Dairy - drinks 2022: Price rises hit sales of branded milk

Inflation has been the key story in milk in 2022. A pint has become a bellwether for rising food prices  – so much so that milk was identified by the ONS several times this year as a key driver in wider food price inflation.

A four-pinter had risen to £1.65 in the mults at time of writing. That’s 45.3% higher than the start of the year, as producers faced soaring production costs, exacerbated by Russia’s invasion of Ukraine.

The chaos wrought on global commodity prices led to average UK farm input costs, such as feed and fuel, jumping 34.2% year on year, showed research by farm supplies business AF Group in October.

As a result of those pressures, average farmgate prices hit a record 50.4p per litre in October – 54.4% higher than October 2021.

That’s translated into a 12.8% increase in the average shelf price per litre of milk across the full-year data period. Own-label prices have risen even faster: by an average of 15.5%, while brands are up by 9.3%.

It means the category has fared well at a value level – up 4.2% to £3.1bn – despite volumes tanking. Brits bought 328.4 million fewer litres of milk in the past year, equating to 578 million pints as pandemic-driven  stockpiling eased.

It’s little surprise, then, that most big brands have taken a hit on volumes. Of the top 15, only Müller, Yeo Valley Organic and Paynes Dairies achieved growth – of 23.3%, 1.6% and 10.3% respectively.

Müller’s performance is significant. The brand puts it down to a relaunch in April, which played up the sustainability credentials of its farmers. The brand has since achieved double-digit growth among wholesale and convenience customers, says Müller Milk & Ingredients business unit head Nick Garner. It also secured a two-year supply deal with Greggs in October.

The revamp and Müller’s credentials as a “well-trusted brand” gave it “a brilliant opportunity to leverage these strong credentials and expand into new areas” Garner adds. Having the top 10’s lowest average price per litre (79p), even after a 10.1% increase, no doubt bolstered performance, too.

Müller’s sterling year makes that of its less fortunate rivals all the more stark. Take Freshways, which has lost £7.4m on the back of a 12.6% drop in volumes. However, Bali Nijjar, joint MD of owner Medina Freshways, insists volumes grew in areas not covered by our data, such as foodservice.

It’s a similar situation for Arla Foods, whose brands – including market leader Cravendale and Lactofree – have sold 31.8 million fewer litres over the past year. This is to be expected in such a tough economic climate, suggests Arla head of milk Catriona Mantle.

“With the current cost of living crisis, we are seeing some shoppers trade down into private label,” she says.

Sales have shown signs of recovery of late, however. “Promotions are driving a positive effect on our performance,” Mantle adds, pointing to volume growth for brands including Yeo Valley and Lactofree.

Plus, she says, “value sales are seeing an improvement, which is as a result of necessary price increases to allow us to ensure our farmer owners are able to cover their costs and maintain security of supply”.

Yoghurt and shakes

Price inflation has been less of a concern for makers of yoghurt drinks and flavoured milk – although they’ve not been immune.

Prices rises have led to a 5.3% spike in value for the former sector, in spite of volumes dipping 0.2%. A 5.5% rise in average price and a positive performance by own label helped keep value in the black.

There were also a handful of names that bucked the volume decline in brands. The summer launch of extra variants for Biotiful Gut Health’s one-litre kefir drink helped drive a 30.2% growth in units.

And Top Launch Petits Filous (see p103) shifted 292.4k more litres thanks to the uptick in schoolkids’ lunchboxes.

That trend also helped buoy flavoured milk, notes NielsenIQ senior analytics executive Matthew Fleming. The majority of brands are in value and volume growth.

“The dairy drinks market has seen a resurgence in growth as a result of the return of on-the-go occasions,” he says.

“As lockdown restrictions have eased and people have returned to work and school, demand for flavoured drinks for on-the-go needs has increased.”

Notable beneficiaries include Starbucks and Costa Coffee. The two high street brands are worth a total extra £28.7m in grocery.

For Coca-Cola’s Costa, using the same coffee beans as its shops and less milk than rival lines “has proven a hit with coffee lovers”, says Martin Attock, VP of commercial development at CCEP GB.

Fleming has a final word of warning, however. Brits’ thirst for dairy drinks has now “started to slow slightly as rising inflation sees demand soften”. Indeed, the market’s average price per litre was already up 12.3% by early September.

And that could be hard for even the most successful brands to shake off.