The Dairy Industry in Morocco

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a. Growth of Competition

The business of milk and dairy items is portrayed by an extreme rivalry among existing firms. Since price and quality are one of the most important factors that drive the choice of a customer, the milk and dairy companies attempt to develop suitable and effective solutions. Copag, the producer of Jaouda, is one of those rising competitors that keeps growing and gaining market shares by implementing cost leadership strategy on innovative products. Second operator of the dairy market with a market share of 25%, Copag has opted for setting a unique price for milk by purchasing from suppliers at the same price even when the milk’s cost is fluctuating (Beouas, 2013).

b. Price Increase of Raw Materials

The costs of milk and dairy products are escalating because of the raise in raw materials’ cost. Indeed, the price of Centrale Laitière's milk increased by 20 cents in August 15, 2014. The cost of the one-liter of milk is costing somewhere around 40 and 50 cents additionally depending on the line of product. Therefore, one liter of milk’s price ranges now from 9 to 9.50 Dirhams against 8.50 and 9 Dirhams per liter in the past (LES ECO, 2013).

c. Demand Trend in Morocco

Despite the fact that the consumption of milk and dairy products has increased in the most recent years in Morocco, it is still considered as relatively low compared to other countries. In fact, the consumption of milk in Morocco is estimated to 55 liters per year per individual (Beouas, 2013). One of the foremost reasons behind this low consumption is the high price tag of milk and dairy products that cannot be afforded by the lower class, which constitutes the majority of the Moroccan social structure. Moreover, Moroccans are fervent consumers of tea, not only for cultural reasons but also for its cheaper price compared to milk.

d. Seasonal Production

Morocco undergoes important fluctuation in the national production of dairy products that influences both the supply-demand curve and the price. As a matter of fact, Centrale Laitière has a high production rate between February and August, and thus a lower rate in the cold period. In order to balance the supply and demand, Centrale Laitière acquired a drying machine in 2008 with a specific end goal to take advantage from the excessive production during the high rate period by transforming fresh milk into powder milk. However, the company has a small drying site and does not exploit this competitive advantage to its fullest.

e. Low Interest in Environmental Sustainability

The company incurs huge water waste by not implementing programs of recycling. During the production, Centrale Laitière does not retreat the effluent water (water with dairy fat wasted from production), nor does it recycle water that results from the cleaning and sanitization of the machines. The company does not just do ineffectively on the reusing of liquids but also solids; it does not even look for financing from “Fonds de Dépollution Industrielle” to reduce its waste and implement treatments on polluted gases. This low interest in environmental issues might tarnish the image of the company, especially with growing environmental pressure groups such as Green Peace. Moreover, it drives huge costs that can be reduced greatly by recycling.

f. Perishable Goods Inventory Management

Milk is a perishable commodity that spoils very easily. Dairy products have indeed a limited period of product life cycle which makes it delicate to store as the demand fluctuates and varies depending upon season. Centrale Laitière is facing challenges to maintain their warehouse inventory according to the right order quantity. An inefficient inventory management or demand prediction might result in huge holding costs and sales opportunity costs among others. Indeed, dairy products have the uncertain nature of demand, resulting in situations such as excess inventory or shortages. If large inventory is maintained, there is a high chance of spoilage due to deterioration or decay of the products. On the contrary, if lesser inventory is maintained, there is a chance of shortage when demand exceeds inventory.

- Porter’s Five Forces

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a. Rivalry Among Existing Competitors (Moderate to High)

The national market portion of dairy items is progressively rising in the course of the most recent decades with an annual growth rate of 10.5% on average over the most recent 5 years (La note d'info, 2013). This market share is mostly divided between Centrale Laitière and Jawda, chich is considered as a strong and well-established competitor. Even though each brand is competing in a specific geographical area in Morocco, they all try to gain market share. Most try to fulfill customers’ needs by investing heavily in research and development in order to develop innovative and diversified products that answer the needs of different target segments. However, even if the rivalry is quite fierce, Centrale Laitière is considered the leader of the dairy products in the national market with a market share of 64% (La Note d’info, 2013).

b. Threats of New Entrants (Low to Moderate)

Because of the attractiveness of the market and the increasingly growth in demand, many companies try to enter the market such as Best Milk, Colaimo, Safilait, Domaine de Douiet, and Extralait. However, the barriers to the industry are relatively high because of the strong competition among established companies, the heavy capital investment, the regulation and policies, and the research and development linked to the industry innovation. Moreover, high margins are only achieved for companies adopting economies of scale. This treat is seen as relatively moderate because Centrale Laitière monopolizes the market.

- Bargaining Power of Customers (Moderate)

Customers in Morocco have access to a relatively important set of choices in terms of brands and products in the dairy market, including milk, cheese, yogurts, and butter. Furthermore, with the establishment of international supermarkets such as Carrefour, the products’ variety is increasing, especially that the pricing is somehow similar. Moreover, the switching cost for dairy products is very low. Customers are continuously seeking for higher quality products at the most attractive price. Therefore, in order to gain customers’