Tesco chops milk prices to counter discounters

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Tesco has responded to the resurgence of the discounters by switching its Creamfields discount brand to semi-skimmed milk and whole milk for the first time.

Following the move, four pints of semi-skimmed and whole milk will be available in Tesco for a non-promotional base price of just £1 the same as Aldi, Lidl and Iceland. Farmfoods also sells a similar amount two litres for £1. Tesco's standard own-label milk continues to be on sale at £1.49 for four pints.

Creamfields, launched in 2009 as a 0.75% fat milk, and later upped to 1%, has been used by Tesco as a tactical device in the milk price war, as it sells in much smaller volumes than the more popular whole, semi and skimmed milk. Creamfields is also used to sell cheese, cream and desserts.

But the latest four-week Kantar food and drink sales data shows Tesco up just 3.9%, versus Aldi's 31% and Lidl's 18.2% [Kantar 4w/e 7 August]. "It's a very clear signal to stop customers shopping around," said Matt Southam, senior retail and customer insight analyst at DairyCo. "Tesco clearly takes the threat of the discounters very seriously."

milk price war
Timeline: 
July
2010: Asda slashes four pints of milk from £1.53 to £1.25 
September 2010: Tesco matches Asda, followed by Sainsbury's, Morrisons and Waitrose 
November 2010: Tesco moves to £1.55 
February 2011: Tesco moves back to £1.25 
May 2011: Tesco moves to £1.49 
August 2011: Tesco extends Creamfields to semi-skimmed and whole milk 

Milk market share by volume [Kantar]: 
Whole
: 21.2% 
Semi-skimmed: 56.6%Skimmed: 13.4% 
1%: 6.6% 

How it stacks up:
Morrisons, Sainsbury's, The Co-op and Waitrose: £1.49 for four pints of whole, semi-skimmed and skimmed 
Asda: £1.25 for four pints of whole, semi-skimmed and skimmed 
Aldi and Lidl: £1 for four pints of whole and semi-skimmed 
Farmfoods: £1 for two litres of whole, semi-skimmed and The One 
Iceland: £1 for four pints of whole, semi-skimmed and skimmed
A dairy industry source also suggested Tesco's move would provide clear blue water in its dogfight with Asda, which has continued to sell four-pint bottles of milk at £1.25, while all the other mults had moved back to £1.49.

"They are worried as Asda has not moved off its £1.25 level. They need to show they're ­competitive," the source said.

Industry ­experts were also flummoxed by Tesco's rationale. One said it was not in Tesco's ­interests to sell it in volume, given that the discount milk would sit alongside more expensive standard milk. "They just need enough on the shelf to be able to promote to customers and use it in price comparisons."

Another source described Tesco's business model as "interesting". "I'm not quite sure how sustainable it will be." It was possible the move was part of a strategy to drive Tesco sales volumes in the run-up to retailers' 'golden quarter' of Christmas ­trading. He added: "Either that or Tesco is desperate."

A Tesco spokeswoman confirmed the Creamfields milk would be available in 800 larger stores as well as online. She added that for shoppers who bought milk in large volumes, standard own-label milk would ­compare favourably with Creamfields.

"We offer three for £3 on standard milk, so matching the Creamfields value for money on 12 pints at £3," she explained.

As part of the move, Tesco will discontinue Creamfields 1% milk and will now sell it under its standard own-­label brand instead. Its 1% milk is also changing from two-­litre to four-pint bottles.

Tesco said it made sense to add the 1% option to its standard own-label milk range. "One per cent milk is becoming more popular with our customers, and they wanted the option to buy this product under Tesco own label along with full-fat, semi-skimmed and skimmed," said the spokeswoman.

When Creamfields first launched it was not subject to the same payment terms as farmers in the Tesco Sustainable Dairy Group. But since last December it has fallen into line. This means Tesco is not sourcing Creamfields milk any more cheaply than the milk in its standard range.

Tesco's key liquid milk suppliers are Dairy Crest, Robert Wiseman and Arla.

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