The Problems Of Arla Foods Company On The Arab Market

Expanding to foreign markets can sometimes be a cause of new problems. When Arla Foods first entered the Arab market it became a huge success. The Danish dairy company had big plans to expand in the Middle East. Besides exporting dairy products from Denmark they also owned factories in Saudi Arabia, Lebanon, Qatar, Kuwait and Bahrain. They had the ambitious goal to triple their production within the next five years.

At first, Arla Foods seemed to be a huge success in the Middle East with increasing sales every month. Their brand awareness in the Arab countries was massively in their favor. Meaning that consumers often walked away empty handed from stores, simply because Arla Foods could not supply the demand. However, in 2005, this all changed and the company took a big hit in the Middle East. This happened when a Danish newspaper published cartoons depicting Muhammad, Islam’s prophet. In many Islamic countries this lead to heated demonstrations as people felt very offended. Soon after the publication the conflict escalated and resulted in a crisis between Denmark and many Arab countries. Because of this crisis, called the Muhammad crisis, a trade boycott of Danish products was introduced.

It also lead to the assault of employees who worked at Arla Foods in the Middle East and the termination of a lot of jobs at the company in Denmark who were mainly working on the export of products to the Middle East. At the height of the boycott in early February 2006, Arla Foods was losing 1,3 million euros a day. In total the boycott meant a 450 million loss for Arla Foods and finally sales came to a complete stop in Saudi Arabia, Kuwait, Qatar and Bahrain. For Arla Foods this was an unexpected crisis involving complicated issues regarding religion.

Causing extreme negative financial consequences. Arla Foods was a bystander with interests and stakeholders in both countries, meaning that it got dragged into the crisis without being a cause to it. The Danish dairy company responded to this crisis with an active public relations campaign. Because of the massive losses Arla Foods felt compelled to take an active approach. They advertised in many different Arab newspapers asking consumers to reconsider their attitude towards the brand. At first they endorsed the statement upholding “freedom of expression” from the Danish government. After this they tried to distance themselves from the cartoons and explicitly stated that Arla Foods respects every religion.

Because this crisis was something beyond the control of the company it was difficult to act upon. Arla Foods had not done anything wrong but they were punished for something they had no control over. This is also why the sales only started increasing when the boycott came to an end. In December 2006 Finn Hansen, the divisional director of Arla said “It’s a relief that the boycott has come to an end … many products have been sold at discounted prices, the boycott will have pushed back the development in the Middle east two years”. Finally in March 2007, Arla chairman Knud Erik Jensen was able to say: “We’re back in the Middle East and expect to return to previous levels of sales by the end of 2007.”

From the beginning of the advertisements in the Arab newspapers the company was uncertain about the right way to handle the issue, but they wanted to actively deal with the situation, as one might expect from crisis managers. With the benefit of hindsight, the only strategy likely to be successful was probably to ride out the storm. The Muhammad crisis, interestingly, had a positive effect on Arla Foods in the Danish market. Before the crisis, the company had a monopoly in the dairy market in Denmark. Pushing small milk companies away, which gave them a bad name according to the public eye. When they became the victim of many aggressive demonstrations in the Middle East they received a victim status. With this crisis they regained the sympathy of the Danish people, which caused an increase in their sales in Denmark.