Cheddar Brands Fight For A Bigger End Of The Wedge
It’s been a terrible year for cheddar brands. Not because Brits are falling out of love with cheese: in fact, they are munching more Cheddar than ever and sales are up 1.4% on last year. No, the reason brands are struggling is that own-label alternatives are stealing their sales.
As a whole, spending on branded Cheddar is down 12.6% for the 52 weeks to 22nd of June 2014, according to Kantar Worldpanal. The top five brands, other than Cathedral City, are all feeling the heat, with Pilgrims Choice, Wyke Farms, Lake District seriously suffering declines.
Meanwhile, sales of own-label cheese have jumped up 9%. So why is own-label doing so well? How do the brands plan to fight back? And what part has the rise of the discounters played in making it happen?
“During and post recession, own-label has gained traction,” says Consultant Hamish Renton of Hamish Renton Associates. “This is not just due to cheaper prices but also improved quality and marketing. And as people become more aware of discounters’ prices, it becomes evident how high the prices are for branded products in supermarkets.”
The supermarkets have also been promoting own-label hard. In April, working with data specialists Dunnhumby, Tesco shook up the pricing and merchandising of its own-label block cheese, pricing block cheese at around £1.50 or £2.50, or three packs for £5, after Dunnhumby revealed shoppers number one priority when buying cheese is price.
That doesn’t do anything for more expensive brands – especially when, as Renton points out, “branded Cheddar prices are increasing at a more rapid rate than own label, further widening the price difference.” For instance, on the Tesco website, when not on deal, Cathedral City is priced at £5 for a 350g pack, or £14.29 per kg. Blocks of Tesco’s cheapest own-label alternative, Extra Value Mature Cheddar, are priced at £5.41 per kg, 62% cheaper! Considering the economic mood remains cautiously optimistic, perhaps its no surprise shoppers are opting for cheese that appears to represent better value for money.
“There has been a lot of inflation,” says Alastair Jackson, Marketing Director at Adams Foods, which produces 40% of hard cheese and 50% of own-label cheese sold in the UK. “At the same time, pack weights have reduced. I remember when branded Cheddar was sold in 400g packs at £2.99 on a BOGOF and that was only six years ago. Now its 350g or less at £5 a pack.”
Higher prices aren’t the only issue making brands struggle against own-label. Jackson says retailers have been experimenting with the balance of own-label and branded Cheddar over the year, and it hasn’t always worked.
“You need to get the balance right and, at the moment, that balance is wrong. According to research we carried out recently, 32% of people buy just brands, 35% just buy private label and 33% buy both. So as a retailer, you have to have both. But recently we have seen some retailers focus on private label at the expense of branded sales and they had to revert back because they were losing volume completely. People switched out of buying Cheddar altogether.”
Its a “tough period for all of us,” says Wyke Farms MD Rich Clothier, a situation he says has been exacerbated by the launch of brands that exist only as “promotional vehicles. They have no point of difference, they are just everyday Cheddars being discounted and that has made the branded sector really tough.”
Jackson agrees. “Their needs to be rationalisation, there are too many brands in the market. The brand has to inspire people to have a reason to buy it – you need to innovate, add value and invest. As a branded operator that is critical.”
To fight back, Wyke Farms is going “on the front foot” this autumn, starting with a TV ad, made by Ridley Scotts production company, explaining why Wyke Farms is “important, communicating to shoppers why we exist and why we have a point of difference in the category.”
Arla has done similar to give Anchor a push, playing on the deep emotional connection” consumers have with Cheddar in an ad campaign, a connection it says is founded on the fact that Cheddar is often one of the first solid foods people eat.
Cheddar brands need to play a role in reconnecting consumer emotion with choice by communicating this emotion, as well as delivering a depth if flavour and offering versatility through a range of formats,” says Arla Senior Brands Manager Kate Richards.
Indeed while blocks are down 1% across the board, alternative formats lie grated and sliced Cheddar are flying up 16.2% and 19.6% respectively. “There will be another pick-up in the summer,” says Jackson. “These convenience-type formats are dominated by private label, but there is growth for brands if they create innovative products packaging or solutions. The snacking area is also in big growth, albeit from a very small base. I am sure brands are looking at that. Nothing is ever easy, but if you look at innovations like Crumbles and Pick and Mix they are delivering incremental growth, which is a bonus.”
Innovation is also a key strength at Cathedral City, the market leader and the only big brand not to have suffered over the past 12 months. With 18.6% of the market tied up, Cathedral City is going from “strength to strength,” says Dairy Crest Head of Cheese David Bas, spinning out sales-driving innovations as he goes , from “tear resealable” packs and snacking cheese products for adults and kids and its latest example, Cathedral City Spreadable.
Spreadable addresses the strong consumer demand for authentic-tasting Cheddar spread that is suitable for the whole family,” he says. The strong taste and quality credentials of Cathedral City have potential to attract new shoppers to the category, ultimately driving growth.”
