But this week Fonterra deepened its ties with the retailers, signing a 10 - year contract to supply Woolworths» Select white milk in Victoria in its first entry into
the private label milk market.
It found the supermarket policy of selling $ 1 a litre
private label milk, while unpopular with farmers, had little overall impact on their earnings.
«We don't think that an increase in the retail price of
private label milk would necessarily benefit farmers, and that any additional profit would mainly be captured by the major supermarkets and processors,» Mr Keogh said.
According to Macquarie Equities, Coles will pay Murray Goulburn 10 cents a litre less for
private label milk than it currently pays Lion, which will lose contracts in NSW, Victoria and south east Queensland mid next year.
Parmalat is in negotiations with Woolworths over
private label milk contracts in NSW and Queensland, which expire in September 2013 and 2014.
Parmalat chief Craig Garvin has joined Woolworths in raising concerns about Coles» $ 2 billion
private label milk supply deal with Murray Goulburn Co-op, saying it threatens to divide and disrupt the dairy industry.
Archer toyed with a sale process last year but put that on ice when sentiment soured around the dairy sector after the troubles at Victoria's Murray Goulburn and the public backlash against
private label milk at the big supermarket chains Coles and Woolworths.
Pressure is also building on domestic retail margins with cut price
private label milk the most vulnerable.
He cited pressure on milk and bread pricing from $ 1 litre
private label milk and $ 1 a loaf private label bread as examples of the cumulative effect of anti-competitive decisions.
After operating costs and wastage around 17 per cent, Coles stands to make a small but useful profit on
private label milk, which accounts for more than 60 per cent of the retailer's total milk sales.
Private label milk is marginally profitable for the processors, who are estimated to make margins of about 2 to 3 per cent.
A comprehensive look at this situation is provided by the Cornucopia Institute, which just came out with an update to its dairy report; the scorecard rates Trader Joe's
private label milk 1 out of 5, stating that TJ's, like other private label marketers, was unwilling to divulge where they got their milk.
The deal will also be more lucrative for Coles, which threw the industry into a spin when it cut the price of
private label milk to $ 1 a litre in 2011.
When Coles managing director Ian McLeod unveiled a 10 - year
private label milk supply deal with Australia's largest farmer co-operative on Wednesday, he called it a «win - win» situation.
Lion's milk has been squeezed between A2 at the top end of the market and cheap $ 1 litre
private label milk at the bottom end, and has lost considerable market share.
In Lion's dairy and drinks division, volumes fell 17.4 per cent on top of a 7.3 per cent decline the previous year, dragged down by the sale of Lion's low - margin everyday cheese business in May and the loss of
private label milk contracts with Coles and Woolworths in 2014.
Lion is making nil or very low returns from milk for drinking, as cheap
private label milk has taken share from its branded business.
Coles locked a starry - eyed Gary Helou into supplying
its private label milk (for 10 years) and cheese (for five years) at barely break - even terms.
He's launching a new discount milk, which will retail «at a slight premium» to Coles $ 1
private label milk, but 20 cents of each sale will be returned to Victoria's dairy sector.
So is changing from buying supermarket
private label milk to buying branded milk the answer?
Murray Goulburn and Fonterra also have a strong presence in the milk market, with contracts for the supply of supermarket
private label milks.
Not exact matches
Somewhere between 6 - 10 % of
milk supplied to Murray Goulburn and Fonterra goes into domestic fresh
milk (for drinking
milk — both supermarket
private label and branded
milks - and products like butter and cheese).
The most attractive assets for domestic
milk processors are the white
milk processing sites that Murray Goulburn invested in to service the Coles
private label contracts signed three years ago.
Currently, up to 30 % of the plastic in Müller's fresh
milk HDPE bottles are made from recycled material, and plastic bottles used for Müller's branded and
private label fresh
milk products are already 100 % recyclable.
O'Brien, who remains a director of Simplot until the end of August, says the «daily staples» segment of bread,
milk and bottled water would remain under serious pressure and at the mercy of the supermarkets»
private -
label brands.
The rapid expansion of
private label groceries at Coles and Woolworths — where house brands now account for about 20 per cent of packaged grocery sales — has had devastating consequences for some suppliers, particularly in staples such as bread and
milk.
The deal will see Synlait
Milk exclusively supplying its private - label fresh milk and cream to Foodstuffs South Isl
Milk exclusively supplying its
private -
label fresh
milk and cream to Foodstuffs South Isl
milk and cream to Foodstuffs South Island.
Synlait will exclusively supply
private -
label milk and cream products to Foodstuffs South Island during the initial phase of the plant's operations.
Bonvita is located in the Netherlands and exports branded products,
private label and bulk rice
milk chocolate.
Olympia processes around 150 million litres of fresh
milk annually, supplied from over 400 local independent farmers, into both fresh and long - life products, supplied under its own brands,
private label and as a co-packer.
The group is set to launch an extended shelf - life
milk brand called Puriti this summer, following the success of a
private label version developed for Tesco.
There are even supermarkets and hypermarkets that have their own brand of UHT
milk, which they distribute under
private labels and with regional dairy processors as partners.
But the loss of
private label volumes will reduce productivity in their branded
milk operations, where margins have been squeezed as consumers switch from branded
milk to cheap home brand
milk.
Last week Coles signed a $ 2 billion - plus
private -
label milk supply deal with farmer - owned co-ops Murray Goulburn and Norco, squeezing out foreign - owned processors Lion and Parmalat, which will lose
private -
label contracts next year.
Among the biggest almond -
milk sellers are WhiteWave and Blue Diamond, along with retailers like Target and Aldi that have
private -
label brands.
The first is on the topical issue of home brands: Crying over spilt
milk: buyer power and the rise of
private labels.
Processor innovation is also behind strong domestic sales growth, with increases in the value and volume of supermarket sales of cheese, dairy spreads and
milk (with branded fresh white
milk regaining market share from supermarket
private labels); while yoghurts and snacks also saw a volume increase.
Coles has announced it will pay 20 per cent more to processors for
milk going into its
private label brand.
Keytone sells whole and skim
milk powder and other dairy powder blends under its own brands, and makes and packages products for supermarkets and retail chains under
private labels.
Alexandra Merrett and Rhonda L Smith, «Crying over spilt
milk: buyer power and the rise of
private labels», (2 July 2012) 1 The State of Competition
A large portion of Harvey Fresh's
milk supplies its
private label contract with retailer Coles and fresh
milk under the Harvey brand.
Coles announced this month that it would reduce prices on a further 100 grocery items under its «Down Down» campaign and cut the price of
private label bread and
milk in convenience stores to match those in supermarkets.
Market share in the WA market for fresh grocery
milk is split among Lion, with 15 per cent, Harvey Fresh, with 20 per cent, Brownes, with about 35 per cent, Coles
private label, 13 per cent and Woolworths
private label, 10 per cent.
The supermarket giant announced on Wednesday that it had cut the price of more than 100 of its
private label products and extended its discounts on Coles brand
milk and bread to its Express stores.
Consumer - led boycotts have hit Coles and Woolworths
private -
label milk, as the retail giants continue to sell the
milk at $ 1 per litre, the same price since 2011.
• Retailer - owned
private labels are increasingly entering the market e.g. Coles, Woolworths and ALDI in the past few years launched their own organic UHT and / or extended shelf life fresh
milks.