “good progress” with one of its “major customers” on an as-yet-unannounced five-year strategic supply partnership, he added.
It follows warnings by Müller in December that the liquid milk sector had reached a “tipping point” in terms of profitability. Analysis of 2017 accounts by The Grocer revealed average margins had plummeted by almost 86% to just 0.14% across the UK’s seven largest liquid milk processors.
MMI is also facing flak from farmers in its Müller Milk Group, who recently warned a 1.25p per litre drop in its farmgate milk price for March would push many to the brink, and could threaten the viability of the dairy giant’s supply base. It cited the cost of integrating the Dairy Crest liquid milk business as a major contributor to a £132.9m operating loss for 2017, despite a surge in value sales of 6% to £2.1bn.
“Fresh milk is loved by British families, with 96% of UK households having milk in their fridges.” Müller said. “But the market environment has changed significantly due to global dairy market volatility, decline in consumption and changes in retailing. We need to adapt and return to sustainable levels of profitability so that fresh milk can continue to be part of the fabric of British life.”
Project Darwin was about adapting to the changing market environment, “becoming a customer-centric, agile and simpler business”, he added. “When it succeeds, consumers, customers, employees and farmers will benefit, and we can again look forward to a vibrant and progressive future.”