Dairy drinks: all churned up in the milk sector

More than £100m wiped off the own-label milk market and a non-dairy brand now the third-biggest milk brand in the country: 2014 has not been an easy year for the UK’s milk and dairy drinks sector.

The relative calm of 2013 was replaced with an increasingly militant supplier base, while in the supermarkets four pints for a quid became the new normal as milk turned into a key battleground in the fight for footfall. On top of that, farmgate prices plunged, driven down by record milk production and a slump in global demand exacerbated by the Russian trade embargo.

Intense competition and price-matching against the discounters contributed to a 4.6% year-on-year decline in the average price of a litre of own-label milk. Such a steep price drop will be hard news to swallow for producers given what has happened with farmgate milk prices this year, but the retailers’ price tactics do seem to have slowed volume declines to an extent - good news, given the need to shift excess milk this year.

Meanwhile, on the branded side, value sales have risen by 1.7% (or £13.9m) to £841.2m. This should be a welcome development given that adding value to the liquid milk category through branding and premium credentials (such as filtering) has been a key focus for suppliers for some time, but the topline growth figures hide rather more challenging news for milk brands.

Free from soars

The standout performance by far this year has come from milk alternatives brand Alpro, which now ranks as the UK’s third-biggest milk brand, having overtaken Dairy Crest’s Country Life. “Free from has moved from a niche market sector catering for those with allergies and intolerances, to one with more mainstream appeal,” says Vicky Upton, Alpro UK’s marketing controller.

“Free from has moved from a niche market sector to one with more mainstream appeal” Vicky Upton, Alpro

Dairy industry consultant Hamish Renton adds consumers are increasingly turning to the dairy alternatives market and products like Alpro because they are curious about different flavour innovations and for the apparent health benefits, such as easier digestibility for those suffering with lactose intolerances. At the same time, intense price competition from retailers as they seek to drive footfall has made consumers less interested in buying branded milk, with lower prices designed to “build a price perception rather than shift more litres.”

It’s little surprise, therefore, that milk brands have suffered. Market leader Cravendale has seen volume sales fall by 3.6% year on year with value flat at -0.5%, despite investing in a new three-litre format during the spring and a marketing campaign to highlight its premium credentials.

And Müller Wiseman’s Black & White saw value sales drop by 10.5% to £92.9m, and volume sales fall by 12.6%, while Dairy Crest’s Country Life brand saw value sales drop by 20.3% to £61.3m, with volume sales down by 21.3%.

Dairy Crest says the losses on Country Life are down to a “selective reduction in exposure to some parts of the middle ground.” Dairy Crest won’t have to worry about the middle-ground milk market (or indeed any part of the liquid milk market) for much longer: in November, the company announced it would be divesting its entire dairies business to Müller in an £80m deal. As part of that, Müller will have the opportunity to license the Country Life brand.

Flavoured milk

Despite the doom and gloom in fresh milk, there are bright spots in dairy drinks. Flavoured milk brands continue to go down a treat with consumers, with market leader Frijj returning to form this year with a 12.7% year-on-year jump in value sales. Brand owner Dairy Crest had deliberately dialled back on multibuy promotions for Frijj in 2013 as it prepared for extra production capacity for the dairy drink to come on stream, and has now returned to the market with a bang.

Second-ranked Yazoo has lost some value over the past year but will be hoping its new yoghurt smoothies, launched in September (see Top Launch), will help bring the brand back into value growth in 2015.

Meanwhile, RTD coffee drinks continue to be a firm favourite with shoppers, with Starbucks adding £5.2m over the past 12 months, and Emmi’s Caffè Latte up 15.7% year on year, buoyed by the launch of its new larger size - known as Mr Big - in July.

Elsewhere, protein and oat-based drinks continue to perform well, with the likes of Nurishment, For Goodness Shakes and Fuel all putting in a strong showing over the past 12 months. The success of Weetabix on the Go is especially noteworthy in this regard: a newcomer to dairy drinks category this year, the product has generated more than £4m in sales in its first year, by appealing to consumers’ needs for innovative on-the-go breakfast products while offering the reassurance of a familiar brand name.

The yoghurt drinks category, on the other hand, experienced a 5.4% decline sales to £181.3m as the sector continued to come to terms with the EU’s clampdown on probiotics health claims.

Efforts are under way to boost sales again, with Danone Actimel launching a kids’ version this summer and new entrants such as The Collective Dairy having made a bright start (sales of £127,024 in its first year), but it is clear the category has challenges ahead if it is to return to growth.

However, the performance of Benecol should give cause for optimism: after losing sales in 2013, the brand is now back in growth, up 7.5% year on year.