Milk Drinking Bolstered by Retail Price Cuts of 5p Per Litre

A dip into Dairyco’s data on the milk market shows that fresh milk volumes have grown by 2.5% in the year to June 2011, but the retail price paid per litre has dropped by 8% , due to the milk price war waged by supermarkets. So far, so not newsworthy.

What is surprising is just how long the price war has been going on. This is far from an occasional tactical practice to encourage people through the supermarket door. In the 12 months to June 2010 the average price per litre of milk was 66p. The average price in the 12 months to June 2011 was 61p.

And even though in the last few weeks some major retailers have put the price back up, ASDA still remains at the lower level, Tesco is selling its Creamfield whole milk at 44p a litre, and Morrisons have just announced that their 1% fat milk is on promotion at 50p for four pints.

All claim that promotional prices have not affected what they pay to farmers, but look at it another way. The fact that supermarkets can reduce prices by so much and for so long shows just how much they were making from fresh milk in the first place. Indeed Dairyco analysis tells us that for every litre of milk sold in 2008/2009 retailers took 18.8p, processors 20.4p, and farmers 25.8p. In the following year, retailers took 22.4p, processors 18.9p, and farmers 23.8p.  

The price reduction has badly hurt sales of organic milk. In the 12 months to June 2011 volumes dropped by 7% as the retail price of organic stayed at 81p per litre, a 33% premium to conventional milk.

Sales of filtered milk,( Cravendale being the best known brand), have now levelled out at 338 million litres, possibly due to a price rise of 2p to 78p, a 28% premium to standard.

Award for best performance goes to the low fat sector, defined as milk containing 1% or .75% fat. Sales grew to 362 million litres,an increase of 24%.

And the one area defying a generally price conscious consumer response is Jersey and Guernsey which maintained its, admittedly tiny, sales level, despite costing nearly £1 per litre.

Inside Consumers' Heads - The Psychology of Dealing With Economic Difficulty

Consumer confidence has fallen again according to GfK NOP the social research company, and is now lower than at any time in 2010. It is unlikely to bounce back any time soon. Indeed research done with British consumers by Bord Bia the Irish food board shows that most of us think that there will be no light at the end of the economic tunnel for at least 3 and possibly as much as 10 years.
The lack of confidence seems to stem as much from an overwhelming air of uncertainty as from the harsh reality of coping with rising prices and near static wages.
People are uncertain about whether their jobs are secure. They are rattled by an economic performance which is up one quarter and down the next, and which does not follow a comforting path of modest but predictable growth. They have lost the security blanket of rising house prices, and worse, are bracing themselves for an increase in mortgage rates which many feel unable to afford.
We know much about the way consumers are dealing with economic pressures - searching for money off promotions, comparing prices on the internet, working to a budget, cooking from scratch. The Bord Bia research indicates just how deeply this behaviour has become entrenched.
They point out that 62% of British consumers agree with the statement "I find myself thinking twice before making even the smallest purchase". Haggling has become a way of life for many. As one male put it "We're negotiating on absolutely everything now - gas, electricity, house insurance, Sky subscription. We didn't use to do that". The pursuit of the good deal has become a game, even among the better off.
In summary, as Bord Bia puts it, the consumer's relationship with time has fundamentally changed. Now people are prepared to put in time to get the peace of mind that they have secured the best deal.
Bord Bia also points out that this search for value is here to stay, even when the better times come round again.
In a nutshell, offering the best value, that elusive combination of quality, price and service, will be a prerequisite for business success in the years to come.

27% of People Cutting Back on Food

Consumers are prioritising expenditure on their mobile phone contract and subscription to satellite TV ahead of food, says research published by insurance company AXA. Apparently 27% of us are cutting back what we spend on food, but only 5% are cancelling their TV subscriptions, and just 1% cancelling their mobile phone contract.

The findings could bring on despair that Brits put so little value on having a good sustaining diet, but according to the Institute of Grocery Distribution it may be more about consumers being efficient in their food buiyng behaviour.

The IGD calls 2011 the year of economising. It has found that buying habits which started to emerge during the recession of 2008 are now being embraced by more people. Their research shows shoppers to be chasing value by balancing price and quality. This they do by buying more on promotion, using the internet to compare prices, and being prepared to use different shopping channels to get the best deal. Thus they might buy online, or spend more at discount channels like ALDI, or stick with the traditional supermarket, all depending on what is available at what price.

