Supply shortages and demand from Asia have pushed up the wholesale cost of butter a staggering 60%. But that doesn’t mean retail prices will follow suit, says Claire Murphy
Remember when everyone's granny used to complain about the price of butter? It's a conversation topic that may well return to bus stops and doctors' surgeries, following a steep rise in wholesale butter prices over the past year.
Supply shortages and growing demand from Asia have sent wholesale prices soaring 60% to £3,400 per tonne, according to DairyCo Datum. Inevitably, this is starting to impact retail prices, but that doesn't mean we are about to witness the end of cheap butter, say experts. The category's reliance on heavy promotional activity will always check any upwards pressure on prices, they argue which is why efforts need to be made to inject genuine value to the category through value-added NPD.
Over the past few years, consumers have become used to buying cheap butter, spreads and margarines, and retailers have only turned up their levels of promotional activity in the current economic climate. The volume sold on deal for butters, spreads and margarines (BSM) increased from 25% in April 2008 to 46% in April 2010 [SymphonyIRI]. Industry sources suggest this is now as high as 70% to 80% in the price-sensitive spreads sector.
As a result, value sales have fallen 1.3% to £1.09bn despite a 1.6% increase in volume sales [Kantar Worldpanel 52w/e 19 April]. Own-label butters have borne the brunt of this decline, with value sales falling 7.7% to £176.3m as consumers were lured away from own label by the increase in branded promotions. Value sales of branded BSM, by contrast, have remained static at £916.8m [Kantar].
The rise in wholesale prices is already hitting retail prices a 250g pack of Lurpak Spreadable, for example, has jumped in price from £1.30 to £1.42 over the past year but the hikes are lagging massively behind those seen in wholesale and will probably remain so as long as the economic climate remains volatile. "I can't see retail prices going up by 60%, but it seems likely that there will continue to be some increases," says DairyCo senior analyst Arnaud Haye.
Further evidence of consumers seeking out cheaper deals on butter is provided by the growth in sales of butters and spreads sales through discount retailers Iceland and Lidl. The two retailers posted the biggest rise in value sales in the category up 10.1% and 7.2% on last year [Kantar].
However, premium retailer Waitrose also managed to increase its sales in the category, up 6.7%, through the introduction of new ranges, such as Glenilen Farm handmade Irish butter and Cuinneog Farmhouse Irish country butter.
The flipside is that the reliance on promotions and low prices will force suppliers to swallow the bulk of the wholesale cost increases. "It will only put more pressure on price negotiations between processors and retailers," says Haye. "Some people in the market are very worried by this tight situation."
Tight is an understatement. With volume sales only up marginally, even modest price rises could have an impact. "My judgement is that volumes would decline but not on a category level," says Dairy Crest marketing director Paul Fraser. "Dairy spreads would benefit, at the expense of butter."
He adds that spreadable butters might fare better than non-spreadable, as consumers would look to buy just one product for both cooking and spreading.
Butter battle
There's already evidence this is happening. Sales of the biggest sector of the BSM market, standard butter, dropped by 1.5% over the year to £495m on a volume drop of 1.6% [Kantar]. By contrast, spreads rose in value by 2.4% to £200m, as consumers traded down to cheaper alternatives. And price cuts have made spreads even more appealing, pushing volumes up 8.7% well above the value increase [Kantar].
Among the top five brands in pure butter, only market leader Lurpak has seen its sales rise by 3.8% to £37.6m helping it to an uplift of 2.1% to £262m when its spreadable butters are included [SymphonyIRI 52w/e 15 May]. Senior brand manager Thryth Jarvis concedes that a large part of the value growth is the result of price rises, but adds that Lurpak's substantial advertising campaign has boosted brand awareness and volume sales.
Lurpak also launched a new variant last month: Lurpak Unsalted Lighter, its healthiest spread yet (see above). The new arrival is bang on trend, as consumers look to cut back their fat and salt intake. This desire has boosted volume sales of low-fat spreads 5.4% over the past year and produced a flurry of launches of lower-fat and salt products as well as other healthier spreads.
