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UAE’s Dairy Brands See Profit Margins Getting Skimmed

07 February 2017

UAE - For the UAE’s dairy brands, their already thin margins on fresh milk retail prices are getting skimmed off further. And it is the deep discounts that some producers — local and regional — offer that are the root cause of the problem, according to market sources.

Retail prices on fresh milk and some other food staples are kept under a strict price control by authorities in the UAE and other Gulf states. These checks are to ensure that currency fluctuations do not lead to price volatility on such staples, as was the case earlier in the decade when the dollar’s value took some deep hits.

“The price controls by themselves are not the problem – all the Gulf states have it on dairy products,” said an industry source. “The problem comes when the producers start discounting over and above the recommended price.” (A standard two-litre fresh milk packaging would have a standard retail price of Dh10.)

“Some of the discounting does not make sense… sometimes people even go below their costs,” the source added. “That’s where the problem is — just to upset the market. There are a lot of new entrants in the market.

“With yoghurt, there is not much of a pricing issue. I think the biggest issue that people are facing is in the fresh milk category.”

And it is not just some dairy producers/distributors alone that are skimming margins on fresh dairy. “There are the supermarkets and there is a lot of competition, so there are different people with different agendas (acting on the milk prices).”

Fresh dairy products come with a limited shelf life, which also intensifies the margin pressures when some brands start offering discounts over and above the norm. The way they do it is through bundled offers, a tactic in which supermarket chains also lend support as it offers them further traction on their daily promotions.

There have been stray efforts among members of an industry grouping to take up the matter of pricing with the authorities, but nothing has flowed out from this. The current prices have been place for two years now. “We meet… but we cannot force people to abide by what is discussed or agreed there,” the source said.

Source: Gulf News

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