Margarine churn increases as butter prices remain low
In an Interview with Third Bridge Forum, the specialist said margarine volumes continue to decline because of consumers’ preference for natural and “clean” spreads, such as butter. The specialist told us butter prices are low because of oversupply and are likely to remain low – becoming “the biggest problem for the margarine industry”.
While the specialist said the price of butter is decreasing, they also said the cost to make margarine is increasing. Sunflower oil, a key ingredient, is facing unprecedented price increases because of the Russia-Ukraine conflict, with Ukraine an important source of sunflower oil. The cost of palm oil is also rising and although the specialist said it could be used as a sunflower oil substitute, they told us it would still have a “negative effect” on profitability. Consumers are also more likely to avoid products made from palm oil, according to the specialist, on sustainability grounds.
The specialist told us Upfield will not be able to pass on price increases to retailers or consumers. The company has already lowered prices as part of an aggressive promotional campaign, we heard, and higher prices could see it lose further ground to butter.
However, the specialist said Upfield’s pivot to cleaner labels and refocusing on vegan products means it is moving in “the right direction”. The specialist described Upfield’s acquisition of plant-based food group Violife as a “very clever move”, with the vegan cheese manufacturer already established in the US and UK. Vegan cheese is surging in popularity and the specialist said establishing the product in Germany or other countries in Eastern Europe could be a “game changer”.
Diversifying into other liquid margarine products could also give Upfield a “competitive” advantage, the specialist said. But we were told if margarine popularity continues to decline and butter prices remain low, Upfield will be at a “competitive disadvantage long term”.
To access all the human insights in Third Bridge Forum’s Upfield Europe – Cost Challenges & Growth Opportunities Interview, click here to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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