Revamps and relaunches
Kerrygold has re-engineered all its products to reduce their salt levels and last year relaunched Kerrygold Lighter. Clover Lighter was launched at the end of 2008 and last week a 1kg version was introduced to appeal to larger families and encourage consumers to trade up to a bigger format. The launch of the 1kg format is part of Dairy Crest's £5m support for the Clover brand in 2010.
Dairy Crest also gave Vitalite a packaging revamp in March this year, moving from the traditional round tub to a rectangular one in a bid to make the brand easier to merchandise and store. The new packs also put greater emphasis on the dairy-free nature of the brand. Meanwhile Kerry added a Mediterranean olive oil variant to its dairy-free spread Pure in May.
Unilever has previously focused the marketing of its Bertolli olive oil spread brand on its healthier message, but last month it reformulated with a new recipe that it claims offers the best taste yet, backed up with a £4m campaign to promote the improved taste.
"We've designed all the marketing activity to encourage trial," says Jenny Clark, brand manager for Bertolli. "Once tried, our best-ever taste is going to keep consumers coming back for more."
The reformulation is an attempt to inject some much-needed value back into the category. Volume sales of Bertolli have risen 9.4%, but value sales have fallen 2.9% to £47.5m [SymphonyIRI]. "The marketing is also to show consumers that the brand is worth trading up for and paying a little bit extra for," adds Clark. Bertolli has also revamped the packaging to feature the line 'Our best-ever taste'.
Anchor, meanwhile, has revamped its packaging to counteract falling sales in the wake of Country Life's hugely successful advertising campaign, which criticised Anchor for not being British. The John Lydon-fronted ad boosted Country Life sales during the year to May 2009. Although the effect has fallen away over the past 12 months, sales are still up 2.6% to £60.3m, while Anchor's are down 5.3% to £84.2m [SymphonyIRI].
Hence Anchor's relaunch and unveiling a new £10m marketing campaign this May. PR activity pushes the message that Anchor was 'created by a Cornishman', although he went to New Zealand to actually create the butter and then ship it back.
The TV ad pushes the fact that Anchor is the oldest butter brand available in the UK. While it features the tagline 'Made by cows since 1886', the revamped packs bear the strapline 'The Original Butter Co'. "The highlighted heritage reinforces the trust consumers have in the brand, as well as the perceived quality," says brand manager Kate Richards.
Rival Kerrygold has also been promoting the origins of its butter over the past year. It handed out video cameras to the farmers who own the co-operative, who filmed themselves and their cows. The resulting TV campaign, which kicked off in April last year, was designed to tap into "consumer disillusionment with big business", says brand marketing controller Alison Palmer. "We wanted to give consumers the feeling they were supporting the little guy."
However, the brand has taken the bold decision to try to move away from deep promotions, says Palmer. It has also been a victim of supermarkets rationalising the butter aisle, with its 250g packs delisted from Tesco and Sansbury's. The combination of the delisting and reluctance to heavily promote saw sales fall £2.4m, taking it to £28.3m [SymphonyIRI].
"There's no doubt we've had a challenging first quarter", says Palmer. "Retail prices went up and run rates (sales at non-promotional prices) were affected."
Spreads
Flora also significantly cut back on its promotional activity with the number of offers falling from 167 last year to 121 this year. As a result, sales tumbled £18m to £188.2m [SymphonyIRI]. Unilever spreads category director Phil Ellis admits its marketing plan was also at fault.
Last year's ads featured a man thinking about jumping over the garden wall to keep his heart healthy and equating this to eating Flora. It directed consumers to a website where they could calculate their 'heart age'. Unilever also linked Flora with the Department of Health's Change4Life marketing campaign.
"Distribution for Flora remained solid but the marketing plan didn't translate that into sales," says Ellis. "The difficulty with being such a large brand is that we face competitive pressures all around."
In a bid to drive sales, Unilever launched a new Flora TV campaign last month the first created for the brand by agency DDB. Although it still highlights the brand's heart health positioning, the new ads promote the idea of caring for the health of other people. Ellis says sales have started to pick up since the new campaign broke.
The brand also continues to run its Cooking for Schools voucher promotion, which supports school cooking lessons, and has embarked on an advertiser-funded TV project to encourage families to cook more healthily.
The manufacturer's I Can't Believe It's Not Butter! (ICBINB) spread brand, meanwhile, was relisted in Asda and Tesco last year, effectively doubling its distribution. The brand spent some time in the supermarket wilderness after being delisted by Asda in favour of Dairy Crest's Utterly Butterly in 2007.
