After the collapse of Dairy Farmers of Britain in June 2009, confidence in the future of dairy co-ops was at an all-time low. But with pre-tax profits up a healthy £8.6m in the six months to 2 October and the co-op about to launch I Can't Believe It's Not Cheddar, Milk Link is going from strength to strength. Chief executive Neil Kennedy, tells Richard Clarke what it has done – and what the industry as a whole needs to do – to drive category value

What's your take on the general state of the UK cheese market? There are positives and negatives. We're seeing better levels of volume growth, which is a good thing in what is a very big category with almost universal penetration. Historically we've had pretty slow growth about 1%. That's accelerated to more like 3%-4%. It might not sound a lot to some markets but for us that's a significant increase. What's less encouraging is that a lot of it is being fuelled by aggressive promotions, particularly on branded Cheddar, which is having some effect on the value of the category.

Just how bad has the promotions frenzy become? We have to see it in the context of what's happening in the food industry. Consumers are looking for value, and retailers and manufacturers need to protect their volumes. Promotional investment is part of how you do that. So I don't think it's unique to the cheese category. What's probably a little different to other categories is the battle for share within branded Cheddar, where the market probably has more brands than it really needs, but nobody wants to dip out of the race. In many cases those brands are delivering lower consumer prices than own label. That's not what brands are supposed to do.

Has Milk Link succumbed to the pressure to join in? Our Cheddar, Tickler, is a premium brand, so we certainly have not been engaging in this very deep-cut activity. We offer more traditional, modest price cuts. Tickler is a top-end Cheddar and we don't want to be giving it away, but we do want to continue to grow sales and penetration. That's been working successfully. We're seeing year-on-year volume growth of 40% with value pretty close at 35%. There's a lot of noise from the brands and lots of deep cuts, which forces you to think harder and smarter about how you develop a strategy other than just being very cheap.

Are we at the point of no return with promotions? It always feels, when you're in the middle of it, like: "How the hell do we get out of this?" I don't think it's the point of no return and I don't think it's about to stop overnight. But it's quite painful and what usually happens in these scenarios is somebody falls over because they can't keep up in the race.

Is it down to the retailers to take action? I think the retailers are recognising that perhaps they've allowed a little too much of the market to go to these brands through the number of promotions. For those retailers, what differentiates them from their competitors is their own-label offer. You can buy the major brands anywhere, but you can only buy the Sainsbury's brand in Sainsbury's. I think you will see a more concerted effort by the leading retailers to get behind their own brands.

Price aside, what are the key drivers for consumers when they choose cheese? There's still a trend towards better and more complex tastes and textures and healthier alternatives that deliver on taste and texture. Cheese has perhaps been slower to adopt this than milk, yoghurt and yellow fats, but it's happening. Probably the most active in this area are Milk Link, with our customer brands in Sainsbury's and Waitrose, and Dairy Crest with Cathedral City Lighter. We're also launching I Can't Believe It's Not Cheddar in the new year. The third trend for me is convenience. Sliced natural cheese has been seeing double-digit volume growth, prompted partly by promotional activity.

Could harnessing these trends inject more value into the cheese category? I think so. If you take Tickler, it will typically be delivering a consumer value of 50%-plus over an ordinary, heavily promoted Cheddar. Convenience delivers maybe a 20% to 30% premium. The less aggressively promoted healthier alternatives are delivering a 10% to 20% premium.

Is there enough innovation in the category? No. I'd like to see more investment in innovation and advertising and maybe a bit less in promotions. We have launched our own version of resealable packaging, which is like a plastic Velcro system (see packaging innovation panel p68) it's about helping the consumer keep the product fresh and in good condition without having to fiddle around with clingfilm. It talks to a consumer issue, which is how to minimise waste. I'm also very pleased with what we've done in lighter cheese.

Where do you see the focus for future innovation? Convenience probably needs to move on again. There are a lot more legs in that category. If you look in other markets, Germany for instance, sliced natural cheese is getting on for half of the market. We need to make what consumers really want. They like the convenience, but what they also want is the product delivery in terms of taste and texture, size of slice and thickness of slice. There are some technical challenges there.

Is British cheese holding its own against imports? In the core Cheddars market, I think Britain is very much leading the way. We're getting increasing levels of support from retailers on the core ranges. The big volumes supplied into the British market are coming from Ireland, primarily for own-label and bottom-end.

Are retailers sufficiently open about the provenance of their own-label Cheddar? Increasingly they're supporting a move to clearer labelling. Those that haven't, I don't think they would say they want to mislead deliberately. They might argue and you'd have to ask them the question that the consumer doesn't care, providing the quality's fine and good value for money. I also suspect there's a degree of wanting to keep the sourcing flexible. My preference would still be for clearer labelling, even in the price-sensitive areas. If the consumer is only driven by price then why be embarrassed about where it's from? We're not anti-Irish, or anti-New Zealand, we just think consumers should be able to make informed choices. For some consumers it doesn't matter. But I believe for a large group it does.

Defra has developed new guidance on country-of-origin labelling for dairy products. Is that something you support? Yes it is. There's been some debate about what makes a product British is it where it's packed, where it's made, or where the milk comes from? We're quite clear on this: when a consumer buys something called British Cheddar it needs to be made here.

There's still no uniform way for consumers to select cheeses of different strengths. How do we resolve that? There's an issue there because it's a purely subjective view. One man's mature is another man's medium is another man's mild. I think there's a role for the numbers. The other thing is that 'mature' is just one word. We could develop the language of how we describe cheese and frankly be a little more consistent and honest.

Is enough investment going into the infrastructure of the UK cheese industry? Cheese is a bit behind liquid milk and yoghurt. Milk Link's big leap into the cheese market was six-and-a-half years ago when we bought The Cheese Company. We've spent more than £30m since then and even we think we've still got a long way to go.

What will happen without that investment? If competing suppliers in Ireland or beyond can produce your product more cost-effectively than you, the risk is you lose the market. We're going to need to move up a gear to maintain and grow our share so we it doesn't get eaten away by either imported product or foreign ­investment, which would mean we just manufacture and the profits go back ­somewhere else. What we don't want is a category that's well invested in but no longer British. I might sound a little parochial, but I'm fighting the corner of British industry and the British primary producer.