Dairy market picks up after a slow Christmas

The dairy sector has really stepped up since its slow Christmas, with volume sales (2%) accelerating ahead of value (0.7%) over the last 12 weeks. Value sales in the market are growing at the same rate as the overall grocery market, despite declining average prices of butter and eggs driving deflation in grocery. The latest period covers the 12 weeks to 23 February, with the bulk of the most recent Coronavirus panic-shopping not yet reflected in the data. With dairy being such a staple category, it’s likely to have benefited further since then from consumers looking to stock up on essentials in anticipation of long stretches at home.

Sainsbury’s was the only one of the big four retailers to grow overall grocery sales this period (up 0.3%), but this isn’t matched in its performance within dairy.  The retailer continued to decline at 1% compared with last year driven by declines in margarine, butter and milk.  That said, this performance is an improvement on last period of 0.5 percentage points, and volumes are in 3.6% growth.

Price deflation in some of the key dairy categories is giving a boost to volume sales. In the case of butter, prices have reduced by 29p per kilo on average and volume sales have risen 4% year on year, though value sales declined by 0.9%. The lower average price has engaged shoppers - with the higher volumes of butter sold generating £12.1m additional spend in the category as retailers move away from multibuy promotions towards temporary price reductions this year.

Tesco and Morrisons are key to this promotional dynamic, as the former’s volume sales grow at the expense of value and the latter’s volume uplift of 109,000 kilos hasn’t quite managed to push the retailer into volume growth year on year. Nevertheless, Morrisons’ strong presence in the north results in the retailers’ biggest contribution to growth in butter coming from the north, with pre-families and empty nesters engaging the most.

While the excitement around Veganuary may be wearing off, the percentage of shoppers picking up dairy free lines is still growing – up 3.2% percentage points in the last 12 weeks. This is predominantly through the UHT milk category which is growing £7.7m year on year, as a result of NPD from brands attracting new shoppers. With reports of retailers selling out of long-life products as a result of shoppers’ Coronavirus concerns, these lines are likely to see a further boost in our next market update.