Emmi Case Study

A report to Christine ClarkeMalti Verónica Philippe

Thursday, 16 March, 2015

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Content List1.1 Summary2.1 Introduction2.2 Problem and Solution2.3 Actual Problems4.1 Conclusions5.1 Recommendations6.1 Bibliography

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SummarySwiss company Emmi has been the leader in the market of dairy

products such as milk, cheese, yogurt, etc. Emmi is well-known

for high quality products and strong presence in the

international market, nevertheless, it started facing problems

in 2012 when the Swiss franc strengthen. The appreciation of

the Swiss currency made the company nervous because of the

loss of revenue from abroad and increased prices of

production.

The company reacted quickly by implementing several

strategies that would help them address the issue; some of

them were overseas acquisitions in order to decrease its

dependence on the Swiss market, increase of share of key

companies i.e. Kaiku, get rid of unprofitable brands such as

Italian Trentinalatte, innovation and diversification of

products, reinforce presence in emerging markets like Asia and

Latin America, etc. These strategies made Emmi keep on growing

and expanding internationally while sales increased.

Actual problems for the company include a new

appreciation of the Swiss franc which brought similar issues

as in 2012, economic instability of Europe and low labor force

due to ageing population and skill gap. Before making any

long-term decision key questions should be asked: Should the

company increase prices to avoid the loss of income? Should

Emmi start producing abroad to evade the high prices of

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production?

Since the Swiss company has been performing well despite

the currency problem some recommendations would be to continue

with its strategies because they are guiding the company in

the right direction. If the company wants to stop losing money

when changing from euros to francs they should rise the prices

of products. Another recommendation would be to focus more on

international markets with high demand for dairy products like

China and Latin America, in order to depend its local

dependency.

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Introduction

Emmi is a Swiss company specialized in producing and providing

dairy and fresh products; it is the largest milk processor in

Switzerland. In 1907 corporatives founded the Central

Switzerland Milk Association which started selling milk, soft

cheese and yogurt under the brand of Emmi — referring to the

region of Emmen. It is not until 1993 when Emmi AG is created

and organized into divisions to separate association

activities from commercial activities. In the same year Emmi

defines its strategy of becoming the national market leader

and increasing exports and abroad activities.

From 1993 to 2003 the company focused on expanding its

products and brand by acquiring companies such as: Alfred

Gerber AG, Zingg AG, Burra AG, etc. These acquisitions lead

Emmi to increase its sales over CHF 500 million. In 2004 the

brand wanted to perform in new markets so they created Caffè

Latte, the latter became the most successful product the

company had launched.

In 2005 the company keeps making more and diversified

products such as ice-cream, yoghurt drinks, and more kind of

cheese. The company’s acquisitions keep going when they bought

Trentinalatte, an Italian yoghurt producer, cheese specialist

Fromalp AG and Roth Käse USA Ltd, and many others.

The actual CEO of the company is Urs Riedener and is

from Switzerland, in fact, all of the group management of Emmi

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is from Switzerland1. Even though the majority of sales are

from Switzerland, the company is performing in international

markets such as Europe, North America, Africa and Asia2.

1 About Emmi- Group Management; retrieved from http://group.emmi.com/en/about-emmi/management/group-management.html

2 Emmi’s Short Profile Facts and Figures 2013; retrieved from http://group.emmi.com/fileadmin/user_upload/emmi_group/investor_relations/misc/pdf/emmi_short_profile_2013.pdf

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Background

In December 2007, Emmi started to find problems dealing with

prices of raw materials and milk. The liberalization of the

market was another issue that the board needed to address.

Strategic decisions were taken based on analysis and the board

came up with three strategic priorities that would become

Emmi’s pillars.

1.1 The first one is to reinforce and maintain the leading

market position in Switzerland as it represents the mayor

percentage of sales3 for the company. In order to achieve this

goal, Emmi has assured key partnerships with several retail

companies, wholesale, food industries, hospitals, hotels and

catering4. Because marketing and sponsoring is a key factor to

maintain its leading role in the

local markets, Emmi decided to

advertise the Alpine Ski Racing

as seen in Image 1.1; this

sponsor not only involves Swiss

market, but German, Austrian,

Italian and American market

also. The company has also

decided to become official partner of FIS World Cup and the

Swiss Ski Association5

3 Ibid, p.4

4 Ibid, p.4

5 Sponsoring; retrieved from the Official Emmi’s Website from: http://group.emmi.com/en/sponsoring/alpine-skiing.html

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Image 1.1

1.2 International growth is the second goal that the board

decided it is key to Emmi. Since 2007 the company started

acquiring international brands such as Trentinalatte, Roth

Käse USA Ltd., Fromalp AG cheese specialist, Italian dessert

producer A-27 SpA, etc. The ultimate objective is to raise the

overseas sales to 50% of their total sales in order to balance

the Swiss declining consumption.

