Lion revamp targets Asian markets

Described as the biggest food manufacturing development in Australia for a generation, The Heritage specialty cheese manufacturing hub at Burnie is the largest plant of its type in the southern hemisphere and already responsible for boosting Lion's domestic sales.

It produces more than a quarter of the branded specialty cheese lines in the Australian grocery channel.

Exports, currently responsible for just 7 per cent of Lion's cheese, yoghurt and milk product sales, are set to ramp up as a result of a specialty cheese marketing push, primarily targeting Asia and particularly into new supply chains now being tested in China.

"The focus will be on taking the providence of our top-end Australian product into Asia," said Lion's dairy and drinks boss Peter West.

Owned by the Japanese beverage giant Kirin, Lion already has a leading spot in the yoghurt market in Hong Kong and Singapore with its Australian-made Farmers Union and Yoplait brands.

Last year it established Lion Dairy Asia to focus on building markets for extended shelf life milk, flavoured milk, yoghurt and specialty cheese lines, tapping Kirin's market connections in the region.

"Our expansion strategy is not about adding more UHT milk or powder sales to the export market, we're only interested in differentiated product.

"Future aspirations are about driving that market in China. We expect to announce more detail about relationships we have signed in a couple of months."

The Burnie plant's largely automated production, packing and distribution facility has employed the world's most advanced specialty cheese making technology from Germany and elsewhere in Europe to continually batch process premium-end products previously produced and wrapped in various sites in Tasmania, Victoria and South Australia.

Burnie will make about 11,000 tonnes of soft, cheddar and fetta cheese lines annually for the Mersey Valley, Tasmanian Heritage, Australian Gold and South Cape brands, while Lion also owns the premium King Island Dairy brand hand made in Bass Strait.

After taking a beating from supermarket discounting in the white milk market where its sales growth is running at one per cent or less, Lion says it has turned the corner with a big push in the profitable flavoured milk, Greek yoghurt and specialty cheese categories.

In the wake of commissioning its Tasmanian plant upgrade late last year, Lion responded to a festive season demand peak to record double digit sales growth for December.

Australia's total specialty cheese category is worth more than $620m a year, but Mr West believed huge growth potential existed in the domestic cheese market, given Australians eat much less than the average for OECD nations.

Australian annual cheese consumption at 12 kilograms a head compares with a 17pc average for western markets, with Greece topping the score at 31kg/head, France at 26kg and the US at 15kg.

Mr West said Australian dairy markets were generally experiencing solid growth in the "indulgent" and healthy eating product categories.

That's a reassuring trend for Lion's cheese business which offloaded its every day cheese brands, including Coon and Fred Walker, to Warrnambool Cheese and Butter in March, and for its Farmers Union Greek yoghurt brand which has helped drive double digit growth in Lion's yoghurt segment.

Meanwhile, its Dare Iced Coffee has enjoyed six years of national double digit growth and now outsells Coca-Cola in the convenience store marketplace.

"Specialty cheese will be a key value driver for our business, as a growing category that is strategically important to our customers," said Lion chief executive Stuart Irvine who oversaw an official opening of the upgraded Burnie plant yesterday.

"We have significant headroom to increase specialty cheese consumption and maximise the impact of our portfolio."

Mr Irvine said the marketing strategy combined with Lion's efforts to optimise the efficiency and scale of its supply chain, with the expanded Burnie site helping the business innovate its specialty cheese offering and "ultimately driving higher margin sales that deliver sustainable returns to Lion and the whole supply chain".

Lion, which employs about 250 staff at Burnie, also owns the Dairy Farmers dairy and Berri juice brands, Tooheys and XXXX beer and the Boag's Brewery in Launceston.

It buys 80m litres of milk from 62 Tasmanian and mainland farms every year.