Milk is undergoing a long overdue renaissance. After years of commoditisation, symbolised by farmers storming supermarkets in protest over rock-bottom prices, brand owners are finally giving shoppers reason to value the white stuff.
Fresh milk sales (excluding soya, UHT and sterilised) have surged 4.1% over the past year, on volumes up 0.5%. And while most of the volume growth came from own label, which still accounts for the lion’s share of sales in the category, Brits also splashed out an extra £11.8m on branded fresh milks. So what’s going on? How are brands convincing shoppers to spend more on milk? And is category growth sustainable?
Brands are growing value sales almost entirely through inflation, with average prices surging by 6% year on year. This in part reflects price rises on branded lines following last year’s eye-wateringly high farmgate milk prices - which also pushed up the cost of own label milk by 3.4%. But it also points to an emerging trend of premiumisation in the milk aisles as a growing number of branded added-value lines, such as fortified, filtered, organic and free-range milks, creep into supermarket chillers.
Up until about two years ago, retailers thought value would eventually claw its way back into fresh standard milk, so the appetite for increasing the amount of speciality and value-added milks was “perhaps not quite there”, says Nick Bartlett, head of sales & marketing at Crediton Dairy.
“Over the past 18 months there has been a far greater increase in emphasis on growing speciality value-added milks,” he adds. “The main reason is an absolute desire to add value back into this category.”
“Over the past 18 months there’s been a greater emphasis on speciality value-added milks”
Innovation has clearly played a key role. Harriet O’Regan, senior category and brand manager at Arla Foods UK, says milk products tailored to consumer lifestyle needs, such as Arla’s BOB skimmed milk - which tastes like semi-skimmed - are driving the biggest growth.
But more than that, industry figures believe societal changes are helping shift perceptions of the role of milk in the diet. Scott Wotherspoon, chief executive of The A2 Milk Company, cites the impact of celebrity-endorsed social media posts, eating trends such as clean eating and veganism, and growing interest in gut health as trends that have helped reshape the category. “With Instagram reaching an audience of one billion monthly users and Twitter broadcasting to an audience of 330 million, no one can now avoid [social media] for food and health-related messaging - particular the younger generation of 16 to 34-year-olds,” he says.
Bartlett agrees that today’s consumers are far more open to the idea of milks with additional benefits than previous generations. “Many years ago when we discussed these kinds of products consumers were very much on the page of ‘do not mess with milk, it’s natural, it’s good in its own right so there’s no need to modify it’. That’s changed. Rather than look for products where something’s been taken out, it’s about products where something’s been put in.”
Bartlett says this plays to Crediton Dairy’s strength as a supplier looking to service market niches. “Our place in the market is about having the flexibility and the agility to deliver specialist milks.”
Milk with benefits
Retailers that have attempted to cash in on the growth of added-value milks have not found success so easy to come by. In June, Asda ditched its new multivitamin milk range, with added vitamin D, vitamin A and iron, after less than five months. Abigail Kelly, category controller at Crediton, believes the failure was less to do with the concept and more about Asda’s execution. “When you launch a product that looks identical to standard milk it’s subject to being merchandised incorrectly in-store which adds to extra confusion,” she says.
“The big question from consumers is not what is Pasture Promise milk… it’s where can we get it?”
While Asda might have missed the mark on multivitamin milk, it was at the forefront of last year’s free-range boom when it became the first mult to stock milk from cows that graze at least 180 days. Its decision to launch the Pasture Promise accredited Free-Range Dairy Farmers brand in over 300 stores prompted a surge in free-range NPD from retailers and brands, with Arla changing the name of its Organic milk to Organic Free Range last year to highlight that its cows are free to graze outdoors. Sales are already worth £4m, according to O’Regan, who attributes the growth to “consumers increasingly wanting to understand how and where their food and drink comes from”. However, a lack of distribution is preventing free-range from achieving further market growth, says Pasture Promise founder Neil Darwent.
He says there remains an element of resistance from retailers because of the questions free-range standards raise about the provenance of their own-label offer. “The biggest question from consumers is not what is it or how much does it cost, it’s where can we get it? It’s coming, but it’s going to take a few more years before free-range really becomes mainstream.”
