APPENDIX 18
Memorandum submitted by ASDA Stores Ltd
(Q29)
INTRODUCTION
- ASDA is the third largest superstore chain in
the UK, with 229 stores, 78,000 colleagues and annual sales of
£8.8 billion.
- We are the third largest milk retailer in the
UK and expect to sell £155 million of milk this year.
- We have a year on year growth of 11.8 per cent
(Taylor, Nelson & Soffes 12 week picture—2.5.99)
- We stock 100 per cent British fresh and UHT milk.
- We have reduced our retail price in line with
the falling farmgate prices to ensure our customers get the best
possible value.
Our comments within this memorandum relate specifically
to the retailing of milk to our customers at the end of the supply
chain.
1. THE EFFICIENCY
AND EFFECTIVENESS
OF MARKETING
ARRANGEMENTS FOR
THE BUYING
AND SELLING
OF MILK
IN ENGLAND
AND WALES
We buy all our fresh milk from two processors in
the UK, Robert Wiseman Dairies Ltd. and MD Foods Ltd. They are
selected for their abilities to guarantee large volumes of a consistently
high standard of British milk at a competitive price.
Since the deregulation of the milk market in 1994,
both processors prefer to buy milk straight from the farm instead
of through Milk Marque. Buying from the farm has four advantages
over buying through Milk Marque:
1. they can negotiate a competitive price
2. they can be sure of a consistent supply of milk
3. they can assess each farm for high standards of
animal welfare
4. buying from a small number of large farms makes
traceability easier
Milk Marque cannot guarantee a regular supply of
milk, even when the processor pays for the highest level of service.
This is neither efficient nor effective as our customers expect
to be able to buy milk at all times from our stores. Milk Marque
also buy milk from a large number of small farms. This makes recording
the source of milk and auditing animal welfare, which we require
in order to be confident about selling a high quality product
to our customers, less effective.
2. THE ACTIVITIES
OF MILK
MARQUE, DAIRY
PRODUCERS, PRODUCER
CO-OPS,
DAIRY COMPANIES
AND SUPERMARKETS
Our mission is to satisfy the weekly shopping needs
of ordinary working people and their families who demand value.
This value message is at the core of our marketing strategy: we
market our milk by concentrating on delivering a competitive,
value for money price to our customers.
In October 1998, we accepted a cost increase from
our dairy processors when the price of milk looked set to rise.
We did not pass this on to our customers. This lowered our margins
but meant we were able to maintain the value of our milk which
maximised sales. There has been a gradual fall in milk prices
since March 1999. We have not received any indication of this
fall from our two processors.
The table below illustrates our retail prices over
the last three years. In addition to the price deflation from
the strong pound and plummeting butter and cream market, discount
stores have also had an impact, selling milk at very cheap prices.
|
| Retail price
|
| 1997 |
1998 | 1999
|
|
| 1 pint | 28p
| 28p | 27p
|
| 2 pint | 55p
| 55p | 52p
|
| 4 pint | 89p
| 89p | 89p
|
| 6 pint | £1.29
| £1.29 | £1.29
|
|
In addition to our pricing strategy, we have tried to market milk
and revert the general decline in milk sales (down by 5 per cent
over the last 10 years) by creating new products and promoting
innovative ranges. We led the way in equalising prices for long-life
skimmed, semi-skimmed and whole milk. We also introduced our "family
of milk" two years ago, with added vitamins, to appeal to
the health aware customer. The "family" consists of:
Vitamin Enriched Milk, with added calcium and vitamin D
for healthy bones. Calcium-Enriched Milk With Folic Acid. A glass
had seven times the amount of folic acid (important for pregnant
women) and 100 times the level of vitamin D found in normal milk,
plus half our recommended daily amount of calcium.
We stock this in 100 of our stores. It is still a minority choice
totalling 1.3 per cent of total milk sales.
To cater for developing customer tastes, we also sell goats' milk
and organic milk. These products are not as profitable as standard
fresh milk as the table below shows, but are worth the investment
in order for us to remain competitive and give customers another
choice within our milk range.
|
| % of total
fresh milk sales
| Stores stocking
(out of 229)
| Waste generated as % of sales
(fresh milk average waste = 0.4%)
|
|
| Goats milk | 0.5
| 198 | 9
|
| Organic milk | 0.8
| 87 | 6
|
|
We hope to stock a range of organic food in all our stores by
September this year.
Our processors have also been innovative. Robert Wiseman Diaries
have introduced 250ml cartons, sized for children's lunchboxes—a
pack of four sells for 99p. These cartons, although stocked in
all our stores and promoted recently at a low price point of 69p
still total less than 0.25 per cent of our milk sales.
MD Foods Ltd have developed a "pure filter" milk, designed
to have a shelf life of 21 days. This milk retains the flavour
of fresh milk, with more of the keeping qualities of UHT milk.
This product is becoming increasingly popular—it sales have
risen by 30 per cent over the last six weeks. At the moment, it
is sold in only 21 stores, although we will review this if its
sales continue to grow.
Our processors have also invested in improving the safety, traceability
and quality of their milk to ensure that the highest grade product
is available to our customers at all times.
3. THE EFFECT
OF THE
CURRENT STRUCTURE
OF THE
DOMESTIC INDUSTRY
ON ITS
ABILITY TO
ADD VALUE
TO RAW
MILK
We feel that the domestic industry would benefit from a more transparent
pricing and marketing strategy, especially with regard to Milk
Marque. At the moment, very little information seems to be shared
between dairy producers and processors which creates antagonism.
More transparency could lead to all sectors working together for
the benefit of the whole industry.
We would welcome the chance to sit on a "brainstorming"
committee and pool ideas for the improvement of the industry and
share our retail perspective. It is up to all sectors to recognise
the changes in structure that are needed and view them as a challenge
and opportunity for development rather than a threat.
Large retailers and dairy processors also need to become as efficient
as possible in the production of milk to raise everyone's potential
for profit in the production chain. Our three year contracts,
drawn up with our two processors, have given them the financial
stability to invest thousands of pounds in improving their processing
units, which lower the cost of production.
We also held a working party six months ago with our loss prevention
team, buyers and suppliers to look into the causes of leaking
milk cartons, which are a large contributor to waste. Following
this, we trialled a number of initiatives, from increasing and
improving the number of quality checks done throughout the production
cycle, to trialling new seals and caps for the cartons. These
efforts combined managed to reduce the waste caused by leaking
cartons by 0.16 per cent.
Such initiatives need to continue. All sectors of the chain need
to be as efficient as possible in order to minimise costs, maximise
profit and add more value to raw milk.
16 June 1999
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