Economising is not just about deals. People are planning meals better to avoid waste. They are doing more cooking from scratch because it tends to be cheaper, and are considering growing their own food.

Whilst many of these changes have been noted before one newer trend is a preoccupation with sticking to a budget. This is particularly true of 18-44 year olds, 46% of whom say they are budgetting. And 34% of all shoppers say they cut back at the end of the month rather than overspend before payday.

Supermarkets have forseen many of the trends. Most are extending budget and own label ranges. All offer recipe ideas, and some tie the recipes to a price such as Sainsbury's promotion suggesting how to feed a family of four for £50 per week. All, even those catering for the more affluent customer, run myriad price cutting promotions in an effort to woo shoppers into their stores.

Adding Value to Beef - Morrisons Traditional Breeds Venture

The news that Morrisons supermarket has introduced a scheme paying farmers a premium for beef from traditional cattle breeds marks a new effort to prove that value can be added to a product which many dismiss as a commodity.
This is an attempt to brand both a breed, the beef Shorthorn, and in the case of the other traditional breeds, to brand a distinctive sector which is part of British farming heritage.

Why might Morrisons, one of the "Big Four" supermarkets, be doing this?

They will have noted that with branding comes as premium price, as proved by Waitrose who for years have sold Aberdeen Angus and Hereford beef alongside standard British. A store check today showed their Angus mince at £8.87p per kilo compared with £5.78p for standard, and Hereford rump steak at £15.99p versus £12.49p for standard.

Morrisons pursuit of premium products reflects another trend which is to introduce higher priced, higher margin products to help offset falling profits caused by cutthroat competition among supermarkets. Importantly, they have recognised that the product has to live up to the price charged, hence their wish for supplying farmers to stick to a specific feeding regime which will enhance product quality.

Clearly this is a commercial move. Morrisons would not be doing it unless they had identified interest among their shoppers.

They do though appear to have considered all aspects of the supply chain, showing flexibility in relaxing some of the grading grid requirements to accommodate the conformation and fat cover which can come with traditonal breeds, and allowing the breed to be determined by the dam as well as the bull.

It is to be hoped that the initiative works. Morrisons have high hopes, believing it will create demand for another 16,000 cattle, a 10% increase on current requirements. It will add value to beef. And, if the idea is well publicised it will allow the many millions who shop at Morrisons every week to understand more about where their meat comes from, and to recognise that meat is not just a commodity to be bought at the lowest possible price.

Online Grocery Shopping - Some Facts and Figures

My search for hard data about trends in food buying continues with a look this week at online grocery shopping.

This is another topic receiving considerable media coverage, and attracting massive financial investment.
Morrisons supermarket paid £32million for a 10% stake in Fresh Direct, a new York based company, in return for detailed information about what makes their business successful. Ocado, which only sells on line, floated on the stock market to mixed reviews, but it is valued by some investors despite not having made a profit in the 10 years they have been going.

The optimism stems from huge growth in online sales. Recently Tesco said they were experiencing "double digit" growth (corporate speak for just above 10%). Sainsbury said they grew by "over 20%" in the last year, and Ocado reported sales up 21% in the last quarter.

So, how big is online now, and how big might it get?

The Institute of Grocery Distribution estimates that online grocery sales amounted to £4.8 billion in 2010, which sounds massive, but is just 3.2% of the total grocery market. As the IGD says, online is a small and infrequently used way of shopping, with just 6% of shoppers using online as their main way to buy groceries. Those that do use place an order less than once a month. Younger people with children are most likely to be online shoppers, and usage tails off with age.

With growth of 21% in 2010, and a predicted growth of 15% per year, online shopping is is indeed increasing at a  faster rate than that for the market as a whole, and by 2015 will be bigger than the discount channel (Aldi and Lidl).

But, despite being relatively small, there is considerable optimism about the future for online. Mark Price of Waitrose reckons their online sales will grow by "40%, 50%, 60%" per annum. Certainly the rate of investment is not slowing down, as supermarkets address the issues which are getting in the way of growth like inflexible delivery times, high delivery costs, products with insufficient shelf life left, and frequently bizarre substitutes if a first choice item is not available.