Lighter cheese is also increasing in popularity with a health conscious consumer base. “Cathedral City works hard to highlight to consumers that you can have a lighter Cheese with no compromise on taste,” says Bass.
Renton agrees, saying it is important to maintain taste with these products, and manufacturers are becoming increasingly good at this.”
When it comes to Cheddar overall, its not just the brands that are struggling. The major multi’s are having a fight on their hands too, losing sales to a familiar enemy – the discounters.
At Aldi, which offers no branded cheese or runs any bog of or x-dory promotions, a 350g block of British milk Cheddar is £1.75 or £5 per kg, beating the cheapest available cheese at Tesco by 41p per kg.
Aldi also sells a 250g block of vintage British Cheddar as part of its premium Specially Selected tier for £1.99, or £7.69 per kg, which recently took gold at the International Cheese Awards.”
Offering our customers brand-like quality at an out-standing price help us not only attract new visitors to out stores, but means our existing customers are now doing their full weekly shop,” says Aldi joint MD of corporate buying Tony Baines.
Lidl offers two news brand names, Pilgrims Choice and Wyke Farms, alongside own-label cheese, which a spokesman says is all British. Some is also award-winning, like its valley Spire Extra Mature Cheddar (currently priced at £4.98 per kg), which won the gold award for Cheddar at The Grocer Own Label Awards, scoring 50 out of 50 in consumer testing, which 94% of shoppers saying they would buy it.
Our cheese category has seen a very high increase in sled over the past 12 months and our Cheddar performance is ahead of the market with the emphasis being put on new formats and flavours to drive yet further growth, she adds.
Wyke Farms makes Valley Spire for Lidl. “We do quite a bit of branded Cheddar through Lidl now as well,” says Clothier. “They also put it into other stores in the EU, so there is extra volume that comes with the business. We’ve been supplying them for a number of years and the volume has changed massively over the last five years. They would be up there with our biggest customers.”
Working with the discounters hasn’t just meant a welcome increase in volume, however. Clothier says that are “good” to supply, that the relationship is straight, you know what you are getting; there is clarity with no hidden agenda. I supply a product to them at a price and they organise all the promotions. Its uncomplicated, not overly bureaucratic.”
Price-wise, Lidl is even cheaper than Aldi. Its best priced mild Cheddar costs £4.79 per kg. Aldi and Lidl have repeatedly insisted they won’t be beaten on price by the major multiples, and although they haven’t specified, its more than likely that bold claim counts double for staples like Cheddar.
That means keeping a close eye on what the supermarkets are charging. Asda has openly spoken about trying to close the gap. “We’ve halved the gap in a year and it keeps coming down,” Asda CEO Andy Clarke told The Grocer in April. Yet as of today, the cheapest Cheddar at Asda costs £6.09 per kg, so a block of Cheddar costs 18% more than it does at Aldi and 22% at Lidl.
Eye on the price
Its not just Asda. “All the supermarkets are looking at which SKU’s they need to have a matching price point on,” says Jackson. “Not every SKU, that would be madness, but they have to watch what is going on at the discounters.”
Some of the big retailers spend more time talking about the discounters and what they are doing than they do articulating what their own strategy is. It is a concern when big successful brands are having their strategy dictated by a minnow. Its madness, almost paranoia when you consider how successful the multiples actually are.”
The multiples also need to face up to the fact their margins will inevitably change in order to compete, he argues, however abhorrent or impractical that suggestion is. “Lidl and Aldi would operate in some cases at around half of the margin on Cheddar compared to some multiples. They’re keen to match the discounters but they will never ever sacrifice that level of margin to get there.”
However, he adds that in “five years we will probably find that the multiples are operating at closer margins to the discounters. No one wants to admit that because it could hit their share prices but the fundamental downward pressure is there. They have competition now. Its a really dynamic phase.”
Its not even just Aldi and Lidl they have to worry about. The newest darling of the city, Poundland, and a recently rejuvenated 99p stores also carry cheese along with a range of other chilled products, while variety discounters like B&M and Home Bargains are also moving in on chilled food with intent, even if Jackson says the volumes are “tiny” in the grand scheme of things.
However, he adds, “they will defiantly grow. With the fixed price discounters and outfits like B&M and Home Bargains we have started to see more space being devoted to chilled lines. They are growing and they are here to stay.”
And that presents an opportunity for brands because they are currently too small to do own label; you can’t ignore them because its showing huge growth when other sectors aren’t. Its an opportunity. So which brands are going to win that sector?”
That remains to be seen, but with growth going in reverse in the usual channels, the end of EU milk quotas potentially releasing a flood of new cheese on to an already competitive market, and Aldi eschewing brands entirely, any channels offering an opportunity for growth will be welcome sight after such a torrid year for branded cheddar.
Brands that play their cards right could well turn the rise of the discounters to their advantage.