Wednesday, 13 March 2019
When butter prices fall, we add more volume to butter sales than we lose when butter prices rise. There is a strong relationship between the price of block butter and the amount sold but consumers are more sensitive to price changes when prices are falling, compared with when prices are rising.
Wholesale butter prices rose sharply, starting in the summer of 2016, driven by a shortage of butterfat in the market. This fed through to retail prices, which began rising in the autumn. Prior to this, retail prices had been in a period of steady decline, which saw more shoppers picking up butter for their baskets, and buying butter more frequently.
During the period when prices were falling (January 2015 to October 2016), a small decrease in price resulted in a large increase in volume sold. Once prices started rising, the relationship between price and volume was different – in that a large increase in price resulted in a small decrease in volume sold.
With falling prices, shoppers began to buy butter more frequently and this remained high even after prices began to rise. The category is also now promoted less: prior to the start of price rises, approximately 40% of block butter was sold under promotion, now it has reduced to only about 16%.
What next for butter prices?
The upwards pressure on butter prices has eased recently. Wholesale prices have fallen back from their 2017 peak but are expected to remain at historically high levels this year, although Brexit adds to uncertainty.
However, price is not the only determinant of butter sales. Fat is no longer as demonised as it once was; health focus has now shifted to sugar. We have also seen butter benefit from a trending preference for diets that feel natural and less processed, leading consumers to switch back from margarine to the good stuff, even as prices climb. However, in an environment of continuing high prices, to retain category value there is a clear need to continue to promote the taste and health credentials of butter above cheaper alternatives.