Private labels the dairy industry’s new cash cow

The growing number of private labels poses a new strategic challenge for dairy producers, according to business analysts at IBISWorld.

The market research company says the increasing popularity of private labels, which account for about 25 per cent of products sold in supermarkets and grocery stores and are particularly prevalent in the milk, cheese and butter segment, is causing dairy producers increasingly to vie for lucrative private-label contracts with large retailers to ensure their ongoing success in the industry.

“Increasing numbers of private-label dairy products are contributing to a changing focus for dairy manufacturers,” IBISWorld Senior Industry Analyst Brooke Tonkin said.

“For players such as Murray Goulburn, which has won multiple major private-label contracts with Coles over the past two years, including a contract to produce private-label cheese previously held by Bega, the strategic focus is changing. Private-label products are now accounting for a greater share of products manufactured by the company.”

IBISWorld anticipates that private-label sales, including private-label dairy, will outperform branded product sales over the next five years. As a result, private-label contracts are expected to become increasingly important to the success of dairy manufacturers aiming to service local markets.

It adds that an increasing number of private-label products will also drive diversification in dairy product manufacturing, as manufacturers eye products such as milk powder and cheese as alternatives to traditional dairy products.

“For the producer, the trend towards private-label contracts also places companies in a good position for investment,” Ms Tonkin said. “Contracts like the milk and cheese private-label contracts won by Murray Goulburn provide an ongoing inflow of cash and give businesses the ability and confidence to invest in their production facilities over the long term.”