A2 Milk makes Canada play

Dairy brand A2 Milk is expanding into Canada in a move to strengthen its dominance of the North American market.

A2 milk iis expanding its presence in North America. Picture: AAP

Dairy brand A2 Milk is expanding into Canada in a move to strengthen its dominance of the North American market and block out potential rivals.

The dual listed Australian and New Zealand company has entered a licensing agreement with Canada’s Agrifoods Cooperative for the production, distribution, sale and marketing of A2 Milk-branded liquid milk.

The partnership will allow A2 to launch in Canada without pouring the tens of millions of dollars in marketing, which it has injected into the US, attracting heavy scrutiny from analysts and investors.

A2 Milk chief executive Geoff Babidge said the move to Canada was a natural progression after the company’s US launch in 2015.

Mr Babidge said at the company’s half-year results last month that US sales were on track to hit annual sales of $US100m ($153.58m), although he did not give an exact time frame of when it would hit that milestone.

“We are very pleased to form this partnership with Agrifoods through a well-structured license agreement,” Mr Babidge said.

“This arrangement gives us the ability to leverage the brand development work we have already undertaken in North America and expand into the Canadian market with a well-respected partner.”

The Australian understands that Agrifoods approached A2 about the Canadian launch, rather than A2 proactively seeking territorial expansion.

The company has been cautious about entering other markets. Last August, it withdrew from the UK after seven years amid a challenging liquid milk market to focus on its core markets and “over time more attractive new markets”.

Agrifoods Cooperative chief executive, Maheb Nathoo, said A2 had been an innovator in the dairy industry, isolating the A2 protein from cows milk, which some people find easier to digest than normal cows milk which carries both the A2 and A1 proteins.

“This is an excellent partnership and we are excited to be able to offer A2 products to Canadian consumers. The A2 Milk Company is an innovator in the dairy industry and we are delighted to be partnering with them,” Mr Nathoo said.

Under the agreement, Agrifoods with have access to A2’s intellectual property and marketing assets as well as its proprietary systems in relation to sourcing and processing of A2 milk.

Mr Babidge said Agrifoods would leverage its “substantial capabilities” in-market to establish distribution across Canada and has “primary responsibility for funding this venture”.

It is expected a range of liquid milk products will hit Canadian retailers later this calendar year.

A2’s US sales surged 116 per cent to $NZ28m ($27m) in the six months to December 31, with Mr Babidge stating the company had now “reached meaningful scale in the US”. However, the company lost $NZ30m in America.

It came as A2 maintained its marketing spend for China and the US at $NZ84.1m and included a new advertising campaign across America as well as in store promotions.

“We introduced new packaging and launched a new TV advertising campaign, both of which

received positive feedback from the retail trade and is assisting in building brand awareness,” Mr Babidge said.

“We have also improved our in-store presence to convert awareness to trial. All these changes have contributed to increasing consumer offtake.”

The US still represents a fraction of A2’s overall revenue which rose 31.6 per cent to $NZ806.7m for the half year, with its Asia Pacific business accounting for the bulk of sales at $NS777.4m.