Cheese category experienced 'a bloody difficult year' in 2013

What a difference a year makes. This time last year, the UK’s major cheese brands were celebrating a return to form after a difficult 2011: growth in branded cheese once more outpaced own label, which saw its value decline by 0.7% year on year, and the category’s biggest hitters - including Cathedral City and Philadelphia - were reporting impressive double-digit growth rates [Nielsen 52 w/e 12 October].

This year, however, finding good news for brands is harder. Overall branded growth flatlined, and many of the category’s big names have seen value sales plummet or stagnate. “It’s been a bloody difficult year,” says Rich Clothier, MD of Wyke Farms, whose Cheddar brand has lost about 20% of its value over the past 12 months in our rankings (although Clothier says Wyke’s own data suggests sales are flat rather than in decline).

So what’s gone wrong? As far as Cheddar is concerned, the dynamics between own label and brands have changed, which has made it tougher for brands to compete this year. With brands overwhelmingly in the ascendency last year, the mults were always going to fight back through own label - and that’s exactly what’s happened in 2013. The key battleground: price and promotions. Although there has been significant NPD on the ownlabel side (such as Tesco’s cheese category revamp in the spring, which saw the launch of new cooking-with-cheese formats and adult cheese snacks), it’s on the pricing and promotions side where retailers have really flexed their muscle.

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Whereas retail prices for many branded Cheddars have gone up in response to higher input costs (such as higher farmgate milk prices) over the past 12 months, the mults have invested margin to keep their own-label Cheddars at attractive price points, says Clothier. “There has been inflation in the sector, but it’s not been passed on on the own-label side to the same degree as for brands. The retailers have invested margin in own label, and in many cases the brands have helped fund own-label gains.”

Dairy Crest, meanwhile, points to a change in promotional mechanics. The company’s Cathedral City brand remains comfortably the country’s biggest cheese brand and has just about managed to stay in value growth this year, but shopper controller Adam Mehegan warns changes in promotional strategies are currently making life tougher than necessary in Cheddar. Even though Cheddar is an “expandable” category, volume sales are in decline at the moment because of “slowing trip volumes in everyday block”, which have in turn been driven by a trend towards temporary price reductions (TPR) at the expense of multibuy promotions, he says. “Shoppers will do the absolute minimum to redeem an offer, and with the move to TPR, they are less likely to buy more than one pack. As a result, shoppers are buying less everyday block Cheddar overall.”

Not all Cheddar brands have done badly in this climate, though. Lactalis’s Seriously Strong’s value has increased by nearly 20% over the past year - with similar growth rates on the volume side - driven by NPD and increases in distribution. Dairy Crest’s second Cheddar brand, Davidstow, has also delivered healthy 8.1% growth, which the company attributes partly to a packaging overhaul in April highlighting Davidstow’s premium credentials. Adams Foods’ Pilgrims Choice is up too, by 4.3%.

”Cathedral City Grated Mini Bags will drive further value into a growing category”

Adam Mehegan, Dairy Crest

Away from the juggernaut of the Cheddar category, the picture is even more mixed. Some companies have had a blinder of a year - Bel UK’s four key cheese brands, for example, have all grown value sales by healthy margins, with its Leerdammer brand up 23% year on year. Head of category management Stephen Gregory attributes his brands’ strong performance to NPD coupled with above-the-line support, and says low and reduced-fat options have also been a key driver in the past year. “Leerdammer Light is growing really well, and Mini Babybel Light is actually the number six SKU in the cheese snacking segment, as many adults want to get in touch with their playful side and eat the product, but with fewer calories,” he says, adding sales for Laughing Cow are also increasingly being driven by health-conscious adults.

But other big names have suffered. Take Philadelphia. Despite headline-grabbing range extensions over the past two years - including Choccy Philly, a move into cooking sauces and a new fishy Philly variant with salmon - the brand has struggled to sustain momentum. Value is down over 7% year on year, wiping roughly £8.2m off the brand’s retail sales value. And volumes are down nearly 12%.

After the highly successful launch of Philadelphia with Cadbury last year, growing Philadelphia sales was always going to be a challenge, admits Mondelez trade communications manager Susan Nash. However, more recent NPD initiatives - such as Simply Stir sauces - are now starting to deliver growth, and a new advertising campaign - launched in April - has contributed to an uplift in sales during the third quarter of 2013, she adds.

Mondelez stablemate Dairylea has had a slightly better run thanks to its reformulation to an all-natural recipe in 2012 and a move into flavoured spreads with the launch of Dairylea Flavours and Dairylea Dunkers Flavours this year. Nash claims the new Dairylea Mighty Mature and Springy Onion flavours are the “strongest-performing NPD launches in the last three years in the processed cheese category” but top-line growth for the brand looks less than impressive. Value sales inched up just 0.5% on volumes down 1.2%, although Nash stresses this is ahead of the overall processed kids’ cheese snacks market, which has lost roughly 4% of its value.

The kids’ cheese market has had a tough time, partly because it is dependent on kids’ lunchboxes, and that market has lost value over the past 12 months, suppliers suggest. String formats have been hit especially hard by this trend, with sales of Kerry Foods’ Cheestrings brand down 6.5% year on year.

As for what’s on the cards for 2014, health and convenience are top of the agenda for many. Dairy Crest recently launched single portions of grated Cathedral City, which it says addresses consumers’ desires for portion control and ease of use. “Cathedral City Grated Mini Bags will drive further value into an already growing category, expanding it into new formats, and will address concerns about current offerings, bringing new shoppers to the brand and category,” says Mehegan.

Clothier also promises a renewed focus on grated and sliced formats, which he says are areas where Wyke currently underperforms. In addition, Wyke will launch a branded smoked Cheddar in March.

For Mondelez, meanwhile, the focus is on allowing some of its recent NPD moves to bed down while reinforcing the core positioning of brands such as Philadelphia. “All brands need to maintain a balance of new news and core support,” says Nash. Philadelphia’s current “master brand” ad campaign is designed to do just that: highlighting the brand’s “delicious, fresh and creamy” taste and its versatility, while Philly’s culinary credentials will be highlighted through Simply Stir.

Brands would do well to keep their foot on the NPD and marketing pedal. With retailers likely to continue to invest heavily in own label, strong innovation and above-the-line support are brand owners’ best hope for sales success in 2014.

Read The Grocer’s full Top Products Survey.