March 5, 2013

A2 Milk – an innovative success story

Australia’s fastest-growing supermarket milk brand, A2 Milk™ turned an obscure milk protein into a profitable point of difference. CEO of A2 Dairy Products Australia, Peter Nathan, explains how and discusses the growing export market.

Five years ago, few people had any idea that they might benefit from drinking milk containing one less protein.

Today, A2 Milk™, which doesn’t contain the protein known as A1, is Australia’s fastest-growing supermarket milk brand with six percent of white milk sales in the mainstream grocery sector. It’s currently being launched in the UK and will soon be sold in China. “We’re very pleased with what we’ve achieved but it hasn’t been an easy journey,” says A2 Dairy Products Australia’s CEO, Peter Nathan.

One of the core challenges was to develop an effective and compelling way of communicating the product’s unique proposition to consumers. “These days, most cows produce milk containing two beta-casein proteins called A1 and A2,” Nathan explains. “Research suggests that many of the people who believe they’re lactose intolerant are actually sensitive to A1 not lactose. As A2 Milk™ comes from cows that naturally produce milk rich in A2, these people are often able to drink A2 Milk™ without experiencing any discomfort.”

Another challenge was convincing primary producers and manufacturers that A2 Milk™ wouldn’t represent a threat to the industry. “We have no dairy herds of our own – we work in partnership with farmers who are prepared to identify cows producing only A2 beta-casein protein and then milk them separately,” says Nathan. “We had to make it clear to them that ours is an innovative product which is actually driving dairy consumption and that, as A2 Milk™ costs considerably more per litre than other brands, it can add value to the entire chain.”

Unprecedented opportunities

Recently, negative publicity has tended to overshadow good news in the industry. “Current opportunities in China are of historical significance,” says Nathan. “We’re on the doorstep of a massive country where incomes are rising, there’s a growing desire for milk protein and Chinese consumers have a very strong perception that Australian products are clean, green and of the highest quality. Put all those things together and it’s like an alignment of the planets.”

Dairy farmers have always been conscious of the need to become and remain efficient. Nathan suggests that now they also need to become more innovative. “There are value propositions for manufacturers to capitalise on,” he says. “I believe it’s a matter of finding a point of difference or a niche market, focusing single-mindedly on that and then communicating your offer  in a clear and compelling manner to consumers.

“We’ve shown that this can be done successfully and that you can also add value throughout the chain of production and manufacturing. We pay our farmers a premium price, we’ve maintained our retail price and we’ve also grown our market share significantly. I can understand that recent negative publicity could have left some people feeling nervous but I believe they need to look beneath that to what I believe is a strong potential upside.”

Find out more about A2 Dairy Products Australia

More from NAB: