The grocery staple that never goes on special

Thursday, 6 January 2022

We have it on cereal, in our coffee and tea. We drink it plain, and we put it in our baking. But while Kiwis consume plenty of milk, it never seems to be on special. Katie Townshend investigates.

There’s no denying it: Kiwis love milk.

The white liquid was guzzled at a rate of about 108.72kg per capita in 2019, and according to Fonterra’s website every minute about 190 two litre bottles of milk are sold in New Zealand supermarkets.

If you look at opening hours of 7am to 10pm for supermarkets, that’s 171,000 a day, and more than 62 million a year – and that’s not counting the milk sold in dairies and petrol stations.

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When you go to the search engine on the Countdown website, a list of popular items drops – and milk is at the top. Similarly, on the New World site there’s a box inviting you to “search for groceries e.g. milk…”

But, when you search for plain milk, there are no specials to be seen. The odd “great price” or “everyday value” flag can be spotted, but as Consumer New Zealand chief executive Jon Duffy says – that is not the same as a discount.

“That’s not actually a discount – that’s their standard price for that product but dressed up like a discount”.

The discounting – or lack there of – of milk comes down to three factors, he says: the Fonterra monopoly, the supermarket duopoly and the way ‘specials’ work, and the fact supermarkets don’t need to discount it.

The Fonterra monopoly

“We’re drowning in dairy … why the hell is our milk so expensive?”

That’s the conundrum caused by the Fonterra monopoly, Duffy says.

The simple fact is – milk is big business in Aotearoa, and that business is dominated by Fonterra.

New Zealand supplies about 3 per cent of the world’s milk solids, and it makes up about 20 per cent of our exports.

And of that, the dairying giant – a co-operative owned by about 20,000 farmers – accounts for about 80 per cent.

The dominance of Fonterra means that the global market for milk solids effectively drives the price of milk here, Duffy says.

Global fluctuations in the market impact the amount farmers are paid for the milk, and how much dairy companies pay for the milk solids that go into making the products.

So, even though the milk is made here, New Zealanders end up paying the global price, Duffy says.

Fonterra Brands New Zealand sells about 600,000 litres of Anchor milk to customers each day.

Managing director Brett Henshaw explains that a “consistent increase” in global dairy prices can lead to their customers – such as supermarkets – being charged more, which in turn gets passed on to customers.

“Global Dairy Trade prices are a strong factor in determining both the farm gate milk price, which is the amount farmers receive for their milk, and the wholesale price of milk, which is the price dairy companies in New Zealand, including Fonterra Brands New Zealand, pay for the milk we use to make consumer products such as fresh milk, cheese and yoghurt…

“[Global dairy trade] prices can be volatile, that is why we always take a longer-term view when determining our prices. However, when there’s a sustained increase in GDT prices we can reasonably expect that these will flow through to retail prices eventually.”

The supermarket duopoly and how ‘specials’ work

So, the global market has helped determine the price of milk for Kiwi consumers.

But even if milk solids are expensive, why then is it not discounted when other dairy products, like cheese and yoghurt, are?

The fact is, if supermarkets wanted to discount milk, they could, Duffy says.

“The supermarkets then add their margin to it – there’s nothing stopping them discounting the price.”

But, he says, just like the dominance of Fonterra drives the price of milk, so too does the lack of competition in the supermarket industry – with the duopoly of Countdown and Foodstuffs, which operates New World and Pak ‘n Save supermarkets, limiting the need to discount products and keeping grocery prices high.

“We have a supermarket duopoly in New Zealand, so in terms of how competitive the supply chain for milk is, the answer is not really competitive at all.”

Even dairies, where many people pop in to grab a bottle of milk, were likely buying milk from the supermarkets because of the distribution systems in New Zealand – where the supermarket companies also owned the wholesalers.

“Retail supply is tied up by two players, and they make decisions about what they stock and how they discount it,” Duffy says.

In July the Commerce Commission found in a draft report that supermarkets were making excess profits, and signalled it could require Countdown and Foodstuffs to sell some stores and open their distribution centres to enable rivals to enter the market.

But the supermarkets argue that the prices are fair compared to other countries, and there is plenty of competition.

When it comes to the price on the shelves, Duffy says customers often believe they’re getting a special deal, when in fact they’re paying the regular price.

Items across both companies would be ticketed with symbols promoting things like “everyday value” and “great price” which look like a discount, but are actually just the standard price, he says.

“They’re all dressed up to make you think you’re getting a really good price – actually you’re just paying a retail price.”

Supermarkets don’t need to discount it

When asked why milk wasn’t discounted, both companies had a similar response, which boiled down to wanting to keep the price of an important staple steady for consumers.

Foodstuffs New Zealand head of corporate affairs Antoinette Laird said milk was a popular product and “an important component for a large majority of New Zealanders’ diets”.

“We always work hard to negotiate the best price to ensure our offer is as competitive as possible as well as offering a range of options including both branded products and everyday low price options like Value and Pams.

“We know, now more than ever, getting great value is important to New Zealanders, and we’re absolutely committed to do all we can to provide this, and we work collaboratively with our suppliers when assessing what promotional plans and programmes would work best for our shoppers.”

Meanwhile, a Countdown spokeswoman said the supermarket sold more than 75m litres of the “Kiwi staple” each year.

“We know that price is incredibly important to our customers and, as a household staple, we aim to keep milk at a consistent everyday price. While this can vary slightly, we work closely with our suppliers through any price changes at the farm gate to ensure they get a fair deal for their product and that Kiwis can continue to get their milk at an affordable everyday price.”

But, when asked why other dairy products – like butter and cheese – were discounted neither company answered that question.

Duffy says that when it comes to milk it’s not that it can’t be discounted, it’s that supermarkets choose not to.

“There’s no reason that it shouldn’t be.”

But, he said, there was little to drive supermarkets to discount it, because it was such a staple. People would come to a supermarket needing milk – and regardless of price they would buy it.

“It’s something that will lure customers into the store, but they’re always going to buy it.

“Regardless of what they charge you’re probably going to put some milk in your trolley, so they don’t really need to discount it.”