Organic milk, meanwhile, appears to be going from strength to strength. Graham’s the Family Dairy says its organic range now accounts for 10% of its milk sales.
“Health and nutrition are at the forefront of people’s minds and organic options are becoming more popular due to less processing, no artificial additives and a higher nutritional value,” says marketing director Carol Graham.
Brexit & price volatility: can producers be insulated?
The volatility of the global milk market remains a major challenge for dairy farmers and retailers. Although the price of milk at the farm gate and on shelf has edged up over the past year, the risk of sudden and dramatic swings remains a constant concern for farmers who also face the unpredictability of a post-Brexit future.
In recognition of these challenges, processors and retailers are stepping up to help remove some of these uncertainties. In April, Müller Milk & Ingredients announced a new milk supply deal with Lidl that will give farmers the opportunity to fix up to 50% of their supply at a price of 28ppl for the next three years. The aim is to reduce the exposure of farmers to market volatility and create the ability to plan ahead. “This new approach gives dairy farmers security and confidence for the future and is a very good example of innovation which benefits the whole supply chain,” said Müller milk supply director Rob Hutchison at the time of the announcement.
Müller is not alone. Crediton Dairy is giving its farmers the option to forward sell a proportion of their milk volume for the next two years at a fixed price of 28ppl. “[The price of] cream, which is a big driver of all this, is inherently volatile,” says Nick Bartlett, head of sales & marketing. “What we are trying to do is take the peaks and troughs out.”
Bartlett says take-up among Crediton’s farmers has been good. “It was never forced upon them, it was about them looking at their individual business models. We have a disproportionate pool of young farmers where the guaranteed price is ever more important. We want to build long-term relationships.”
Long-term relationships are also a focus for Dairy Partners, which has established contracts with over 100 farmers who contribute in excess of 140 million litres of milk to its soon-to-be upgraded manufacturing site in Newcastle Emlyn, Wales.
Arla too says its farmer owners are working extensively with retailers to ensure that, collectively, British farmers can continue to prosper while ensuring milk remains affordable to all. “Long-term relationships with retailers are an essential part of driving business change to help manage and mitigate the impacts of volatile markets,” says Harriet O’Regan, senior category and brand manager.
Brands aren’t the only ones pouring value back into the category. Value sales of own label fresh milk are up 4.7% on volumes up 1.9% as shoppers continue to buy their morning pint despite some hefty supermarket price increases over the past 12 months as farmgate prices surged following a drop in UK milk production. In October 2017, average milk deliveries were down 5.6% on October 2015 levels [AHDB]. At the same time, the average farmgate milk price for non-supermarket aligned milk suppliers in Great Britain rose by 44.3% to 29.41ppl from August 2016 to August 2017.
The surge in farmgate prices prompted the mults to abandon their price wars and hike prices on own-label SKUs. Morrisons was the first to move on milk prices in October 2017, adding 10p to its two, four and six-pint bottles of standard fresh-milk, as well as its four-pint bottles of Morrisons Milk for Farmers. Sainsbury’s followed, adding 10p to a four-pint bottle of standard fresh milk, now £1.10, as well as increasing its price for two pints by 5p to 80p, and six pints by 2p to £1.50. In December, Asda and Tesco added 9p to their four-pinters, now £1.09, as well as increasing prices on two- and six-pint bottles.
A brighter future
Higher milk prices look set to stay. Dairy markets recovered slightly at the beginning of the year, causing farmgate prices to fall, but this summer’s heatwave and feed shortages have prompted fresh concerns over supplies. As the Dairymen went to press, most of the major processors were paying more than 30ppl, while industry sources warned high farmgate prices would “inevitably” translate to another surge in retail prices by the end of the year.
Encouragingly, higher prices haven’t yet had much of an impact on volume sales of pasteurised milk, which still accounts for the lion’s share of total category sales. Value sales are up 3.5%, while volumes are down just 0.2%.
With shoppers seemingly willing to pay more for standard milk and splash out on added value lines, confidence is returning to the category. Where once there was only darkness and despair within the sector, milk suppliers are now daring to dream of a brighter future.
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