A substantial increase in the price of cream has forced butter and cheese giant Dairy Crest to cut back on its promotional deals in an attempt to relieve mounting pressure on margins. By: Sam Dean
The goliath of the dairy world said sales of its Country Life butter had been weakened by its decision to reduce promotional activity.
“Cream prices, which determine input costs for the butter business, have increased substantially during the first quarter,” the company said.
“This will put pressure on margins in our butter business. We have reduced our promotional activity on Country Life, which is adversely impacting volumes but mitigating some of the margin pressure.”
However, the company still performed well in the first quarter, with the strength of its cheese business ensuring that full-year expectations remain unchanged despite the pressure on margins in butter.
Dairy Crest said sales volumes in its four ‘key’ brands – Cathedral City, Clover, Frylight and Country Life – were up 7pc in the three months to the end of June, compared to the same period last year. On its own, Cathedral City enjoyed a 15pc jump in volumes.
“The year has started well and our branded business has delivered good growth in the first quarter,” said chief executive Mark Allen.
“The functional ingredients business continues to progress well and new customers are being signed up. We still expect that the profit contribution from this business will be second half weighted.
“Despite the pressure on butter input costs, the strong performance of our cheese business means that our expectations for the year remain unchanged,” he continued.
Dairy Crest is in the process of transitioning itself from a largely UK-focused business to an international ingredients exporter. At the end of 2015, it sold its dairy operations to Germany’s Muller for £80m.