1.3 The third pillar is a long-term management strategy which

consisted in the creation of structures that can compete in

the international market, it also involved improvements in

efficiency and productivity6.

Currency problem

These strategies helped the company maintain its leading

position in the Swiss and international market. Nevertheless,

in 2012 the company started facing some difficulties caused by

the strengthening of the Swiss franc7. The liberalization of

the Swiss franc affected in great measure not only consumers,

but also Swiss companies, specially companies that produce in

Switzerland and export to other countries such as Emmi. With

the franc going up, Emmi’s exports are becoming more expensive

for the rest of the world; at the same time, Swiss citizens

prefer to buy products from abroad since they are now cheaper.

6 Emmi’s Short Profile Facts and Figures, op cit.

7 In the spotlight: Swiss franc weighs on domestic producers, retailers; Webb, Sam; Just-Food; retrieved from; https://www.just-food.com/analysis/swiss-franc-weighs-on-domestic-producers-retailers_id116656.aspx

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The appreciation of the franc represent a loss in revenues

from the Eurozone to the company.

Even though the Swiss National Bank tried to weaken its own

currency, the appreciation of the franc was inevitable. This

threat made the company’s sales in Europe go down, according

to an Emmi’s spokesman8. Many other Swiss companies such as

Nestlé and Swatch were also affected; but it is the food

industry the one that suffers the most, in particular Emmi

because 14% of its sales from Swiss products are exported

overseas9.

In addition, the retail market for dairy products is

decreasing in Switzerland by 3% in 2011; the forecast is that

the consumption will go in decline according to spokesmen from

Emmi.

Regards the difficult panorama that Emmi encountered; they

have been performing very well. When the company noticed that

the Swiss franc appreciation was a threat, they took action,

some of the responses are:

1.1 International trade was a key factor on Emmi’s growth in

2012. Emmi tried to grow and maintain its position by a

series of acquisitions of companies that are performing well

in emerging markets. For example, the acquisition of the Dutch

company AVH Dairy Trade BV, Italian Rachelli and Käserei

Studer AG; they also increased their share of Kaiku, the

Spanish milk processor10 to 76% as well as the share with

8 Webb, Ibid.

9 Webb, Ibid.

10 History of Emmi; Emmi Official Website, retrieved from; http://group.emmi.com/en/about-emmi/history-of-emmi.html

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French cheese specialist Diprola and Italian cheese specialist

Venchiaredo. The strategy that Emmi took was to reduce its

dependence of the Swiss market —because of the appreciation of

the Swiss franc— and rise the percentage of overseas sales

from 30% to 50%. This strategy clearly worked since Emmi made

key international M&A to ensure its overseas presence. In

Table 1.1 of the 2013 Emmi’s Facts and Figures we can see that

international sales rose from 30% to 42.6%, and that the

dependence of the Swiss market decreased. In Table 1.2 we have

a clear panorama of the international and local sales compared

to other years; from 2011 to 2012 the company increased, as

aforementioned, its international sales thanks to its quick

response to the changes in the environment.

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Table 1.1Source: http://group.emmi.com/fileadmin/user_upload/emmi_group/investor_relations/misc/pdf/emmi_short_profile_2013.pdf

Table 1.2Source: http://group.emmi.com/fileadmin/user_upload/emmi_group/investor_relations/misc/pdf emmi_short_profile_2013.pdf

2.1 Innovation and diversification of products also helped

the company to increase its sales. They created more variety

to its well-known brand Caffé Latte such as Vanilla Tahiti

Edition and Caramel Chocolate11. In the cheese sector Emmi

introduced Emmi Chäs Schiibe cheese slices and KALTBACH Creamy

& Tasty12. Emmi launched seven different flavors to a high-

quality yogurt; the company also focused on lactose-free dairy

products to cover all the possible consumers.

