Consumers react to rising dairy prices

Published 22 June 18

Prices for dairy products have been rising steadily over the past couple of years, increasing the value of retail sales. The impact of this on consumer purchases, however, has differed depending on the product.

For block butter, sales fell as prices rose in stores, with total sales in the 52 weeks to 22 April 2018 4% lower than the same period two years prior. However, the average price increased much faster, by 41% over the same period, leading to a 36% increase in sales value.

butter sales v price

In contrast, while milk prices have also been rising, sales continued to grow alongside the price increases until the end of 2017, only starting to falter in the first few months of 2018. Average prices in the 52 weeks ending 25 March 2018 were up 5% on the same period two years previous, while volume sales increased by around 54 million litres (1%) in the same time.

milk sales v price

So why have consumers reacted differently to the higher prices for these products? Firstly, the rise in butter prices has been much larger, with the average block butter price rising by £1.67/kg (41%) over two years, compared to average milk prices rising by 3ppl (5%) in a similar period. Therefore the butter price is more likely to be noticed by consumers and affect their buying behaviour.

The different reactions may also be influenced by the availability of alternatives to butter in the form of margarines and spreads. Since they perform the same functions at a lower price, it could lead some consumers to switch away from butter. However we are unlikely to see a similar effect in the milk market, because although ‘milk alternatives’ are becoming increasingly available, they are a more expensive choice.

It is encouraging however, that although retail sales of block butter have dropped in reaction to higher prices, the majority of customers have been retained. Household penetration is at 60%, down only 1% from two years ago; so while people might be buying a bit less while prices are high, consumers are still buying butter.