Competition takes the shine off liquid milk

Milk and cheese are up in sales volumes, but at eroded prices. Will Sanderson, of Milk Link, discusses market dynamics with Farm Business editor Chris Lyddon

Cut-throat competition between supermarkets has driven down the price of liquid milk and taken away its long-term status as the best market for the dairy industry, says Milk Link’s Will Sanderson.
“Over the past 18 months or so the fresh liquid milk market’s lost its position as being the premium market for milk,” he says. “There’s been a price war between the different fresh liquid milk providers.”
Milk Link is on the sidelines. “We’re not in the fresh liquid market so we can take a step back and look at that. The premium that used to be attracted to fresh liquid milk has disappeared and, indeed, for a large part of the past 18 months it’s not been the best returning part of the market.”

Volume sales
The volume of sales, however, is still there. “Fresh liquid milk has held up strongly, in fact it’s in slight growth. Cheese is in growth, despite the economic downturn, in terms of volume. In terms of value there’s been an erosion in both the liquid and the cheese market as a result of the very deep and intense promotional activities brands have been involved in.”
Mr Sanderson explains that there are four mainstream brands in Cheddar: Cathedral City (“by far the most dominant”), Pilgrims Choice, Seriously Strong, made by Lactalis, “then you’ve got the Lake District Cheese Company, which is from First Milk”.
“All four brands have been involved in a bitter promotional frenzy,” he says. “Over the past 12 months all those brands have been selling pretty much all the time on discount. Between 75% and 80% of their sales have been on discount and mainly deep cut promotional offers such as ‘buy one get one free’, or ‘half price’ – we’ve even seen ‘buy one get two free’.
“The upshot has been that the consumer has continued to buy cheese, more cheese than ever before. They’re getting a good deal.
“We track this because as a customer label supplier one of the impacts of the past couple of years has been a decline in customer label as people switched into these promotional brand offers. Over the past six months or so, that has reversed. We believe the main factor is that the brands are now cannibalising each other.
“What we mean by that is that the person buying their weekly shop has twigged that these brands are much of a muchness. They’re purposely medium in maturity; they taste very similar.”
People, says Mr Sanderson, were just buying whichever one is on sale at the gondola end.
Now there is growth in customer brand.
“I think that’s because people are beginning to see the customer brand offers not only value in terms of price, but also value in terms of quality,” Mr Sanderson comments.
There is a danger, he adds, that the brands have commoditised Cheddar. “It’s a very challenging market, especially in the consumer retailer sector or indeed in food service. You see stories about pubs closing every day. There’s pressure in any consumer environment.

Customer focus
“As a dairy business we have to understand that dynamic. You have to be very attuned to what consumers want. Yes, they want a good price, but they also want quality. They want convenience. They want taste, texture, flavour. They want to feel, depending on the nature of the product, that it says something about them. They want to perhaps treat themselves. All of those are things we are focused on.”
Milk Link had invested many millions of pounds in an innovation centre. “One of the key things that we’re doing is trying to understand what the consumer wants and needs, not only now but in the future. We’re very conscious of the fact that consumers need value at the moment and therefore we’re looking to find ways that we can make our products more effectively and more efficiently.”
One possibility might be to reduce expensive packaging. “We’re not in the business of downgrading our quality,” Mr Sanderson stresses.
“These are very tough trading times. We have to understand that we can’t simply say we deserve this price because we’re a farmer organisation or just part of the dairy industry. You have to meet the needs and expectations of the consumer.”

• Will Sanderson is corporate affairs director of Milk Link.