Arla Foods risks another bout of consumer backlash with shrunk Lurpak spreadable

After the company released a 200g block butter to replace its 250g pack earlier this year, Arla Foods has now announced a smaller, 400g tub of spreadable is set to replace the 500g version in the UK.

The price is also expected to be 20% lower, with the caveat that retailers have the final say on price-setting. Arla is hoping that introducing the 20% smaller pack at a price that’s 20% lower would make the change more palatable to consumers, who would have to stomach a change in yet another Lurpak product. 

As reported earlier this year, Arla moved to a 200g Lurpak butter block in late April, with some shoppers reporting the higher price tag of the old 250g pack continued to feature on shelves as the new product was being rolled out.

Arla said it has been working ‘extremely closely’ with retailers to avoid a similar scenario this time around. The co-op has also assured that the 250g and 750g of Lurpak spreadable tubs will feature at lower price points going forward.

‘Extremely high cost pressures’

While the UK wholesale price of butter has declined since its 2022 peak, other input costs have remained at levels that make lowering prices further unsustainable for farmers.

Explaining the factors behind these inflationary pressures, an Arla Foods spokesperson told us: “Our farmers have had to pay significantly more for their feed, fertiliser and fuel; and these factors have disproportionally impacted the global dairy sector, including the UK. At Arla, our utilities, packaging and logistics costs are still significantly higher than pre cost of living crisis, but we are starting to see the costs come down for utilities and logistics, but packaging costs are increasing.

“Our farmer owners are still facing extremely high cost pressures on farm, and we are continuing to provide as much support to our farmers as possible. However, we have also listened to our shoppers and introduced a new affordable pack size. The introduction of the new 400g spreadable pack size was driven by research with over 2,500 shoppers. Our research showed that against other size and price options, the 400g pack and price point was the most appealing to a greater proportion of shoppers.”

“As a dairy cooperative, all profits go back to our farmer owners, and whilst Arla continues to work hard to minimise the inflationary impact for consumers, at the same time the business must ensure that our farmer owners are able to maintain the supply of products into shops.” – Arla Foods spokesperson

The company reiterated that another outcome it’s seeking is to attract consumers back into the premium butter and spreadables category. British shoppers traded down on dairy products, with sale volumes for branded butters sliding at the expense of private-label products. Lurpak recorded a volume decline of 7.6% in 2022.

“We are working to drive continued growth within the butter category and the most value for our farmer owner’s milk, and our research showed that the introduction of two new sizes and price points would encourage new shoppers into the category,” Arla’s spokesperson added.

Lower cost per 100g but price up to retailers

The dairy co-operative said it had lowered the price per 100g of product, but the ultimate decision on supermarket prices lies with the retailers. “Our new 400g spreadable option is being introduced at a lower price – as the price per 100g has also been lowered – but pricing is set by retailers,” we were told by Arla. “There are many different factors that affect the price consumers pay in store, but pricing is set by the retailers themselves, and we work extremely closely with our retail partners to ensure we deliver tasty, quality dairy at the best possible price for both shoppers and our farmer owners.”

Retail sales ‘slowly picking up’

Dairy farmer profits have been under considerable pressure after consecutive monthly reduction in farmgate milk prices threatened to make liquid milk production unprofitable. Co-operatives have explained these decisions with facing cost pressures themselves due high global milk supply.

But in an announcement made on June 30, Arla said it is keeping its organic and conventional milk prices unchanged for the first time in six months. The co-op will pay 35.12ppl for conventional and 40.79ppl for organic milk respectively.

Arla Foods amba board director, and Arla farmer, Arthur Fearnall, said: “While global milk supplies continue to increase, retail sales are slowly picking up as consumer purchasing power increases due to inflation softening and wage increases kicking-in.

“There has been some positive trends in the markets recently but we can’t be certain that this trend will continue.” – Arthur Fearnall, Arla Foods

Therefore, the outlook is stable particularly because there is uncertainty over future purchasing behaviour.”

Paul Savage, agriculture director for Arla UK, added: “After a period of negativity, it is welcoming to see commodity markets recover. With the outlook also stabilising, as a farmer owned co-operative we are firmly focused on building on our already strong customer relationships to add more value to our farmer owners milk.”