Ellis accepts this was because the company hadn't supported the brand with the kind of advertising that would convince retailers that consumers would be searching out the brand. "But we've invested in the brand over the past year and have made a compelling case to the supermarkets," he says
These listings, together with a substantial number of price promotions and a tripling of the ad support package to £1.4m, served to boost ICBINB's sales by £28.7m to reach £55.4m by far the largest increase in value of any BSM brand over the 12 months [SymphonyIRI].
The success of ICBINB was at the expense of Utterly Butterly. Ironically, Dairy Crest's spread brand was delisted from Asda when ICBINB was brought back in June last year, and the extra competition from ICBINB in Tesco further knocked sales, which are down 31.2% to £44.8m [SymphonyIRI]. "Clearly I'm not happy about this performance," says Fraser.
The company now has plans to invest in an advertising campaign for Utterly Butterly, emphasising its key health message of having 70% less satfat than butter.
Health
Concerns over fat levels continue to reverberate across the category in the wake of comments by leading heart surgeon Shyam Kolvekar this January calling for the government to ban butter and other products containing trans fats.
The debate, however, should not just be about fat reduction, says Fraser. "Eating a product that is natural ie butter is a lot more attractive to many consumers than a low-fat but processed spread."
Danny Micklethwaite, Arla Foods' BSM business unit director, agrees. Consumers are "increasingly following an everything-in-moderation" approach and are looking at a more holistic view on health, he notes. "They are not just looking at the satfat content of products, but are instead weighing up all the pros and cons. They understand that some products may be lower in fat, but are also full of e-numbers, additives, preservatives and stabilisers to compensate for that reduction."
Cholesterol
That's not to say they aren't interested in products that tackle high cholesterol. Benecol, marketed by McNeil Nutritionals, and Unilever's Flora Pro-activ contain cholesterol-lowering plant stanol esters. Last October, the ingredient was given official backing from the European Commission's new EFSA body.
Both companies have been capitalising on the EFSA endorsement in their brand PR campaigns. Unilever also sends its Vitality magazine to Flora Pro-activ shoppers three times a year. Flora Pro-activ's sales have climbed 2% over the past year, according to Ellis, who regards this as a good result for a premium-priced product during a recession. Benecol, however, performed better, up 4% to £20.1m [SymphonyIRI] as its press campaign communicating the EFSA's decision reassured consumers of its cholesterol-lowering properties.
Premium players
Cholesterol concerns have also boosted sales of goats milk butters, which contain lower levels of cholesterol than cows milk butters. Sales of St Helen's Farm goats butter shot up 16% to reach £970,000. "Increasing numbers of people are avoiding cows milk products," says St Helen's Farm sales and marketing manager Mike Hind. "Not all of them like the taste of soya products so they're coming to us an alternative".
There have been successes for other smaller, premium brands too, with sales of Yeo Valley Organic up 7.6% to £5.9m and Wyke Farmhouse rising from £1.3m to £2.9m, aided by the launch in November of its first spreadable butter [Symphony IRI].
And premium French brand Isigny Sainte-Mère says it has benefited from the rise in wholesale prices. The milk used by the co-op to make its butter comes from a protected region in France and has been less subject to price rises than those on the wider market. European export manager Stephane Plessis says this has enabled the company to reduce the price difference between the brand and more mainstream butters, which has encouraged consumers to trade up.
The next 12 months will be pivotal for the BSM category. Dairy Crest's Fraser is hopeful that shopper behaviour in the category will mirror what's happening in the wider grocery shopping market.
"Consumers' initial response to the recession was downtrading, looking for price promotions and switching supermarket to a cheaper store," he says.
"But as time has gone on many consumers have gone back to their favourite store. If you're cutting back on other purchases, what you eat at home becomes more important."
He is also hopeful there may be some let-up in promotional activity. "I can understand why the supermarkets needed to compete with price promotions last year, but I think it's fair to say they went a bit too far."
Retailers may disagree. But whether or not the level of promotional activity is to blame for the decline in value sales, it is clear the industry needs to do something to arrest the slide. The question is: will ramping up levels of NPD and marketing activity be enough to coax consumers away from the promotions?
