Cash cow? Milk & butter prices fall 23% and 27% in five years

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This article is part of our digital feature on dairy.

Milk prices have plummeted from an average of £1.28 for four pints to 98p over the past five years, representing a 23.4% decline [Kantar Worldpanel].

The steepest reductions have come from Morrisons (36.5%) and Asda (35.5%) which as of the end of March 2015 were selling milk for 89p. Even the discounters have slashed prices by around 20% to maintain cheapest price point of 87p for four pints.

The decline has accelerated since March 2014 with Tesco, Sainsbury’s, Morrisons and Iceland all dropping their prices to £1 or lower followed by Waitrose in September. And prices are still falling: just this week, for example, Morrisons lowered its price to 89p.

“Retailers have become increasingly more competitive so the market is becoming tougher,” says John Allen of Kite Consulting. “The discounters have used milk as a driver to keep people coming through their doors and the big retailers have followed suit – although some would argue that Asda was on the forefront.”

While some may question the effect this has on the dairy farmers, who Allen notes are viewed sympathetically by the public, the likes of Tesco and Sainsbury’s (among others) have put in place mechanisms to ensure they are paying their farmers at least the cost of production.

“Some retailers can hold their hands up and say they are looking after their farmers and there’s a lot of truth in that but only a couple of them have integrated milk pools. The others have a more buccaneering approach,” says Hamish Renton, consultant at Hamish Renton Associates. “If you’re not in a co-op or a retailer milk pool it’s a difficult place to be.”

The five year view: average price of four pints of milk in the major mults

	4 w/e 02 May 10	4 w/e 03 Apr 11	4 w/e 01 Apr 12	4 w/e 31 Mar 13	4 w/e 30 Mar 14	4 w/e 29 Mar 15	1 year % change	5 year % change
Morrisons	1.48	1.07	1.12	1.10	0.98	0.94	-4.1	-36.5
Asda	1.38	1.03	1.01	1.00	1.00	0.89	-11.0	-35.5
Waitrose	1.52	1.10	1.25	1.29	1.39	1.00	-28.1	-34.2
Tesco	1.37	1.05	1.10	1.17	1.00	1.00	0.0	-27.0
Sainsbury’s	1.33	1.14	1.10	1.22	1.00	1.00	0.0	-24.8
TheCo-Op	1.44	1.26	1.19	1.22	1.29	1.13	-12.4	-21.5
Aldi	1.09	0.97	0.98	0.98	0.95	0.87	-8.4	-20.2
Lidl	1.09	0.99	0.97	0.99	0.96	0.88	-8.3	-19.3
Iceland	1.05	1.00	1.00	1.00	0.99	0.89	-10.1	-15.2
Marks & Spencer	1.54	1.27	1.25	1.29	1.47	1.39	-5.4	-9.7
TOTAL MARKET	1.28	1.08	1.08	1.11	1.04	0.98	-5.8	-23.4

Liquid milk isn’t the only area to suffer as a result of the price war. The average price of a 250g block of butter has also fallen by 26.8%, with the largest price cuts coming from Tesco (35.3%).

Meanwhile, Wyke Farms MD Rich Clothier believes the downward trend could be good for cheese. “It’s not all bad news for shoppers; cheese is now incredibly good value as a protein source,” he says, pointing to a peak price of £5 for a 350g or 400g block of cheddar up until March 2014, which was met with resistance from shoppers. “Some of these packs are down to less than £2 now which makes cheese good value for the family and we should see some badly needed increases in consumption.”

Highlighting the drop in prices in both own label and branded offerings, Clothier says competition isn’t all about price and brands should leverage other shopper values as well. “Promotions should be used to drive trial purchase, rather than just cycled over and again. Brands have to have a true point of difference and articulate that more clearly.”

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