Continuous price reductions skim off milk industry profits

Continuous price reductions skim off milk industry profits

As leading dairy producers remain steadfast in their intention to cut the price they pay to dairy farmers, SymphonyIRI Group data reveals a reduction in the price of fresh milk while the cost of most other grocery products have been rising.

 

The industry leader in FMCG market measurement have released data showing that the price of milk has decreased by 16 per cent in the last three years. This compares to an 11 per cent increase in the price of most other groceries. Experts claim that a further 14 per cent price reduction (two pence per litre) will force many dairy farmers out of business.

The price of milk rose from 39.6 pence per litre (ppl) in 2000 to 69.5ppl in 2009. Since then it has decreased by 16 per cent to just over 60ppl. Milk generated more than £3 billion in sales value during 2009 but this has dropped to £2.7 billion in the last year.

Reflecting the smarter shoppers’ desire for value, sales of four pint packs of milk have also increased over the last two years and are now the most popular size purchased.

Sales of four pint packs in multiple grocers have increased by 31 per cent from 41 million units in June 2010 to more than 53 million units in June 2012, representing the best value for shoppers with a unit price of £1.11 (or 28 pence per pint compared to a single pint cost of 49 pence per pint).

Interestingly, four pint packs of milk are also more heavily promoted than any other milk pack size which has led to a 34 pence reduction in price since June 2010. However, the level of promotion has also decreased over the last two years from around 50 per cent to just over 20 per cent of all packs sold.

Sales of six pint packs have also increased, while sales of one and two pint packs have dropped. The average volume price for four and six pint packs has decreased by around 15 pence in the last two years. This compares to an increase in the average volume price for one and two pint pack sizes, by seven pence for one pint packs and two pence for two pint packs.

Tim Eales, Strategic Insight Director at SymphonyIRI Group says, “There is huge pressure facing grocery brands and retailers to keep prices low for shoppers during this period of austerity.  An everyday basic for most shoppers, milk provides retailers with the highest sales returns by value of all packaged grocery products sold.

“It seems to have avoided the recent high levels of promotion that we see on other grocery products but a continuous level of price reduction is having a similar effect, keeping prices artificially low for shoppers.”

Despite milk prices falling over the last few years (by around 16 per cent), they have increased by 20ppl since 2000. However, the rest of the dairy industry shows continued growth in both sales value and volume. Over the last 12 years for example, the price of hard cheese, such as cheddar, has increased by £1.65 per kg, and butter by £2.12 per kg.

SymphonyIRI Group’s report analysis of fresh milk sales covers a 12 year period from 2000 to June 2012.

 

Holly Aston
ADMINISTRATOR
PROFILE