“Small processors will not be able to keep up in getting raw material as prices will rise and due to private labels’ pressure final product prices will have to go down to boost consumption. Hence, the operational model will have to be optimized, reshuffled and these processors will not have the power to do this and will have to close down,” Danila believes.
He has been running the Covalact group, with EUR32 million in revenue in 2013, for three years.
According to data provided by Danila, out of the around 400 milk processing facilities in 2011 only 170 are still operational today.
“In the past three months around 20 plants have been closed. I believe further facilities will shut down and that in two years at most the number of processors will be halved and there will be several mergers and acquisitions,” Danila added.
On the plant shutdown and on Romanians’ dwindling purchasing power due to the economic crisis, the dairy market more than halved by value to around EUR800 million in 2012, against EUR2 billion in 2008, according to data provided by the Romanian Dairy Industry Association (APRIL). Sales volumes, too, shrank by 20-25% over the same period.
However, it was not only small players that suffered, but also large ones, such as Dutch-held FrieslandCampina (Napolact) or French-owned Lactalis (LaDorna).
Covalact, a company with a 40-year history in the dairy industry, was acquired in 2007 by SigmaBleyzer US-based private equity firm. Covalact group also includes Lactate Harghita. SigmaBleyzer now owns more than 95% in Covalact, Cornel Danila said.
“In the past three years, the company’s portfolio and operational processes have boomed. 2013 was another good year for Covalact. In 2013, Covalact’s revenue went up 6% to EUR32 million against 2012,” Danila said.
Danila, 46, has a 15-year experience in the consumer goods industry, working with companies such as Danone or Henkel.
Covalact holds around 5% of the fresh dairy market by value, ranking fifth on the Romanian market, according to data provided by market research company Nielsen, quoted by Danila.
Covalact has two dairy production facilities, in Sfantu Gheorghe and Miercurea Ciuc, with over 500 employees. The company also owns a logistic warehouse with a 1,400-pallet capacity, opened in 2012, in which it invested 5 million lei (around EUR1.1 million).
The two plants have an over 300,000 liter processing capacity and in 2013 processed 38 million liters of milk yielding 16 million tons of fresh dairy products, according to company data.
“Around 10% of production goes abroad, to Italy, Spain or Great Britain,” specified Danila.
This year, the company plans to invest some EUR1.5 million in logistics and production. At the same time, it is set to launch new products under Covalact de Tara and Friss brands.
Danila says Covalact group is the leader of the segment of fresh cheese and is among the biggest players on the dairy drinks segment.
Covalact general manager expects the dairy market to grow by around 5% in the next two years and the period to be challenging for the market as quantities of raw material in Romania are below processors’ demand and farmers’ costs are high. At present, the price of milk as raw material ranges between RON1.5-RON2, while milk prices on store shelves stand at RON4-RON5. (EUR1=RON4.4824)
(English version by Catalina Apostoiu)