Hygiene is everything for farmer Heinrich Gropper.
He owns the Gropper dairy company. He pulls a net cap over his short, brown-gray hair, then reaches for a white work coat. He pushes open the doors to a filling station where the air is warm and moist.
“Each day we process more than 700,000 kilograms of milk here,” he shouts above the clatter of machinery. He hurries down the hall and stops at a conveyor belt where brown plastic containers filled with coffee and milk rush by. Mr. Gropper grabs a filled cup called “Bellarom,” a brand by German discount supermarket chain Lidl.
Each day, almost 455,000 bottles of yogurt drinks and more than a million containers of yogurt pass through the facility in Bissingen, a town in southern Germany. The plant produces yogurt, milk, mixed-milk drinks, juice, smoothies and pudding desserts bound for grocery chains such as Aldi, Lidl, Edeka and Rewe. The products don’t carry Gropper’s name; instead, they’re labeled Milbona, Milfina, King Frais, Desira or Gutbio.
Mr. Gropper leaves the filling station and heads down a long corridor taking off his hairnet. What worries him these days is the falling price of milk.
“Of course, this isn’t the first time that the price for milk has dropped,” said Mr. Gropper. “But it’s not every year that the situation is this bad.” Between 2007 and 2009, the price fell to 23 cents per kilogram and then recovered. A kilogram of raw milk sells for about 37 cents today, according to the milk-industry association. “Now,” said Mr. Gropper, “the next downward trend is coming.”
That’s because of a glut in milk production lately. The cows of German farmers produce a great deal already, but New Zealand, for example, exports up to 95 percent of its milk. And this comes as markets in Russia disappear amid sanctions over the Ukraine crisis.
“Of the 150 German firms that were active in Russia two years ago, only five were still permitted to make deliveries last year,” said Eckhard Heuser, president of the milk-industry association. “Since August of this year, no products are going there, because Russia closed the border.”
It all has a big impact on mid-sized companies in the Swabian countryside of southwest Germany. Falling prices are passed on to dairy processors. Mr. Gropper must compensate and likewise pass it on – to 900 farmers who provide his company with milk each day.
“I’m pretty concerned,” said Mr. Gropper. “We’re talking about a lot of money.”
He also feels a sense of responsibility for his 600 workers. The firm founded by his grandfather in 1929 had €360 million in sales last year, or about $457 million. Mr. Gropper can’t compete with large dairy companies such as Müller or Danone. The Müller group has annual sales of €4.9 billion.
But Mr. Gropper is leader of the pack when it comes to producing for food retailers. The company not only delivers products, but also offers ideas to supermarket chains. For example, Mr. Gropper developed an organic yogurt with granola in the lid for Aldi. His firm also produces Flecki, a chocolate vanilla pudding that made headlines in Germany in 2012 when the companies Oetker and Aldi fought over trademark rights. The dairy has since been cleared of all trademark infringement and Gropper can keep producing Flecki.
The Gropper dairy is unique in that it makes only trade brands. Other large dairies make proprietary products along with trade brands.
Depending on such trade brands can be a risky business, said trade expert Jörg Funder, who teaches business and trade management at a college in Worms. That’s because the market power of four major food-retailing chains — Lidl, Aldi, Edeka and Rewe — is so massive. On the other hand, there is an upside. “It allows a mid-sized firm to generate growth in a short time that otherwise wouldn’t be possible,” said Mr. Funder.
He believes that trade brands will remain dominant. Fifteen years ago, the share of trade brands was around 20 percent. Today it is close to 60 percent, according to the GfK consumer-research institute.
“Through the growth of the retailers, we started getting involved in trade brands and eventually we came to focus exclusively on them,” said Mr. Gropper.