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Dairy trends show impact of discounting

Bega Cheese Limited announced its Half Year Result for 2015 this week and remains very positive about the outlook for dairy – and its cheese business in particular – despite experiencing short term challenges, in part due to lower milk prices.

Bega Cheese said that while first half earnings (EBITDA) of $31.3 million was lower than the previous year, the success of the strategic initiatives of the business were reflected in an 8% increase in revenues to $552.5 million and the strong growth of both the international consumer packaged goods business and the nutritional business.

“Global dairy commodity price reductions of approximately 50% particularly impacted Bega Cheese’s wholly owned subsidiary Tatura Milk Industries Limited first half result,” Bega Cheese said.

The company has updated its forecast normalised full year result to a range between $25 and $28 million and has an objective of increasing milk supply by 20%.

Meanwhile recent Aztec sales data shows that Murray Goulburn’s Devondale milk is losing market share in Coles supermarkets.

Eight months ago, Murray Goulburn started supplying Coles with its private-label milk in Victoria and New South Wales, under a 10-year deal, announced by the dairy co-op’s chief executive Gary Helou and launched by Prime Minister Tony Abbott.

Murray Goulburn said that the upside of the Coles deal was that it would drive significant growth in sales for its core Devondale milk and cheese brands in the years ahead.

However, the latest sales data by market researcher Aztec shows that, despite heavy promotion, in the three months ending January 25, Devondale commanded just a 2.4% share of white milk sales in NSW, and 2% in Victoria.

Lion’s Dairy Farmers milk is outselling Devondale in NSW by six to one, while Parmalat’s Pauls is outselling it 2.5 to one. In Victoria, Warrnambool Cheese and Butter’s Great Ocean Road milk is outselling Devondale two to one.

And in flavoured milk, Devondale fell 58%, leading the segment to a 17.8% per decline in the last quarter, driven by aggressive discounting from Woolworths.

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