ATM - A2 Milk Corporation Limited

[Snoopy]

Where do you think Coles got the idea of starting a milk war from? The UK of course. This market dynamic is already well established in the UK, and it was the new British boss of Coles that brought it to Aus.
http://www.news.com.au/finance/busin...-1226056585833

Thanks for that KW. I wasn't aware of that English milk price war pre 2011. I think though that my previous message was not clear.

My issue is that the milk price war in Australia, where home brand prices effectively halved in Australia, has reduced the value of the entire retail fresh milk market significantly - by around 30%. This in itself is nothing to do with ATM, which has continued to grow its own A2 volumes at high value, albeit from a low base if we go back to 2009. The issue here is that A2 started its push into Australia before the Coles-Woolies price war started in January 2011, and has continued to push onwards and upwards as the Coles-Woolies price war continues. At one level this Coles -Woolies price war is irrelevent to ATM, because A2 milk itself is not part of this price war. But ATM have made it relevent by quoting their sales in terms of market share by value. My point is that the market by value has changed significantly during the period that ATM was ramping up its Australian sales.

If there had been no Coles-Woolies price war, then A2 volumes would probably be as they are now, ATM profitability would be as it is now, but ATM market share by value would be less, because the whole comparative market would be larger in dollar terms. The overall market by value would not have shrunk without a prolonged retail market discounted milk price. It is the fundamental shrinking in overall fresh milk market value, during the period when A2 sales are ramping up, that has caused the distortionately high market value share quoted by A2. This isn't a problem, unless you use this same value growth path in other markets where there has not been the same market distortion by value that occurred in Australia.

Britain may have had a supermarket price war in milk. But because it occurred before A2 milk marketing started in earnest, it is not relevent to the projected ATM market growth by value in the UK (unless a new milk price war at a lower level starts!). To get an estimate on the timeline of what the market penetration by value will be in the UK going forwards, with the Australian market experience behind us, is a useful exercise. I contend that for comparative purposes, you have to imagine what would have happened to the market share by value if the Coles-Woolies price war did not happen as A2 was being established in Australia. Only then will you get a realistic predictor of what the market growth by value might be as the UK market develops.

SNOOPY

[winner69]

Snoopy-you done some snooping around. What you think of my 3% to 10% net profit margin in Australia?

Any comments that if margin is say 10% they need to Coles to sell it at $4.99 for 2L or else not much left for A2 Milk

[winner69]

The retail price in Costco is $3.99 and the Costco fixed mark up is no more than 15% so you can work it out from there what the wholesale price is.

Good

So $3.63 exc GST suggests a $3.15 wholesale price.

If A2 net margin is say 10% they make 32 cents per 2L

I assume Coles mark up is more for them to sell at $4.99

Lets hope all milk, even the best never gets to $1 a litre

[Snoopy]

It changed in 2011. It hasnt changed since. So if you set end of 2011 as your baseline then growth from there is normalised and thus repeatable.

Yes, you could certainly model growth by market share value of A2 as repeatable if a step change in overall market size is outside the window in which you start to market A2. I agree. And if A2 had only started to be marketed in calendar year 2011 in Australia, you could model a similar market value growth in the UK, for investor modelling purposes. The only problem KW is that marketing of A2 in Australia didn't begin in 2011! It was years before that. I don't believe you can arbitrarily choose to say 'year zero' for A2 was 2011, just to avoid the start of the discount wars.

SNOOPY

[NT001]

[Growth} should be faster in the UK as they would have learnt a lot of lessons from the Australian market - eg. who is the customer, what is the best message, how to promote it. They also have more clinical evidence to support their claims now than they did pre-Australia market entry. Consumer trends for better foods is also more advanced now than back then. As is Facebook viral marketing and messaging. Lots of things have changed since 2011 - most of them for the better for ATM.

I totally agree, KW. I'm not an accountant, but it seems to me you can't extrapolate much financially from the Australian experience to what can be expected in UK (or USA). When A2 entered the market in Australia it did not have a clearly defined marketing strategy. It knew it was legally prohibited from making any health-related claims, so it more or or less just went into the general milk market, and the word got around, largely anecdotally, that it gave health benefits. It's now in the UK defining itself cleverly as a niche milk that has been shown both anecdotally and by clinical trial to be easier to digest, and is therefore not in competition with mainstream milk but presents a route back to milk consumption for those who've walked away from it or find it indigestible. The whole strategy is different and very smart, plus they've got great PR.

Incidentally, although it was launched amid great ballyhoo on November 19 as being available in all Sainsbury outlets, A2 has also been available and remains so in Tesco, Ocado, Morrison and Waitrose. Not sure
how much this varies from store to store and region to region.

And a friend I was talking to who is fairly familiar with the UK industry expressed the opinion that ATM is being "rather conservative" in not forecasting cash breakeven in the UK until FH16.

[see weed]

Last week got a2 at Green Lane Countdown with use buy date 6/12/14. Good, I have about 13 or 14 days to go. Had half a cup left on the 2/12/14 and on the 3/12/14 it was starting to look a bit thicker with odour. Went to Mt. Wellington Countdown last night. They had the same milk use buy date 6/12/14 for $2.50. They should not sell old milk. But in saying that, I told a stranger, this is the best milk and it is on sale now, but you will have to drink it within 2 days. He said that is ok, took my flyer and milk and off he went. I walked out of shop with Soy milk.

[Jasemc]

Last week got a2 at Green Lane Countdown with use buy date 6/12/14. Good, I have about 13 or 14 days to go. Had half a cup left on the 2/12/14 and on the 3/12/14 it was starting to look a bit thicker with odour. Went to Mt. Wellington Countdown last night. They had the same milk use buy date 6/12/14 for $2.50. They should not sell old milk. But in saying that, I told a stranger, this is the best milk and it is on sale now, but you will have to drink it within 2 days. He said that is ok, took my flyer and milk and off he went. I walked out of shop with Soy milk.

See weed I was going to join Destiny church but I think your cult is better!

[janner]

See weed I was going to join Destiny church but I think your cult is better!

And probably cheaper !!..

[blobbles]

Last week got a2 at Green Lane Countdown with use buy date 6/12/14. Good, I have about 13 or 14 days to go. Had half a cup left on the 2/12/14 and on the 3/12/14 it was starting to look a bit thicker with odour. Went to Mt. Wellington Countdown last night. They had the same milk use buy date 6/12/14 for $2.50. They should not sell old milk. But in saying that, I told a stranger, this is the best milk and it is on sale now, but you will have to drink it within 2 days. He said that is ok, took my flyer and milk and off he went. I walked out of shop with Soy milk.

Soy milk??? Traitor! :-p

[see weed]

I came up with a good cult... I mean idea. Bottle of a2 milk for christmas present in a gift basket with a few little nic nacs around the edges like biscuits, chocolate, milo etc. And you could put in a little brochure or flyer on the benefits of a2 milk. What do you think? Merry xmas everyone.