Focus On Butters & Spreads
Remember when everyone's granny used to complain about the price of butter? It's a conversation topic that may well return to bus stops and doctors' surgeries, following a steep rise in wholesale butter prices over the past year.
Supply shortages and growing demand from Asia have sent wholesale prices soaring 60% to £3,400 per tonne, according to DairyCo Datum. Inevitably, this is starting to impact retail prices, but that doesn't mean we are about to witness the end of cheap butter, say experts. The category's reliance on heavy promotional activity will always check any upwards pressure on prices, they argue which is why efforts need to be made to inject genuine value to the category through value-added NPD.
Over the past few years, consumers have become used to buying cheap butter, spreads and margarines, and retailers have only turned up their levels of promotional activity in the current economic climate. The volume sold on deal for butters, spreads and margarines (BSM) increased from 25% in April 2008 to 46% in April 2010 [SymphonyIRI]. Industry sources suggest this is now as high as 70% to 80% in the price-sensitive spreads sector.
As a result, value sales have fallen 1.3% to £1.09bn despite a 1.6% increase in volume sales [Kantar Worldpanel 52w/e 19 April]. Own-label butters have borne the brunt of this decline, with value sales falling 7.7% to £176.3m as consumers were lured away from own label by the increase in branded promotions. Value sales of branded BSM, by contrast, have remained static at £916.8m [Kantar].
The rise in wholesale prices is already hitting retail prices a 250g pack of Lurpak Spreadable, for example, has jumped in price from £1.30 to £1.42 over the past year but the hikes are lagging massively behind those seen in wholesale and will probably remain so as long as the economic climate remains volatile. "I can't see retail prices going up by 60%, but it seems likely that there will continue to be some increases," says DairyCo senior analyst Arnaud Haye.
Further evidence of consumers seeking out cheaper deals on butter is provided by the growth in sales of butters and spreads sales through discount retailers Iceland and Lidl. The two retailers posted the biggest rise in value sales in the category up 10.1% and 7.2% on last year [Kantar].
However, premium retailer Waitrose also managed to increase its sales in the category, up 6.7%, through the introduction of new ranges, such as Glenilen Farm handmade Irish butter and Cuinneog Farmhouse Irish country butter.
The flipside is that the reliance on promotions and low prices will force suppliers to swallow the bulk of the wholesale cost increases. "It will only put more pressure on price negotiations between processors and retailers," says Haye. "Some people in the market are very worried by this tight situation."
Tight is an understatement. With volume sales only up marginally, even modest price rises could have an impact. "My judgement is that volumes would decline but not on a category level," says Dairy Crest marketing director Paul Fraser. "Dairy spreads would benefit, at the expense of butter."
He adds that spreadable butters might fare better than non-spreadable, as consumers would look to buy just one product for both cooking and spreading.
Butter battle
There's already evidence this is happening. Sales of the biggest sector of the BSM market, standard butter, dropped by 1.5% over the year to £495m on a volume drop of 1.6% [Kantar]. By contrast, spreads rose in value by 2.4% to £200m, as consumers traded down to cheaper alternatives. And price cuts have made spreads even more appealing, pushing volumes up 8.7% well above the value increase [Kantar].
Among the top five brands in pure butter, only market leader Lurpak has seen its sales rise by 3.8% to £37.6m helping it to an uplift of 2.1% to £262m when its spreadable butters are included [SymphonyIRI 52w/e 15 May]. Senior brand manager Thryth Jarvis concedes that a large part of the value growth is the result of price rises, but adds that Lurpak's substantial advertising campaign has boosted brand awareness and volume sales.
Lurpak also launched a new variant last month: Lurpak Unsalted Lighter, its healthiest spread yet (see above). The new arrival is bang on trend, as consumers look to cut back their fat and salt intake. This desire has boosted volume sales of low-fat spreads 5.4% over the past year and produced a flurry of launches of lower-fat and salt products as well as other healthier spreads.
Revamps and relaunches
Kerrygold has re-engineered all its products to reduce their salt levels and last year relaunched Kerrygold Lighter. Clover Lighter was launched at the end of 2008 and last week a 1kg version was introduced to appeal to larger families and encourage consumers to trade up to a bigger format. The launch of the 1kg format is part of Dairy Crest's £5m support for the Clover brand in 2010.
