Butter and spread sales look good, but with 45% sold on deal, suppliers are worried about category devaluation

On the face of it, 2009 has been a good year for butters and spreads, with several brands seeing spectacular sales increases and the category overall showing value and volume growth.

But behind closed doors, both retailers and manufacturers are concerned that the market is being devalued by the huge volume of promotions that have become such a feature of the aisle this year. With 45% of products now sold on deal – up from just 20% two years ago – profitability is becoming a problem for all concerned.

“Consumers are becoming promotional junkies,” says Sainsbury’s butter buyer Sophie Hogg. “Base sales are suffering as a result and we are wondering how we are going to reverse that trend after the recession.”

The 2.1% category value growth over the past year has been driven by food price increases and the latest 12-week data paints a worrying picture of value decline. High promotional activity has been seen across many leading brands this year, with discounting and multibuys particularly prevalent on Clover, Country Life and I Can’t Believe It’s Not Butter [Nielsen].

Butters and spreads is not a category where consumers can be persuaded to buy more and so consumers will still buy the same amount but will come to expect the lower prices, warns Hogg.

That view is echoed by rivals. “All retailers have been offering deep-cut deals which has stripped away category value,” says Matt Hood, Tesco’s senior buying manager for butter, spreads and margarine. “The area is fundamentally difficult to increase consumption in, so it becomes a share game and we give away similar volumes at lower prices.”

At the top of the category Lurpak has managed to weather the high number of deep-cut promotions seen on cheaper lines, Hood says.

Although sales have slipped slightly, it still retains a £25m lead over its closest rival, Flora. “Lurpak has continued its award-winning Good Food Deserves campaign throughout the year, clearly positioning Lurpak as the butter of choice for foodies,” says Arla group brand manager Stuart Ibberson.

There are numerous intriguing sub-plots further down the table, as rivals go head-to-head for market share, with Anchor and Country Life at loggerheads and Utterly Butterly and I Can’t Believe It’s Not Butter continuing their campaign to convince buyers that they should be the spread of choice.

Country Life has overtaken its dairy Crest sibling Utterly Butterly to climb into the top five, with its John Lydon marketing campaign contributing to 7.3% value growth to £62.4m.

The brand’s strategy of both emphasising its own Britishness and pointing out Anchor’s New Zealand provenance has helped its profile, both from a media and consumer point of view. Dairy Crest is confident that it can close the gap further on its £87m rival in the year ahead. However, Arla Foods has questioned the economic viability of Dairy Crest’s approach, claiming no less than 60% of Country Life’s volumes have been sold on deal this year.

Clover, which grew 7.6% in 2008, has seen further impressive sales growth this year – at 18.6% – and Nathan King, Dairy Crest’s head of marketing for butters and spreads, believes it is poised for further strong growth thanks to its health and taste credentials.

Growth has been driven by the highly successful Clover Lighter sub-brand, which King says consumers have quickly embraced and understood. The new brand has already racked up £13.8m of sales [Nielsen] without eating into standard Clover sales.

“Clover is brilliantly placed for stronger growth, we’ve got great hopes for it,” says King, who also believes Clover Lighter is taking share from Flora.

As well as supporting its brands through promotions, Dairy Crest has helped build awareness through wide-scale mainstream marketing activity, which will continue next year. “2010 will be a tough year but we will continue to invest in our brands,” King adds.

Dairy Crest’s other leading brand, Utterly Butterly, is locked in an intense struggle with Unilever’s I Can’t Believe It’s Not Butter. “It’ll be an interesting year for Utterly and ICBINB, because the trade can oscillate from one to the other,” says King.

And so it proved this year, with ICBINB winning a notable victory when Asda – which famously delisted the brand in 2007 in a move to reduce product duplication – bowed to consumer pressure and put the brand back on shelves. The relisting helped ICBINB to a category-best performance of 35.6% growth as sales reached £39.5m.

In contrast, Utterly Butterly’s performance was  down 8.9% to £61.2m, suggesting ICBINB has succeeded in winning market share from its rival and could further close the £21.7m gap.

Elsewhere in the market there’s been strong double-digit growth for bakers’ favourite Stork and Benecol’s cholesterol-lowering spread, which reflects the impressive sales increases seen right across the functional brand’s portfolio.

Retailers and manufacturers agree that the challenge for the year ahead will be finding a way to move away from heavy promotions and put value back into the category.

“Promotions will continue to play a big part in the category, even if the economy starts to improve and customer confidence returns, and it will be difficult to break some of the savvy shopping habits that have developed over the past year,” says Hood. “We need to find a way of giving customers value while recovering from the deflationary position.”

Dairy Crest’s King agrees. “There’s a realisation that we must pull back,” he says. “We are talking to retailers and the consensus is both from a manufacturer and retailer perspective that we need to step back.”

Top Products Survey 2009