Marketing Strategies for Dairy Products - KPEP

USAID KOSOVO PRIVATE ENTERPRISE
TITLE OF STTA REPORT
PROGRAM (KPEP)
KOSOVO PRIVATE ENTERPRISE PROGRAM
Marketing Strategies to Enhance Market
Share of Domestic
Value-Added Dairy Products
January 01, 2009
STEVE CARPLES & MIKE CLARY
Implemented by
Booz Allen Hamilton
This publication was produced for review by the United States Agency for International Development. It
was prepared by the KPEP project team of Booz Allen Hamilton based on a Final Report prepared by
Short Term Technical Advisor, Xxxxx Xxxxx.
FEBRUARY 29, 2009
DISCLAIMER
The author’s views expressed in this publication do not necessarily reflect the views of the United States
Agency for International Development or the United States Government

Summary
Kosovo’s dairy sector experienced a significant decline during the conflict of the late 1990s. Nevertheless, the
sector plays a vital role in the economic development of the country and the nutritional needs of its citizens. If
the sector is to grow and compete with imported products, the industry must consolidate farms for greater
efficiently and further increase processing quality and consistency.
Kosovo’s dairy industry holds approximately 30% of the total domestic market share of value-added goods,
including UHT fluid milk. Many of the highest margin business opportunities (such as fruit yogurt) have been
cherry-picked by sophisticated Western European marketers and are dominated by established regional brands
that Kosovo people have known and trusted for years.
In 2008, a KCBS commissioned Dairy Market Assessment Study revealed that:
• Value-added products represented just 36% of domestic milk consumption; the remaining share comprised
of home consumption and green market sales of raw unprocessed milk. In recent years, green market sales
have declined as more urban consumers are frequenting hypermarkets to fulfill their food and dairy needs.
Domestically processed dairy products represented 10.6% of total estimated consumption, and 29.4% of
the market for value-added goods.
• The dairy product categories with the highest household penetration were UHT milk (71% of households),
fresh white cheese (51%), sour cream (45%), fresh pasteurized milk (40%) and drinkable plain yogurt
(35%). Many households used pasteurized milk as an ingredient to make other dairy products, believing
these tasted better. Categories on the rise included high margin fruit, bio yogurts, and aged cheeses.
• The most important characteristics affecting dairy purchase decisions were fresh taste, nutritional value,
natural ingredients and expiry coding. Children’s preferences also played a significant role in the brands
parents purchased. Promotions and price were less important, and consumers favored brands they trusted.
For this reason, the study revealed that consistent delivery of product quality was critical.
• Preferred imported brands included Alpsko (UHT milk), Dukat (drinkable yogurt), Feta (cheese) and
Jogobella / Fructis / Zott Monte (fruit set yogurts).
• Milk producers were largely comprised of very small farms (70% of dairy farmers have under 5 cows), and
processors were relatively small operations compared with international dairy companies, which result in
low economies of scale. Consequently, domestic processors have little available capital to invest in
modernized equipment, new product development or marketing.
• The raw milk supply varies greatly by season, increasing by 50% in the summer months. This variability
makes it difficult for local processors to consistently produce a full range of products throughout the year.
• Some high demand products like kashkaval cheese are only made during the summer months when more
milk is available. Seasonality also affects the quality of raw milk supplies, since refrigeration at farms is
somewhat limited.
Engagement Objectives
This engagement incorporated the following scope of work objectives:
• Review the 2008 Dairy Market Assessment Study and conceptualize potential marketing strategies for
the Kosovo dairy sector.
• Prepare a situational analysis of the domestic dairy value chain to better understand capabilities,
predispositions, limitations and implementation feasibility.
• Recommend marketing strategies to grow market share of domestically produced value-added products
versus imports.
• Begin to identify local firms and consultants who can help implement elements of the recommended
strategies.
Conclusions
The vitality of the Kosovo dairy sector is limited by issues related to quality, consumer confidence, consistency
in delivery of brand proposition, sub-optimal trade and fiscal policies, outdated manual production facilities,
undeveloped management skills and insufficient margins resulting in a lack of funds to support marketing
initiatives. Combined, these factors put domestic processors at a disadvantage vis-à-vis imported products. As
a result, these issues negatively impact the entire dairy value chain.
Farmers and Milk Collection Centers do not sort raw milk supplies based on quality. As a consequence, the
overall raw milk supply quality is compromised, thus negatively impacting farmers who do invest in

processes/equipment to ensure good quality. Greater incentives are required to encourage both quality
processes and a consolidation of farms in order to capture economies of scale.
Processors are limited by inefficient, manual manufacturing lines that result in high costs of production and
limited margins. As a result, they lack the funds to invest in facility modernization or expansion and new
product development or marketing. Moreover, they seek less expensive packaging alternatives that greatly
diminish consumer appeal and product safety and result in poor consumer confidence.
Consumers and retailers express strong sentiments regarding supporting locally produced dairy products. They
favor imported brands as a result of (1) their negative experiences with inconsistent or poor product quality and
(2) the limited range of products offered by domestic processors. The challenge for domestic processors is
made greater by the fact that consumers have a long history of being loyal to Slovenian and Croatian brands.
Based on a review of historical studies, reports and in-country observations, the consultants recommend the
following actions:
1. Gain a better understanding of consumer preferences and increase quality across the entire dairy value
chain to optimally meet consumer expectations.
2. Undertake the required research and analysis to build a strong case for revised government tax and
trade policies that are more favorable to the growth of the domestic dairy sector, and present
recommendations to appropriate Ministries.
3. Expand lead domestic processor capabilities in critical areas such as food technology, manufacturing,
packaging, sales and distribution, marketing and branding best practices to enhance their ability to
compete more effectively with imported products. As feasible, consider financial incentives that
encourage capital investment in expanded, more automated facilities that comply with HACCP/ISO
9001/GMP standards.
4. Explore the feasibility of creating a domestic packaging company to support domestic production and
lay the groundwork for increasing exports and domestic GDP; this is consistent with KPEP’s overall
mission to grow private enterprise and help Kosovo transition from an agrarian economy to an
industrial one. Seek investment from both domestic companies and international sources, including
Diaspora communities.
5. Improve consumer perceptions with regard to locally produced dairy products:
a. Short term: develop a primary school curriculum-based program to educate children about the
local dairy industry, its importance to the local economy, and better health, nutrition and food
safety practices.
b. Long term: develop a seal of quality program (governed by a coalition comprised of dairy
association leaders, KVFA and others) to highlight domestic dairy products and brands that
employ quality standards across the value chain from farm to consumer. Support with a broad
awareness and confidence-building consumer campaign, including PR, industry ads, and retail
promotion, funded by private enterprise association dues and based on production volumes.
As a final note, the consultants emphasize the need to address the existing issues within the value chain prior to
dedicating significant marketing dollars to fund a consumer communication campaign. Marketing is a multifaceted
discipline. An optimized strategy must include an articulation of brand positioning, product design and
range, pricing, distribution and availability as well as an awareness-generating advertising and promotion.
Unless products are promoted to meet expectations, consumers will reject these product or brands in the future,
resulting in long-lasting negative perceptions and wasted marketing expenditures.