Dairy Crest also gave Vitalite a packaging revamp in March this year, moving from the traditional round tub to a rectangular one in a bid to make the brand easier to merchandise and store. The new packs also put greater emphasis on the dairy-free nature of the brand. Meanwhile Kerry added a Mediterranean olive oil variant to its dairy-free spread Pure in May.
Unilever has previously focused the marketing of its Bertolli olive oil spread brand on its healthier message, but last month it reformulated with a new recipe that it claims offers the best taste yet, backed up with a £4m campaign to promote the improved taste.
"We've designed all the marketing activity to encourage trial," says Jenny Clark, brand manager for Bertolli. "Once tried, our best-ever taste is going to keep consumers coming back for more."
The reformulation is an attempt to inject some much-needed value back into the category. Volume sales of Bertolli have risen 9.4%, but value sales have fallen 2.9% to £47.5m [SymphonyIRI]. "The marketing is also to show consumers that the brand is worth trading up for and paying a little bit extra for," adds Clark. Bertolli has also revamped the packaging to feature the line 'Our best-ever taste'.
Anchor, meanwhile, has revamped its packaging to counteract falling sales in the wake of Country Life's hugely successful advertising campaign, which criticised Anchor for not being British. The John Lydon-fronted ad boosted Country Life sales during the year to May 2009. Although the effect has fallen away over the past 12 months, sales are still up 2.6% to £60.3m, while Anchor's are down 5.3% to £84.2m [SymphonyIRI].
Hence Anchor's relaunch and unveiling a new £10m marketing campaign this May. PR activity pushes the message that Anchor was 'created by a Cornishman', although he went to New Zealand to actually create the butter and then ship it back.
The TV ad pushes the fact that Anchor is the oldest butter brand available in the UK. While it features the tagline 'Made by cows since 1886', the revamped packs bear the strapline 'The Original Butter Co'. "The highlighted heritage reinforces the trust consumers have in the brand, as well as the perceived quality," says brand manager Kate Richards.
Rival Kerrygold has also been promoting the origins of its butter over the past year. It handed out video cameras to the farmers who own the co-operative, who filmed themselves and their cows. The resulting TV campaign, which kicked off in April last year, was designed to tap into "consumer disillusionment with big business", says brand marketing controller Alison Palmer. "We wanted to give consumers the feeling they were supporting the little guy."
However, the brand has taken the bold decision to try to move away from deep promotions, says Palmer. It has also been a victim of supermarkets rationalising the butter aisle, with its 250g packs delisted from Tesco and Sansbury's. The combination of the delisting and reluctance to heavily promote saw sales fall £2.4m, taking it to £28.3m [SymphonyIRI].
"There's no doubt we've had a challenging first quarter", says Palmer. "Retail prices went up and run rates (sales at non-promotional prices) were affected."
Spreads
Flora also significantly cut back on its promotional activity with the number of offers falling from 167 last year to 121 this year. As a result, sales tumbled £18m to £188.2m [SymphonyIRI]. Unilever spreads category director Phil Ellis admits its marketing plan was also at fault.
Last year's ads featured a man thinking about jumping over the garden wall to keep his heart healthy and equating this to eating Flora. It directed consumers to a website where they could calculate their 'heart age'. Unilever also linked Flora with the Department of Health's Change4Life marketing campaign.
"Distribution for Flora remained solid but the marketing plan didn't translate that into sales," says Ellis. "The difficulty with being such a large brand is that we face competitive pressures all around."
In a bid to drive sales, Unilever launched a new Flora TV campaign last month the first created for the brand by agency DDB. Although it still highlights the brand's heart health positioning, the new ads promote the idea of caring for the health of other people. Ellis says sales have started to pick up since the new campaign broke.
The brand also continues to run its Cooking for Schools voucher promotion, which supports school cooking lessons, and has embarked on an advertiser-funded TV project to encourage families to cook more healthily.
The manufacturer's I Can't Believe It's Not Butter! (ICBINB) spread brand, meanwhile, was relisted in Asda and Tesco last year, effectively doubling its distribution. The brand spent some time in the supermarket wilderness after being delisted by Asda in favour of Dairy Crest's Utterly Butterly in 2007.