Basically the big grocery chains will invest in any emerging trend which might give them the edge over competitors. They have decided that online is here to stay because it fits the needs of some people for convenient shopping any time and anywhere the shopping urge strikes. Not only are some shoppers this way inclined, but Smartphone technology provides the means of fulfilling the need. Consumers can now order their groceries in the middle of the night, in the office, on the sofa, and even, as a recent Tesco advert showed, emerging from the shower.

Consumer Purchases of "Ethical" Foods - Some Data from DEFRA

It is difficult to get a factual grip on the difference between what consumers say they will do and what they actually do when buying food. DEFRA has had a stab at this as part of their effort to build a sustainable food chain.

Their research confirms that consumers are interested in the issues surrounding sustainable food production, but that actual purchase of some foods generally defined as ethical remains fairly low.

Free range eggs

This is the animal welfare issue that has gained most support. 50% of those who think animal welfare is important buy free range eggs - but only a third of them buy free range all the time, and at the other end of the spectrum, 31% buy free range less than 10% of the time.

Free range chicken

88% of households buy free range chicken less than 10% of the time, and 75% never buy free range at all. DEFRA does not report purchase of higher welfare chicken where sales have grown rapidly, and so the numbers may underplay consumer committment to welfare.

Fair Trade tea and coffee

This is another sector which has received wide publicity, but 93% of households buy fair trade coffee less than 10% of the time, with the equivalent figure for tea being 85%.

British apples in season

Despite growing enthusiasm for local produce, 62% of households buy British apples in season less than 10% of the time.

Green issues

The DEFRA research does not give buying figures for environmentally friendly products, but does give clues about peoples' feelings on the subject. In general, people are aware of the issues but stop short of agreeing with inconvenient or financially disadvantageous measures to limit environmental damage. So, whilst 82% agree that people have a duty to recycle, only 13% feel car owners should pay higher taxes to offset the environmental damage they do, and just 8% strongly agree that people who fly should bear the cost of environmental damage.

The DEFRA research paints a picture of informed consumers, who say they are actively seeking sustainable or ethical foods, but who are not yet wholly committed to buying them.

It serves as a timely reminder that, for most people, making the leap from being informed and interested to embracing a wholesale change in buying behaviour takes a very long time.

Shedding Some Light on the Organic Consumer

Organic consumers are complicated souls. For a start, according to a thorough piece of research from Better Organic Business Links, on behalf of the Organic Centre Wales, there is no such thing as an “organic only” consumer. Not one of 1407 shoppers interviewed by BOBL bought organic from every category they shopped.

Neither is there any individual category which attracts a high degree of purchasing loyalty. Whatever the type of food, be it milk, meat or vegetables, a maximum of around 30% of organic buyers “almost or nearly always” bought from the category.

And yet, when prompted about the benefits of buying organic, around 70% agreed that organic production results in better standards of animal welfare and allows wildlife to flourish, around 60% feel it is healthier and 50% that it tastes better. The problem is that too often those benefits do not outweigh the price premium. Just over a quarter of those interviewed said that organic represents good value for money. And a worryingly cynical third said that an organic label was just an excuse to charge more.

When asked about future buying intentions, 3 out of 10 people said they would consider buying more organic food, but around 6 out of 10 people said that they did not intend to buy more organic produce, with price being the main stumbling block.

The BOBL research seems to indicate that many consumers are interested in organic food, but not sufficiently convinced to prioritise its purchase on a regular basis.

The stiff competition offered by local foods also inhibits organic purchase.
Consumers are increasingly interested in provenance, or where the food has come from, a trend which has been gathering momentum in recent years. About 60% of consumers agreed with the statement “I’m much more interested in where a product has come from than whether it is organic”. Asked to choose directly between a locally produced product and an organic one, 6 in 10 chose the local version versus 1 in 10 for the organic version.

Measured and accurate communication of what organic means will help consumers make up their minds, but it will be a long and slow process. The issues around communication remain as they always have been – currently there are several organic messages rather than one clear and compelling one, with the result that consumers remain ambivalent.

The Soil Association has published it market report for 2011 and sales have dropped again, by 5.9%, although the rate of decline is slowing. The Association says that sales have levelled out during the back months of the year, and they are hopeful of a return to growth before long. This is encouraging news for organic enthusiasts.