Profit in milking health benefits

Profit in milking health benefits

August 17, 2011

The Age – A NEW front is opening in the supermarket milk price war, with dairy companies moving to claw back their battered market share.

Branded-milk sales have plummeted as much as 26.2 per cent since Coles opened fire on Australia Day, slashing its private-label milk to $1 a litre.

Consumers have been lapping up the cheap milk, particularly the Coles and Woolworths reduced-fat variety, which increased its market share by almost 64 per cent last quarter.

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With no end in sight to the savage discounting – which attracted the ire of dairy farmers and prompted a Senate inquiry – milk processors are focusing on offering health benefits to differentiate themselves from generic milk.

It is a path that A2 Milk swears by. The New Zealand-listed company is the only processor that has increased its sales since the price war began, according to Coles figures obtained by BusinessDay.

A2 chief executive Peter Nathan describes his milk as the ”original milk”. It is produced by cows carrying only the A2 type of milk protein beta-casein, unlike normal milk, which has a combination of A2 and A1 – the latter a genetic mutation introduced about 1000 years ago.

While the Dietitians Association has said there is no solid scientific evidence to show A2 milk is healthier, A2 milk producers say it is easier to digest than normal milk.

”It is that point of difference, which has seen us be unaffected by the price war,” Mr Nathan said.

Parmalat chief executive Craig Garvin said the branded-milk market had been ”challenging” this year.

He said using health to differentiate branded products from the heavily discounted generic milk was a long-term goal. The Italian food group stepped up its health promotion last week, recruiting Sarah Murdoch to spruik its Vaalia branded yoghurt, which has been loaded with active cultures to improve digestive function.

”We would like to think that over time there would be enough margin where we could drive proper innovation around health,” Mr Garvin told BusinessDay.

”Where you position your brand around premium and health there is a real upside because the Australian consumer is becoming more sophisticated.”

A spokeswoman for Lion, formerly National Foods, said the grocery war contributed to a 43 per cent drop in first-half earnings before tax and borrowing costs.

”The current pricing seen in the marketplace, if maintained, cannot deliver a fair return to any of the players in the supply chain,” the spokeswoman said.

”[But] Lion will continue to pursue its strategy of investing in its people and a focused portfolio of high-potential brands to drive sustainable results in the long term.”

Coles managing director Ian McLeod said the supermarket would sell milk at $1 a litre for the foreseeable future to help customers battle living costs. A Woolworths spokesman said ”there was no end date” for the discounting.

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