The place of branding in the Irish dairy industry came under the spotlight this week with the move by Tirlán into supplying own-label Irish butter to Costco in the US.
This has caused huge concern in the wider Irish dairy industry and among producers because of the potential risk that it is to Kerrygold butter, the dominant player in the US premium butter market.
As was reported in this week's Irish Farmers Journal, Irish butter sales to the US have been increasing year on year in both volume and value.
Own-label creates extra value for retailer
Persuading shoppers to switch to their supermarket's own-label products instead of brands has been their key to increasing profits and growing their business for retailers around the world.
In any supermarket visit, shoppers will find gentle nudges towards own-label products across virtually all consumer goods where supermarkets make their best margin.
Kerrygold has been Ireland's outstanding success in agri-food branding over the past six decades.
It commands a significant premium in the US market and it is inevitable that supermarkets would like to capture some of the shine from the brand for their own-label butter offering without having to pay the premium. Securing a supply of a generic Irish butter to sell under their own branding largely achieves this.
Own-label gives supplier volume sales
Such business also works for the supplier, in this case Tirlán. If it can produce more butter for sale than Ornua can sell under the Kerrygold brand, then to maximise its butter production capability, it needs to find alternative markets.
Costco is obviously one such market and direct sales to the retail sector will always be preferable and more lucrative for businesses than trading the butter on global commodity markets.
While the business may be good for Tirlán, it comes with the huge risk that it will damage the value of the Kerrygold brand in the wider US premium butter market.
Irish butter, without the Kerrygold branding, will share many of its product characteristics and because the product is so similar, buyers over time may struggle to see the higher value in the Kerrygold brand, irrespective of promotional campaigns by Ornua.
This isn’t the case with products such as Coca-Cola or other processed food and drinks where specific 'secret' recipes are the key to making the product unique and, in the process, protect the brand.
Over the past six decades, the Kerrygold brand has been managed successfully by the Irish dairy industry. Key to this has been the co-op structure of Irish dairy processing, where farmers are the ultimate owners.
This collective approach has enabled the brand to be built and used in a way that shares the benefit with every Irish dairy farmer that sends milk to their local creamery.
Why there has never been a Kerrygold for beef
Other parts of Irish farming have looked in with envy at this success and pondered how the same could be achieved in other sectors. The beef industry is second to dairy in terms of value, but involves several thousand more suppliers.
It is only relatively recently that a specification was agreed for an Irish Grass-Fed Beef protected geographical indication (PGI) brand that was launched in March 2024. So far, its impact has been minimal and, unlike Kerrygold, many Irish producers won't even be aware of its existence.
The main reason why a collective brand struggles to get traction in the beef industry is that the sector is privately owned, with no farmer involvement in the processing side of the business.
The priority for each processor is their own bottom line, with no consideration given on what impact any action they take may have on their competitors. If a pricing policy by a meat factory damages a competitor in the market place, then that is just seen as collateral damage.
Ultimately, if a processor sells beef cheaply, then they simply set out to buy the cattle to fill the order for less money and their farmer suppliers take the hit. The co-op structure of dairy processing means that they are more sensitive to the prices paid for milk to farmer suppliers.
Successful management of the Kerrygold brand into the future will be a challenge. It has to reconcile the need to protect its value and market share alongside enabling co-op businesses maximising their potential.
The easiest solution would be for all co-ops to merge into one super processor, similar to Fonterra in New Zealand, which has 80% of the market. While there has been rationalisation in Irish dairy processing over the years, it is unlikely that we will get to the Fonterra model anytime soon.
In the meantime, Irish dairy farmers will hope that Ornua and Tirlán can put their heads together and find a way that enables Tirlán to maximise the potential of its butter business without undermining the Kerrygold brand in the process. Meanwhile, for beef producers, a major successful brand looks like it will be a dream for the foreseeable future.
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