Dairy suffering pain due to inflation

Dairy inflation worsened in the second half of 2022 with several categories hitting record highs in December, according to data from the International Dairy Deli Bakery Association (IDDBA) in conjunction with IRI.

The dairy segment continued to see year-over-year price increases in January 2023, though the acceleration of inflation seen over the past few months has leveled off, IDDBA reported. The price per unit in January was $3.84, which is a 26.2% increase vs. 2021 and 41% increase over 2019.

“The above-average inflation in dairy prompted the total refrigerated department to jump over the meat department in January sales,” said Whitney Atkins, vice president of marketing for the IDDBA. “With an increase of 15.9%, the refrigerated department generated $7 billion in January 2023.”

Dairy represents the bulk of sales in the total refrigerated department. Through the combination of strong consumer demand and inflation, the 52-week dairy sales generated $71 billion, an increase of 16.6% versus last year. However, the inflationary pressure on income really hit hard in January, when dollar sales still grew by double digits, but unit sales fell by 6.3%.

In the first month of 2023, milk did $6 billion in sales, an 18.2% increase year-to-year, though a drop in units of 6/3%; eggs recorded $1.1 billion in sales, an 83.6% increase year-over-year, with an 8.4% decrease in units; and cheese had $997 million in sales, up 4.7% from the previous year, though down 4.4 units.

Related:Dairy dominated in 2022

“Virtually all areas within dairy experienced decreased unit sales in January 2023, especially eggs, yogurt, processed cheese and milk,” Atkins said. “In the 52-week view (through Jan. 29), all areas also trended behind year ago levels in units.”

Chris Mentzer, director of operations at Rastelli Market Fresh, with two locations in Marlton and Deptford, N.J., said that milk, butter, yogurt, and eggs are still doing well as they are essentials for many shoppers, but the number in this category is somewhat skewed since there have been major supply issues and inconsistencies already at the start of 2023.

“Eggs are a great example of how volatile the category can be; although we can blame a good portion of the egg price increases on the bird flu, there are also issues with how chickens are raised, which has decreased egg harvesting production,” he said. “Also, with many lifestyle changes taking place over the past three years, many shoppers are now allocating their grocery spend to restaurants and take out foods, which is impacting year-over-year growth.”

Related:Inflationary environment not souring dairy sales

Maria Brous, director of communications for Lakeland, Fla.-based Publix Super Markets, noted while it’s early in 2023, promotions, everyday value opportunities and private label are showing strength in the dairy department.

“We look at performance of categories and the various segments within each to identify trends,” she said. “We adjust our assortment and space based on these trends. Milk, eggs, and butter are still items purchased by most customers. These items are a part of a large number of meal options and provide value. We see these as remaining very relevant to the customer in the coming years.”

David J. Vana III, grocery category manager for Southern California grocer Gelson’s Markets, said that today’s consumers are increasingly focused on both the environmental impact and ethical implications of the dairy industry, which has given rise to an interest in animal-free dairy milk.

“It is amazing that we are at a point where we can essentially replicate the nutritional aspects of real milk without a cow,” he said. “Taste will always matter. I do think there is continued work to be done in that area, but there has already been a lot of progress.”
Still, real dairy milk dominates the grocer’s sales, comprising more than 70% of its unit velocities.

“As with many categories right now, dollars are up, and units are struggling,” Vana said. “This has been especially true with dairy milk, as dairy prices are always fluctuating, and have been significantly impacted by cost increases recently.”

Savvy merchandizing helps

Because of the higher prices, Rastelli Market Fresh has catered to customers who look for deals and savings in the dairy department.

“The best way to market in our store is to offer discounts with multiple purchases,” Mentzer said. “For example, butter two for $6, yogurt four for $5 or 10 for $10, cream cheese two for $5. Adding off-brand items at a lower price has also been very impactful, as we have been seeing large increases in this strategy.”

Most consumers have an idea of what a quart of milk should cost them and it’s readily available, so Vana noted if you don’t have an attractive price point, they’ll just go elsewhere.

“Aside from price, I believe that innovations like animal-free dairy and brands that emphasize humane/sustainable agricultural practices will continue to grow in popularity,” he said. “When meeting with prospective new brands, I’m most intrigued by buzzwords like ‘regenerative’ and ‘carbon-neutral.’ Locally sourced is a good selling point for us as well. These seem to be things that I can market and will drive customer intrigue.”

Consumer education can help too

Although dairy products are considered staples for most consumers, marketing should still be done on a consumer education level.

“Consumers need to know the nutritional value of dairy products from fluid milk, milk-based commodities and cheese,” Atkins said. “Additionally, we all love a good story. There are so many success stories starting with the farm story to the product story. This can often be heightened with the local tie in. How fun is it for a shopper to walk in and see their neighbor’s and friend’s products in their local grocery store?”

Brous noted that customers are looking for value, but all efforts can’t rely simply on promotions.

“Marketing efforts should leverage all opportunities to be successful, including weekly and digital promotions and social media interactions with the customer,” she said.

In addition to tasting good, dairy products need to perform like the consumer expects—froth for their coffee, whip for their meringue, or to add creaminess to their béchamel.

“That’s the beauty of the dairy category, it’s versatile,” Vana said. “The versatility of dairy means it will always be a mainstay, whether it comes from a cow, or not.”