Big cheese squeeze costs brands dear

Who’d be a branded cheese supplier? Combined branded volumes have inched up 0.8%, but it’s come at a price: value has sunk 1.6%, contributing £18.5m to the market’s £68.9m loss (the 10th biggest category decline of the year). 

Last year we reported that downward pressure on prices and a retailer focus on own label was heaping pressure on brands; yet the silver lining was that the category remained in growth… just. This year there are even fewer crumbs of comfort in the headline data.

Total sales have fallen as a result of continued downward pressure on prices, due in part to the falling price of liquid milk but also to fierce price competition in the supermarkets that’s stripped value out of the market. And while consumers have benefited from lower prices, the decline in value hasn’t been compensated for by an increase in total volumes.

“It’s a really competitive market,” says Wyke Farms MD Rich Clothier. “There are two things happening: we’ve got the pressure of currency and world markets, but at the same time we’ve suddenly got this dynamic competition between the discounters and the mainstream supermarkets. It is really tough for suppliers right across the board.”

Hence Wyke Farms’ £11m decline, the greatest loss of the year, driven in part by stiffening price competition, particularly with Cathedral City, Pilgrims Choice and Seriously Strong, which have seen average prices fall by 9.2%, 9.8% and 8.8% respectively.

Cheese has not escaped ruthless retailer rationalisation either. Sainsbury’s has undertaken range rationalisation on branded lines throughout the year, and Asda has built its Cheddar fixture around Cathedral City and Anchor, limiting on-shelf opportunities for brands such as Wyke and Seriously.

Anchor’s phenomenal growth from a standing start in 2013 (it’s now Britain’s ninth biggest cheese brand, worth £28m) bears this out. It also illustrates how commoditised the market has become, with the majority of branded Cheddar sales driven by deep deals and occurring on aisle ends.

“The danger of this is that it devalues cheese as a whole as shoppers come to expect to buy Cheddar in some shape or form on promotion on an aisle end,” says Katie Bleach, marketing director for cheese at Arla Foods. “This ultimately limits the amount of time shoppers spend in the cheese aisle with the shopper engagement at fixture impacting on trip volume and spend.”

Brands are fighting back in a number of ways. In the case of category leader Cathedral City, which has maintained more or less flat value sales on volumes up 9.9%, it’s a case of ‘if it ain’t broke, don’t fix it’. Dairy Crest has continued to refresh the brand with innovations that, while not exactly game changing, have kept sales ticking over.

Cathedral City Selections has been launched in a £1 price-marked mini bag, created specifically for the convenience sector, with the aim of growing the adult cheese snacking segment - an area of the market that a number of suppliers believe has strong potential. The core block range has also been expanded to include 550g blocks in an effort to appeal to families looking to use block Cheddar in multiple meal applications.

Elsewhere in Cheddar, the story is one of Anchor continuing to make strong gains at the expense of rival brands such as Pilgrims Choice, Seriously Strong and Wyke Farms. Pilgrims Choice has at least delivered an uplift in volumes following its eye-catching Pilgrims Choice Chosen campaign, which was the centrepiece of a £3m relaunch in January. “We had been off TV for two years so we really needed to get cut through and build awareness initially,” says Adams Foods director of brands Mike Harper.

Wyke is another brand attempting to revive its fortunes through a relaunch, which has seen the brand put its environmental and family farming credentials at front and centre of its packaging. Although the impact of the October relaunch is not captured in a disappointing set of sales figures, Clothier is confident the tide is about to turn and “those of us who are still here in the category are going to be in a good place to pick up the ball and run with it” next year.

Anchor growth is also thanks to ongoing investment, most notably a heavyweight £6m campaign that introduced the animated ‘Hugglers’ (above). Bleach, however, suggests the brand will not be resting on its laurels in 2016. “We’ve seen a raft of new ad campaigns being launched over the past few months, including our Anchor campaign,” she says. “There will be increased pressure for brands to demonstrate their benefits versus competitors.”

Outside Cheddar, two of the category’s biggest suppliers - Bel UK and Mondelez - have reaped the rewards from investment in their stable of cheese brands. Mondelez’s Philadelphia benefited from Philadelphia Deliciously Whipped in April, supported by a £3m spend. Dairylea, meanwhile, is developing flavoured cheese with new Dairylea Cheesy Cheddar and Cheesy Bacon.

Bel UK’s two main brands - Babybel and The Laughing Cow - also bucked the category trend by delivering growth. Bel has targeted the adult snacking sector with the launch of The Laughing Cow Mini Cravings and has also continued a strategy of developing more flavours in its core The Laughing Cow Light range.

Mini Babybel, meanwhile, has benefited from a return to TV in May via its ‘Super Cheese’ campaign, which Bel UK’s marketing director Steve Gregory says is aimed at persuading lapsed older consumers to return to the brand. “While the campaign still focuses on the child at heart of the brand it’s really trying to bring a bit more personality to Mini Babybel.”

With the introduction of free school meals for primary schoolchildren in September 2014 restricting opportunities to develop the kids’ snacking market, suppliers are increasingly seeking to grow adult snacking.

Kerry Foods, sales of whose Cheestrings have dipped in both value and volume, has tried to grab a slice of the adult market with its LowLow Snack Bites. “An increasing number of shoppers are moving from only purchasing cheese to consume as part of a packed lunch or fridge staple, to becoming a multi-snacking opportunity throughout the day,” says dairy controller Lee Willett.

Elsewhere, Continental cheeses continue to grow at the expense of territorials as Brits become more comfortable using cheeses such as halloumi and feta. In line with this, Arla’s Castello launched a Scandinavian-inspired ‘Smorging’ campaign earlier this year. Castello’s growth is a rare success story in a tough market.

Nevertheless, Clothier believes the worst may be behind cheese. “I’m really optimistic about the next couple of years and getting back to good sensible marketing, consumer relevance, concentrating on proper drivers for purchase other than just price, giving people proper reasons to pick up the product, and also seeing a bit more choice in the supermarkets.”

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