Ellis accepts this was because the company hadn't supported the brand with the kind of advertising that would convince retailers that consumers would be searching out the brand. "But we've invested in the brand over the past year and have made a compelling case to the supermarkets," he says
These listings, together with a substantial number of price promotions and a tripling of the ad support package to £1.4m, served to boost ICBINB's sales by £28.7m to reach £55.4m by far the largest increase in value of any BSM brand over the 12 months [SymphonyIRI].
The success of ICBINB was at the expense of Utterly Butterly. Ironically, Dairy Crest's spread brand was delisted from Asda when ICBINB was brought back in June last year, and the extra competition from ICBINB in Tesco further knocked sales, which are down 31.2% to £44.8m [SymphonyIRI]. "Clearly I'm not happy about this performance," says Fraser.
The company now has plans to invest in an advertising campaign for Utterly Butterly, emphasising its key health message of having 70% less satfat than butter.
Health
Concerns over fat levels continue to reverberate across the category in the wake of comments by leading heart surgeon Shyam Kolvekar this January calling for the government to ban butter and other products containing trans fats.
The debate, however, should not just be about fat reduction, says Fraser. "Eating a product that is natural ie butter is a lot more attractive to many consumers than a low-fat but processed spread."
Danny Micklethwaite, Arla Foods' BSM business unit director, agrees. Consumers are "increasingly following an everything-in-moderation" approach and are looking at a more holistic view on health, he notes. "They are not just looking at the satfat content of products, but are instead weighing up all the pros and cons. They understand that some products may be lower in fat, but are also full of e-numbers, additives, preservatives and stabilisers to compensate for that reduction."
Cholesterol
That's not to say they aren't interested in products that tackle high cholesterol. Benecol, marketed by McNeil Nutritionals, and Unilever's Flora Pro-activ contain cholesterol-lowering plant stanol esters. Last October, the ingredient was given official backing from the European Commission's new EFSA body.
Both companies have been capitalising on the EFSA endorsement in their brand PR campaigns. Unilever also sends its Vitality magazine to Flora Pro-activ shoppers three times a year. Flora Pro-activ's sales have climbed 2% over the past year, according to Ellis, who regards this as a good result for a premium-priced product during a recession. Benecol, however, performed better, up 4% to £20.1m [SymphonyIRI] as its press campaign communicating the EFSA's decision reassured consumers of its cholesterol-lowering properties.
Premium players
Cholesterol concerns have also boosted sales of goats milk butters, which contain lower levels of cholesterol than cows milk butters. Sales of St Helen's Farm goats butter shot up 16% to reach £970,000. "Increasing numbers of people are avoiding cows milk products," says St Helen's Farm sales and marketing manager Mike Hind. "Not all of them like the taste of soya products so they're coming to us an alternative".
There have been successes for other smaller, premium brands too, with sales of Yeo Valley Organic up 7.6% to £5.9m and Wyke Farmhouse rising from £1.3m to £2.9m, aided by the launch in November of its first spreadable butter [Symphony IRI].
And premium French brand Isigny Sainte-Mère says it has benefited from the rise in wholesale prices. The milk used by the co-op to make its butter comes from a protected region in France and has been less subject to price rises than those on the wider market. European export manager Stephane Plessis says this has enabled the company to reduce the price difference between the brand and more mainstream butters, which has encouraged consumers to trade up.
The next 12 months will be pivotal for the BSM category. Dairy Crest's Fraser is hopeful that shopper behaviour in the category will mirror what's happening in the wider grocery shopping market.
"Consumers' initial response to the recession was downtrading, looking for price promotions and switching supermarket to a cheaper store," he says.
"But as time has gone on many consumers have gone back to their favourite store. If you're cutting back on other purchases, what you eat at home becomes more important."
He is also hopeful there may be some let-up in promotional activity. "I can understand why the supermarkets needed to compete with price promotions last year, but I think it's fair to say they went a bit too far."
Retailers may disagree. But whether or not the level of promotional activity is to blame for the decline in value sales, it is clear the industry needs to do something to arrest the slide. The question is: will ramping up levels of NPD and marketing activity be enough to coax consumers away from the promotions?
Focus On Butters & Spreads
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