Yeo Valley struggled to translate a stellar sales performance to major margin growth last year as a squeeze on milk prices kept cash tight at the organic dairy supplier.
While turnover rose 15.5% to £365m in the 52 weeks to 26 May 2024, its profit margin improved only slightly to 2.2%, below the company’s medium-term target of 5%, according to newly filed accounts.
Yeo Valley said it operated in a “fiercely competitive marketplace” and acknowledged “the sometimes competing forces” of paying a fair price to farmers while keeping retail prices low.
“Not everything is how it needs to be. Dairy farmers have had a hugely volatile year – with both costs of production and milk pricing swinging around wildly. This has resulted in hugely challenging conditions for our farmers,” the group’s accounts stated.
Farmgate milk prices were up 15% in September versus the same time last year, according to AHDB, but this has not always passed through to retail. Milk prices across all the major supermarkets are flat year-on-year at £1.21 for two pints of semi-skimmed own-label, according to the Grocer’s latest KVI tracker.
While Yeo Valley’s volume growth has helped boost its margin through greater efficiencies, the 5% target was a key metric set by the board to ensure the company can adequately invest and modernise as the business grows.
Yet while still below target, the company is forecasting more growth and has embarked on an investment programme to boost capacity for its yoghurt production. Investments like these will be key to boosting margin over the next five years, the company said.
Yeo Valley’s growth last year came despite a widespread fall in the consumption of organic dairy products, according to a report published earlier this year.
A widening price gap between organic and conventional dairy led to a 14% fall in organic milk sales volumes and a 16% drop in yoghurt sales across the major supermarkets, according to the report by Kite Consulting, which referenced NIQ Homescan data.
As a result, organic milk production has fallen 30% since 2020/21, according to the report, which said many organic dairy farmers are either quitting dairy farming altogether or reverting to conventional farming.
Yeo Valley’s growth has been helped by several new product launches year, including snack-size ‘Greek recipe’ yoghurts and two new kefir drinks.
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