3.1 Emmi’s 2006 acquisition of Italian Trentinalatte was

reconsidered in 2013 due to struggles with the brand, low

sales and economic difficulties in Italy. After analysis and

board meetings, the Swiss company decided to sell the Italian

producer to Livia Group. Emmi made good strategic decisions

with its M&A by selling the low-profitable ones and buying the

emerging ones, this is certainly strengthening the company in

the international market and bringing positive results on its

sales13.

4.1 As part of Emmi’s international growth objective, in 2014

the company reinforce its presence in Latin America by

acquiring 50% of Mexideli, a Mexican cheese importer with its

headquarters located in México City, one of the biggest cities

in the world. México together with Chile represent Emmi’s

11 Ibid.

12 Ibid.

13 Emmi desinvierte en Italia; InfoRetail Magazine, retrieved from: http://www.revistainforetail.com/noticiadet/emmi-desinvierte-en-italia/6c2d5f8977dcd07ac5f3f882c4476e73

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bastions in Latin America14.

4.2 The Swiss company also increased its presence in the

US by buying 25% of yogurt producer Siggi’s15 with its

headquarters in New York. Emmi didn’t stop there, the buying

of J.L Freeman Cheese Company was another acquisition made in

2015 in order to secure its presence in North America. The

company decided that its new acquisition, J.L Freeman, needed

to import cheeses not only from Switzerland but also from

France and Italy16 in order to avoid the 2012 problem regarding

the strengthening of the Swiss franc.

5.1 Another major move in 2014 was the signing of

Switzerland in a commercial agreement with China. Swiss

companies including Emmi put a lot of pressure for the signing

of the agreement that will benefit

its exports and overseas sales. The

commercial agreement states that

tariffs will be reduced year by year

until they reach a tariff of 0%.

The Swiss company has its eyes

in the Asian country due to

population growth and the quadrupled

demand for Swiss dairy products such

as yogurt, milk, cream, cheese and

14 Emmi se expande en Iberoamérica; Ornelas, Andrea; SwissInfo; retrieved from: http://www.swissinfo.ch/spa/emmi-se-expande-en-iberoamérica/33265756

15 Emmi apuesta por el mercado estadounidense; InfoRetail Magazine; retrieved from: http://www.revistainforetail.com/noticiadet/emmi-apuesta-por-el-mercado-estadounidense/2cdb13fac2faa776f875a63475a8ccf3

16 Ibid

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Table 3.2Source: http://ch.emmi.com/fileadmin/user_upload/emmi_group/investor_relations/presentations/pdf/emmi_presentation_investor_day_dip_101207.pdf

butter17as we can see in Table 3.1. In table 3.2 it is clear

that the company has been performing very well in Asia, mainly

in China18; we can see that in 2014 sales rose in great measure

due, in part, of the commercial agreement.

17 Will free trade help quench China’s thirst for milk? DeVore, Veronica; SwissInfo; retrieved from http://www.swissinfo.ch/eng/will-free-trade-help-quench-china-s-thirst-for-milk-/40472862

18 Emmi in Asia; Diss Patrick (Head of Emmi’s Exports), retrieved from: http://ch.emmi.com/fileadmin/user_upload/emmi_group/investor_relations/presentations/pdf/emmi_presentation_investor_day_dip_101207.pdf

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Table 3.1Source: http://www.swissinfo.ch/eng/will-free-trade-help-quench-china-s-thirst-for-milk-/40472862

Actual Problems

Many Swiss companies felt the complications derived from the

strengthening of the Swiss franc in 2012 so in order to calm

the situation the Swiss National Bank worked hard to maintain

the franc’s value relative to the euro or at least at CHF1.20-

1.00€. Despite the great efforts to hold the franc, in January

of 2015, the Swiss National Bank took the decision to unpeg

the Swiss franc from the euro, letting the CHF strengthen

again. Because the Swiss franc is getting stronger, Emmi is

loosing money when exchanging euros to francs, this is a major

problem for the Lucerna-based company because 30% of the

revenues come from the Eurozone19.

According to the 2015 SWOT Analysis of Emmi an increasing

threat is the labor shortage in the European Union due to low

labor force; this problem is going to become more severe

because of ageing of the European population and the skill

gap. Such lack of skilled labor can affect the operational

efficiency of the company20.

