Deep deals at retailers devaluing cheddar category, says Ornua

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Aggressive promos on major brands threatened to wipe out up to £40m in branded revenue a year, said Ornua

A surge in deep deals on block cheddar is devaluing the category and could cost brands millions of pounds in lost revenue, Ornua Foods has warned.

Aggressive promotions on major brands could have a “significant negative” long-term effect on the category, Ornua’s UK marketing director Mike Harper told The Grocer.

The block cheddar category grew by 2% to £933.5m last year, while branded promotions on deal fell from 95% to 85% during the same period [IRI 52 w/e 3 November 2018]. But a recent shift downwards in price by several retailers had pushed the average price per kg of branded block cheddar down by 2.1% to £6.61/kg, with volume on promotion rising to 87% [IRI 12 w/e 2 November].

Both bargain and mainstream retailers have made big price cuts on cheddar since the turn of the year. For example, Asda has cut a 350g blog of Cathedral City by 42.9% to £2 [Edge by Ascential], while Tesco has slashed a 550g Cathedral City block by 45.5% to £3 and Home Bargains is selling a 350g block of Cathedral City at £1.89. In contrast, the average price of a 350g own label block of mature cheddar across the big four was £2.60 this week [Edge by Ascential].

Branded pomotions were doing little to encourage incremental volume growth, Harper claimed. “All it does is strip value from the category, which we project could be as much as £40m a year,” he added.

And any bid to differentiate own label pricing from brands through further price cuts could strip a further £30m in value from the category, according to Ornua research.

“Our fear is that this vicious cycle will continue until there is no longer any ATL investment or innovation within the branded category.

“These deep deals will undermine the ability todeliver these elements in the long term,” Harper added. “We believe in balanced brand growth [alongside own label]. There should be at least a 20% premium in price per kg between own label and brand.”

Asda declined to comment on the issue, while a Tesco spokeswoman said it ran “a variety” of promotions on both branded and own label cheddar “to ensure that we continually offer our customers great value and quality”.