A collection of slides covering the impact of retailers cutting of milk prices

1. What happens when retailers cut milk prices?

2. Context
• Current low milk prices are causing massive
difficulties for many farmers
• We are often asked why retailers act the way
they do on milk prices
• The following slides set out some analysis of
liquid milk price changes

3. 98%
0
20
40
60
80
100
120
Milk
Penetration %
Milk is a staple grocery item, with almost 98% of households
purchasing it.
Total Grocery | 12 w/e 24th May 2015, Source: Kantar Worldpanel

4. Baskets containing milk are higher value than those without
– therefore retailers want to sell milk to consumers
£21.87 £35.86
All Trips Milk Trips
Source: Kantar Worldpanel. Total RST | Trip spend by occasion | 52 w/e 21st June 2015

5. 1% 2%
23%
42%
12%
7%
3% 4% 6%
0%
10%
20%
30%
40%
50%
Lessthan60p
60pto79p
80pto99p
£1.00to£1.19
£1.20to£1.39
£1.40to£1.59
£1.60to£1.79
£1.80ormore
Don'tknow
Most consumers are aware of the retail price for
milk.
Q) On average, approximately how much do you think a standard four pint (2.27 litre) bottle of milk
(e.g. non-organic) costs in a supermarket?
List price across major retailers.
Source: AHDB, YouGov survey, April 2015, Sample size 2100

6. Consumers say they would pay more for milk, but . . . .
An average four pint (2.27 litre) bottle of milk costs £1.03*. If the dairy farmer was to receive all the additional
money, approximately how much more, if anything, would you be willing to pay for a standard four pint bottle
of milk?
I would
be willing
to pay
more
79%
I
wouldn't
be willing
to pay
any more
8%
Don't
know
8%
I do not
buy milk
4%
Source: AHDB, YouGov survey
15%
21%
12%
14%
18%
1p to 5p more
6p to 10p more
11p to 15p more
16p to 20p more
More than 20p more
How much more would you be willing to pay?
April 2015, Sample size 2100.
*average market price 52 w/e 1 March 2015 Kantar
Consumers will now have the chance to pay more for their milk to
support farmers following the 11th August Morrisons announcement of
a higher-price brand of milk, with the extra returning to the farmers.

7. 0
2
4
6
8
10
12
14
16
0.38
0.4
0.42
0.44
0.46
0.48
0.5
0.52
0.54
0.56
0.58
TimePrice
Volume Share %
0
1
2
3
4
5
6
7
8
0.38
0.39
0.4
0.41
0.42
0.43
0.44
Time
. . . there is some evidence that consumers change where
they shop in reaction to a drop in milk price
£perlitre
Retailervolshare
4 w/e
Price
Volume Share %
£perlitre
Retailervolshare
e.g. Retailer A
4 w/e
e.g. Retailer B
Source: Kantar Worldpanel

8. 20152014201320122011 Aldi
Lidl
Iceland
Asda
TOTAL MARKET
Morrisons
Tesco
Sainsbury's
Waitrose
Co-Operative
Average Price
£ per 4 pint
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1.7
J J A S O N D J F M A A M J J A S O N D J F M M A M J J A S O N D J F M M A M J J A S O N D J F M M A M
Because of this, retailers will be very keen to remain
competitive
Source: Kantar Worldpanel: 4 Pint Milk | Price per pack | 4 w/e 24th May 2015
£1.20
£0.99

9. Source: Kantar Worldpanel : 21-Jun-15 vs. Previous Year
Total Milk | TOTAL MARKET | Total Milk | Total Market | 52 w/e | Previous Year
The result has been an increase in volumes but a fall
in overall spend
Volumes are up 3.3%
comparing the last 52
weeks with a year ago.
This has been mainly
driven by existing
buyers purchasing
more frequently.
* Penetration figures slightly different to earlier slide due to use of 52 vs 12 week ending data
*

10. So, if they lose money from milk sales, why do
retailers want to reduce their prices?
Market share “insurance”
Given baskets containing milk are higher value than those without and retailers
want to retain their customers, they may accept a reduced income from the milk
they sell in order to maintain market share.
However, customers are also interested in the price of staple products other than
milk – such as bread – and so milk prices will be considered in the round with these
other products.
An investment in new customers
If the retailer is already milk price competitive in the grocery market, cutting prices
further may be a way of attracting new customers by under-cutting other retailers.
As retailers compete strongly on milk prices, the danger is that others will quickly
follow suit and the retail market will see a “race to the bottom.” How far retail
prices fall will depend on the losses in milk sales revenue that retailers can absorb.

11. What does this mean for the farmgate price?
35
40
45
50
55
60
65
70
75
0
5
10
15
20
25
30
35
40 Jan-94
Jan-95
Jan-96
Jan-97
Jan-98
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
penceperlitre(retail)
penceperlitre(farmgate)
Defra farmgate price Retail liquid price (multiples) Source: Defra, Kantar Worldpanel
Relatively weak relationship between
retail liquid milk and farmgate price

12. Liquid milk dedicated supply chains
have protected the milk prices of
farmers on them
15
20
25
30
35
40
45
ppl
Fresh milk (non-aligned) Fresh milk (aligned to retailers)