The instability of the euro is also a significant problem

for the company since 30% of its revenues come from the

Eurozone. Debt crisis all around Europe, especially in Greece,

are making the euro to fall21 which represents a threat to Emmi

19 Emmi Facts and Figures, op cit.

20 Company Profile, SWOT & Financial Analysis; ProQuest, retrieved from: http://biblioteca.mty.itesm.mx/mty/bds/salta_bd.php?col_id=pqd

21 What does the fall in the euro mean for you and your summer holidays? Collinson, Patrick, retrieved from http://www.theguardian.com/money/2015/jan/26/fall-euro-currency-summer-holidays-syriza

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and its operations in Spain, Netherlands, Germany, Italy

France, etc.

Key Questions

When facing external problems such as the currency exchange

there are key questions that the company has to consider, some

of these are:

• Are my incomes decreasing because of the exchange rate

between the euro and the Swiss franc? If they are, is it

beneficial to raise the price of my products? How much should

I raise the price? When should I rise them?

• Is it possible that the Swiss franc is going to continue

its appreciation towards the euro? If yes, should I start

producing abroad —like Nestlé did— instead of producing in

Switzerland in order to avoid losing money?

• Is it better to keep my revenues from Europe in euros to

evade the loss of money when changing them to Swiss francs?

• Which are the next emerging markets I should focus on?

• Which overseas companies can I acquire in order to

continue my international growth?

• What are the dynamics of the market in the countries I

want to invest?

• Are my strategies strong enough to counterbalance the

problem with the currency?

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• Because 53% of my sales come from Switzerland, how can I

reduce the impact of any economic or political change in the

country?

• Should I invest in countries with more economic stability

or remain in my actual markets?

Conclusions

-Emmi has been increasing its international market by

acquiring diverse companies around the globe in order to

decrease its dependence on Switzerland.

-Emmi is looking for new potential markets such as Latin

America and Asia.

-The company is in a good path to achieve its goal of 50% of

sales from international markets.

-The main problems of the Swiss company are external such as

currency exchange, low labor force and economic crisis in

Europe.

-Emmi is responding well to this threats by making key

acquisitions in emerging markets which make sales grow.

-The company is selling un-profitable businesses such as

Trentinalatte.

-The strengthening of the Swiss franc is making Swiss

companies have a hard time because exportations may be

reduced and production costs increases.

-The currency exchange problem makes Emmi to lose money when

the company changes euros to Swiss francs.

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-Emmi is trying to innovate and create more flavors to its

products to continue its leading market position.

-Besides all the problems the company is facing, it is

performing very well. In 2014 financial year Emmi increase

its sales up to 3.2%22, success factors are international

acquisitions and revenues from Caffé Latte, Kaltbach and

other fresh products.

Recommendations

1. It is recommended that Emmi continues acquiring companies

that can bring benefits to them in emerging markets such as

sales growth and international presence.

2. Find which brands are not working anymore and sell them so

that the company does not lose money.

3. Seize the commercial agreement that Switzerland celebrated

with China in order to penetrate in the Chinese market,

which in fact has a high demand for dairy products.

4. After analysis, it can be said that the company is going in

the right direction and is fulfilling its objectives. A

recommendation should be to continue with its actual

operational strategies and keep doing what they are doing.

The company is aware that they have to create solutions

before problems appear, they are implementing key strategies

to reduce possible problems and to keep growing like the

past years.

22 Sales performance 2014; Emmi’s Sales growth on track; Bloomberg, retrieved from http://www.bloomberg.com/article/2015-02-05/a11kwctpjbag.html

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BibliographyKotler and Armstrong. (2008). Fundamentos del Marketing. México: Pearsons.

Jan Widmer. (2014). Emmi- Consumer Staples. 11/03/15, de St. Galler Kantonalbank web page: https://www.sgkb.ch/download/online/2014-08-28_Emmi_Equity_Focus_SGKB_EN.pdf

Katy, Askew. (2015). Emmi sales rise in 2014 but analyst concern over 2015. 11/03/15, de Just-Food web page : http://0-search.proquest.com.millenium.itesm.mx/docview/1652148750/768B476D619848B9PQ/2?accountid=11643

(2015). Emmi's sales growth on track. 11/03/15, de News Bites web page: http://0-search.proquest.com.millenium.itesm.mx/docview/1651836035/768B476D619848B9PQ/3?accountid=11643

(2014). Emmi : Solid market performance and rigorous cost management. 11/03/15, de 4-Traders web page: http://www.4-traders.com/EMMI-AG-97604/news/Emmi--Solid-market-performance-and-rigorous-cost-management-18217502/

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