Managing Director,
Liquid Products and Ingredients
Dairy Crest’s Liquid Products business processes and delivers fresh conventional, organic and flavoured milk to major UK retailers. It also manufactures, markets and sells FRijj, the leading fresh flavoured milk brand as well as potted creams including speciality and seasonal offerings and milk powders.
The business has four milk packing dairies located at Severnside in Gloucestershire, Chadwell Heath in London, Fenstanton in Cambridgeshire and Foston in Derbyshire. A large proportion of our potted cream and all our speciality seasonal creams, as well as our retail milk powders are made at Chard in Somerset. FRijj is made at our Severnside dairy.
Our Ingredients operation, which is also based at Severnside, provides the Dairies division with a flexible balancing solution and deals with the Group’s by-products. Surplus milk in the spring, and milk arising from short term supply and demand differences, is processed into a range of food industry products, primarily skimmed milk powder and bulk butter. These products, along with whey powder produced by our Foods division, are sold both domestically to major food companies and exported by a specialist team. The Ingredients business also operates in added value ingredients through our Wessex Dairy Products business and our Joint Venture interest in Fayrefield Foodtec.
Liquid Products and Ingredients
Consumption of fresh conventional milk has remained steady year on year in terms of volume. However, there has been a 13% growth in value as prices rose, reflecting input cost inflation. Sales of higher fat milk have declined as consumers continue to switch to healthier, lower-fat products.
Organic milk accounts for around 5% of total milk sales. The growth in consumption of organic milk seen over recent years has stalled as consumers have reacted to the economic downturn. There is also some evidence that consumers have become more interested in locally sourced produce and provenance, rather than organic.
The market for fresh flavoured milk grew both in terms of volume and value, (14% and 15% respectively), with branded growth taking the lead. Strong growth in the consumption of healthier cream options such as Crème Fraiche, have led to the total cream market showing growth of 9% in value.
Our Liquid Products business increased its share of supplies to the retail liquid milk market by delivering both volume and value growth ahead of the market. Dairy Crest supplies major retailers, including sole supply for Waitrose and Marks & Spencer and 50% share of supply to Sainsbury’s and Morrisons. During the year our sales grew by 17% in value and 4% in volume.
Our sales of organic milk to the major retailers remained steady during the year. Distribution of our Country Life organic milk brand was extended towards the end of the year and this will deliver growth in 2009/10.
FRijj, our leading flavoured milk brand, grew by 23% in value terms and 17% in volume. This growth means FRijj annual retail sales have exceeded £40 million for the first time. The brand has a 50% share of the fresh milkshake category and continues to attract new consumers. Supported by our innovative and successful “Four Ridges” media campaign and by the ongoing introduction of Limited Editions, there were one million more FRijj drinkers this year compared to last.
The business continues to focus on driving efficiency to improve its costs of production and the quality and service provided to its customers.
To support our ongoing commitment to cost reduction and to maintain the long-term sustainability of the business we continued to invest in its infrastructure. Our Foston dairy, which was acquired in 2005 from Starcross Foods Limited, has been the focus of significant capital investment over the last two years. For a total investment of £34 million we have developed this site into an efficient facility with current capacity of around 250 million litres and the potential to expand beyond this. During the autumn of 2008 the business commissioned a new Regional Distribution Centre in Aldridge in the West Midlands. This facility, together with our existing RDC in Collumpton, complements the distribution operations run from our dairies and means the business has considerably increased its geographical reach and improved its supply chain efficiency.
Health and the environment have been key areas of focus for our innovation team over the last year. We launched 1% fat milk for Sainsbury’s and Morrisons in the year and sales are growing strongly. We also rolled out our milk pouch and Jugit packaging solution in Sainsbury’s and Waitrose. The pouch uses 75% less packaging than a standard polybottle. In 2009/10 we will continue to drive listings of pouch and launch it through our doorstep business.
Our Ingredients operation had a difficult year. The markets for dairy commodities such as skimmed milk powder and bulk butter have been depressed over the last year. Peaking in the autumn of 2007, the market went into steep decline over the winter and into the spring of 2008. The difference between the realisations from these markets and the price we paid our suppliers for their milk widened considerably to unprecedented levels. As market prices fell, trading activity also slowed and as a consequence, stocks grew.
By focussing on raw milk utilisation we were able to reduce the amount of milk put through our Ingredients business in the second half of the year and minimise the impact of the market slowdown. By the year-end, we had managed commodity stocks back down to below £5 million, in line with previous years.
Since February 2009 milk purchase prices have started to fall, partially reflecting the ongoing low returns from dairy commodity markets. We have reviewed our milk purchasing requirements to minimise the amount of milk we process through our Ingredients business.
Our Liquids business has continued to progress since the year end and has recently secured additional business with the Co-operative Group. The focus remains on increasing efficiency and improving the quality and service offered to customers.