Will we see significant retailer butter price increases?

Published 15 June 17

Margins for retail packs of butter have been squeezed over the past year and with strong wholesale prices, those supplying the packed butter market have some interesting decisions to make.

The average wholesale butter price for May was recorded at £4,300/tonne, around 112% more than the price in May 16. While this was the average for the whole month, prices ended the month closer to the £5k mark.

By comparison, in this time, consumer prices have increased by just 10%. These movements mean those involved in supplying retail packs of butter are likely to have seen their margins reduced.

Butter graph 15.06.17

So what will happen next if wholesale butter prices remain high? Fundamentally, retailers have three options; increase retail prices, work with their suppliers to absorb the additional cost, or a combination. However, this is a slightly simplistic view. Some retailers and suppliers might be looking at longer-term deals to limit some of the volatility in prices.

The retail market is so fierce with competition that retailers will not want to increase retail prices if it makes them uncompetitive. It has been suggested we have already seen some retailers “testing” price increases to see what other retailers do.

However, demand for fat is high and supplies are low, placing upward pressure on prices. If this continues, we are likely to see retailers going down the option 3 route and try to spread the price rises to the consumer while not eroding their own margin too much.