Shift in consumer behaviour towards discounters and own-label products has impacted Arla Foods, as stated by the firm which stated that its performance in the first half of 2023 was also impacted by continued inflationary pressures and declining dairy commodity prices.
Net revenue for Arla Foods UK was up 16.9 per cent to £1.37 billion, boosted by higher prices. However, revenue from its brands fell 5.2 per cent after volumes were impacted by changing consumer patterns during the cost of living crisis. However, the company noted that conditions were starting to improve towards the end of the period.
Total Arla Brands saw a 0.7 per cent decline in volumes in the UK, while the Starbucks brand continued to deliver a strong performance with growth of over 19 per cent, driven by growing in-home and on-the-go consumption.
Jonathan Dixon, senior VP of sales at Arla Foods UK, commented: “During the first half of 2023, we continued to see inflationary pressure resulting in consumers moving towards discount channels and private label products.
“However, we have started to see our brand performance improve towards the end of the first half year due to significant investment in our brands and our continued innovation in the dairy aisle. This focus on growing our branded business in the short and long-term is already seeing positive growth for our Starbucks and Arla Protein brands, and the improved performance across our brands is sustaining as we now have moved into the second half of the year.”
In volatile market conditions, Arla’s foodservice business in the UK experienced a volume decline of 1.8 per cent, compared to 19.0 per cent growth in the first half of 2022, where the surge in demand was due to Covid restrictions easing. Arla said it expects to see positive growth in its UK foodservice business in the second half of the year.
Arla’s group revenue was up 10.7 per cent, primarily driven by earlier implemented price increases in retail and foodservice. Brand revenue grew by 6.9 per cent, driven by its Lurpak and Arla lines.
Looking ahead, Arla expects inflation to soften but noted that commodity markets continue to be marked by uncertainty.
“We anticipate that inflation and its influence on consumer patterns will continue to mark the remaining part of 2023, putting pressure on branded volumes in most markets. However, we expect an increase in the underlying category growth to contribute to branded growth slowly picking up again,” said Peder Tuborgh, Arla Foods CEO.