Could a new round of the supermarket milk price war be on the cards?
That is the question dairy industry experts were asking today, after Morrisons announced it would drop the price of four pints of own-label milk from £1 to 89p.
The move is part of a programme of price cuts on staples, revealed today (8 June), which covers 200 everyday food and drink items.
Morrisons’ milk price cut brings it into line with Asda, which dropped its price to 89p in January, and discounters such as Aldi, Lidl and Iceland, which have been selling four pints for 89p since last autumn.
Tesco, Sainsbury’s and Waitrose continue to sell four pints for £1, but have in the past quickly followed rival price cuts on milk. Some industry sources said today this was likely to happen this time too, with 89p becoming the new standard price for own-label milk in the mults.
Dairy industry expert Ian Potter said he expected Tesco and Sainsbury’s to be looking closely at Morrisons’ move, adding it would be farcical to suggest “Sainsbury’s and Tesco will simply sit back and let it happen”.
Consultant Hamish Renton of Hamish Renton Associates said Morrisons’ price cut initiative was an attempt to build on its recent sales growth, and an opportunity to generate positive news for new CEO Dave Potts.
“They are cutting prices across the board rather than just on milk, and Morrisons will say it isn’t setting the farmgate price,” he added. “But it still sends a signal out to the dairy supply chain, which is already having to contend with a strong pound – which is cutting off the European market for British milk – and an oversupply of milk.”
And while refusing to be drawn on whether Morrisons’ competitors would follow with further milk price reductions, Renton added that there was “usually a market reaction” when one of the big four supermarkets made such a dramatic move.
Tesco has in the past used the Creamfields tertiary brand to offer milk at discounter-level prices, but the retailer phased out the brand as part of a major price cut initiative last year and has since sold its cheapest milk through standard own label. This could make a price cut on its own-label milk more likely, but other industry sources said they expected prices in the other mults to hold steady for now.
“From discussions with other retailers, there was not much change in milk sales when other retailers cut prices to 89p,” said Rob Harrison, dairy board chairman of the National Farmers Union, adding he believed this made further price cuts unlikely.
Morrisons’ milk price cut comes as dairy farmers are once again facing falling farmgate milk prices. DairyCo today reported farmgate prices had fallen by 25% over the past year; on the retail side, the average price of four pints of milk has fallen by 9% over the same period, from £1.37 to £1.25 [Brand View].
Morrisons, which buys its milk from Arla and Dairy Crest, insisted it was funding its retail milk price cut itself and would not pass it on to farmers, but its move has nevertheless sparked anger among producers.
Harrison described it as “unsustainable and unhelpful” and said it would “take further value out of a sector losing incredible amounts of money”.
“This isn’t sustainable and I don’t understand why they did it,” Harrison added.
He also hit out at Morrisons’ milk procurement model, saying it lacked the transparency offered by the dedicated supply models used by other retailers. “They say they are funding this price cut themselves, but there is no proof of this,” he said. “Morrisons is clearly a business that is struggling, but they do absolutely nothing for dairy farmers.”