Distributed FREE to members of the Oily Rag Club (no cost to join)
27 May 2009 see www.oilyrag.co.nz
The Milk Report
Milk is one of those household essentials, especially for households with young mouths to feed. So we wanted to know how much people are paying for milk, and come up with ways to make savings.
survey was conducted via www.oilyrag.co.nz.
More than 600 responses came in from all across the country (even 1 from
Australia!). To keep things
simple we compared the cost of a two-litre bottle of standard blue stop
non-organic milk. This is what we found.
The milk industry
understand the way milk is retailed, one needs to understand a little
about the milk industry. The vast majority of the milk in this country
is produced and/or processed by Fonterra (96% according to a 2004 MAF
report). To bring competition into the industry Fonterra is required by
law to provide some of its supply to other milk processors (at a price
based on Fonterra’s payout to farmers).
largest milk processors are Fonterra and NZ Dairy Foods. Independent
operators may obtain milk from Fonterra under a supply agreement or
directly from farmers. They then process, bottle and distribute to
retailers. Examples are Christchurch based Klondyke who buy their milk
from Fonterra and sell under the Klondyke brand throughout the South
Island and parts of the North Island; South Auckland based Green Valley
process their own milk from what they say is the largest privately owned
dairy farm in New Zealand; and F resha Valley
resha Valley(www.frashavalley.co.nz) based in Waipu near Whangarei who source milk from local farmers.
Highest and lowest prices
lowest price for a standard 2-litre bottle was $2.40 for Dairy Dale
brand at a speciality food outlet in Manukau. The highest price was
$5.20 for Anchor brand at a dairy in Wellington.
At the retail level, the spectrum of pricing is divided into various brands, trading at different price points.
the “premium” price point is Anchor and Meadow Fresh, produced by
Fonterra and NZ Dairy Foods respectively. These premium brands are
widely available in virtually all retail outlets: dairies, petrol
stations, specialist retailers, and supermarkets.
the mid-price range is milk retailed through supermarket using house
brands. The four most common house brands mentioned were Signature and
Home Brand (which are sold in the Progressive owned stable of
supermarkets: Woolworths, Countdown and Foodtown); and Budget and Pams
(sold in Foodstuffs outlets: Pak N Save, New World and Four Square).
the lowest price point are the discount brands of Dairy Dale (produced
by Fonterra) and Dairy Fresh (produced by NZ Dairy Foods). These brands
compete directly with the various independent brands that are all priced
significantly below all of the other brands on the market. The discount
and independent brands are typically found in specialist retailers such
as butchers, fruit and vegetable outlets and in some petrol stations.
Branding plays a key role in the pricing of milk. The purpose of the brands would appear to be to enable retailers to present milk (essentially the same product) at various price points, and therefore maximise the retail spend from less price conscious consumers, while at the same time gaining a share of the price conscious market.
is evident in the branding strategies of Fonterra and
NZ Dairy Foods who both have premium brands (in Anchor and Meadow
Fresh respectively) which retail at around $4.50 and also discount
brands (in Dairy Dale and Dairy Fresh) which compete directly against
the independent brands and retail at around $2.90.
four independent milk processors covered in this survey retailed for
less than $3. By value these were Klondyke, Fresha Valley, Green Valley
and Al & Son. The average price of these four independent brands was
$2.79. The availability of the independent brands was patchy.
Christchurch and the South Island generally appear to be well supplied
with a strong presence by Klondyke.
The two discount brands produced by Fonterra and NZ Dairy Foods (Dairy Dale and Dairy Fresh respectively) average $2.92. This compares to an average price of $4.48 for their premium brands.
The average price of the supermarket house brands (Signature, Home Brand, Pams and Budget) was $3.21. This sits between the discount and premium brand pricing.
The average price of the two premium brands in the market place (Anchor by Fonterra and Meadow Fresh by NZ Dairy Foods) was $4.48.
Prices by outlets
The cheapest place to buy milk is at speciality food outlets (ethnic food outlets or butchers) and fruit and vegetable retailers, with an average price of $2.84. Many of these outlets also offered a discount for two-bottles, typically 2 for $5, which reduced the average price further.
and petrol stations are, in general, the most expensive places to buy
milk, with average retail prices of $3.40 and $3.46 respectively,
although a number do retail the discount brands at under $3 or offer buy
had an average retail price of $3.25, with most of their sales being
and petrol stations tend to stock the range of brands, speciality
outlets mainly the discount brands like Dairy Dale and Dairy Fresh, and
independent brands, while supermarkets carry mainly house brands and
premium brands (Anchor and Meadow Fresh).
So are consumers
Finding the exact details about whose making what from a bottle of milk is not a straight forward exercise as the information is commercially sensitive. Comments from those within the dairy industry suggests that house brands represent “fair value” and a fair reward for the many parties involved in the process of producing, collecting, processing, distributing and retailing milk.
retailing at the deep discount end of the retail market, the two-for $5
deals for example, are more than likely selling the milk at cost or at a
loss to attract customers to their stores to purchase their primary
product, whatever that may be (vegetables, petrol, ethnic foods, etc).
In other words, they take a loss of the milk, but profit from their
other purchases that consumers attracted to the store by the cheap milk
typically make while there.
If there is any suggestion of high margins, it is in the sale of the premium brands (Anchor and Meadow Fresh). These products are supported by sizable marketing campaigns and are presented in superior packaging. However that packaging alone does not justify the additional $1.27 retail price above the same product packaged in a house brand. (One industry source suggested the additional packaging would add a few cents to the product cost.)
reality is the milk that goes into the premium priced products is the
very same milk that goes into the discount and house brands. It seems
many consumers are prepared to pay the premium either because they
consider the additional packaging to be worth it, or because they
(incorrectly) perceive the milk is of better quality.
Here’s how you can
save money when buying milk:
Many thanks to those who took part in our milk price survey.
printable copy of this report is available