June 2013
Beyond the Gallon Jug: How Can Innovation
Change the Path of Fluid Milk?
By Alison L. Krebs
Director, Knowledge Exchange
Key Points:
er capita fluid milk consumption has been in long term decline for a myriad of
P
reasons, including competition with other beverages, changing demographics,
price volatility, special interests and a lack of innovation and investment.
While the gallon jug is easily recognized and has been a successful and
effective way of distributing milk to the masses, its role and contents don’t fully
align with today’s consumers’ needs.
Inside this Issue…
The Decline of Fluid Milk................ 1
What’s Behind the Downtrend?....... 2
Beverage Consumption and
Milk’s Role...................................... 4
ultiple industry efforts are underway to build on milk’s traditional,
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inherent and emerging strengths to more frequently become consumers’
beverage of choice.
Many important lessons are being learned as processors and industry groups
work to overcome the long-standing downtrend – to build on and move beyond
the gallon jug.
Process, Product, Package and
Distribution Innovation.................... 5
Innovation comes in many forms. Product, package, process, distribution and
message are all important to the future of fluid milk.
What’s in a Message?...................... 9
Throughout the grocery store, many product lines have successfully been
extended to meet consumer niche or segment needs. This is starting to happen
with milk.
Fluid Milk Going Forward.............. 10
References................................... 11
ompeting with well-known brands is tough. Partnering with established
C
companies in certain cases can be a lower risk approach than going it alone.
ower volume, higher margin branded products will still benefit the industry as
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they enable a stronger voice and further reinvestment and innovation, thereby
improving the odds of competitiveness in the beverage sector.
The Decline of Fluid Milk
This report was produced
in collaboration with
While yogurt, cheese and export sales have been a boon for the U.S. dairy
industry, allowing milk production to expand nearly 18 percent in just the last
decade alone, fluid milk sales have continued along a troubled trail. In the 35
year period from 1975-2010 annual per capita fluid milk consumption dropped
from 28.6 to 20.9 gallons.1 And the trend hasn’t let up as overall per capita fluid
sales declined another 1.6 and 1.8 percent in 2011 and 2012, respectively,
and experienced their fourth consecutive month of year-on-year declines in
1
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Figure 1: Major ShiQ from Carbonated SoQ Drinks to Bo-led Water Figure
1: Major Shift from Carbonated Soft Drinks to Bottled Water,
MilkMilk and Fruit Juice also Losing Volume Share
and Fruit Juice also Losing Volume Share
In just the last decade,
new categories such
2002 2012 Weekly Ounces 4% 4% as smoothies, meal
2% 3% replacements, energy drinks
3% CSD Fruit Juice and soy/rice/nut beverages
19% 8% Fruit Juice CSD 6% have taken hold; the bottled
31% Milk Milk water category now has
14% 12% Coffee 18% multiple variants and the
Coffee Tea Tea lines between tea and fruit
17% 14% Bo-led Water 12% drinks have blurred. In fact
18% 7% from 2002-2012 nearly
8,000 new teas, 4,850 juices
CSD Coffee Bo-led Water Tea and juice drinks, 2,550
Milk Fruit Juice Fruit Drink Drink Mixes coffees and 2,500 energy
Sport Drinks Hot/Cold Cocoa Smoothies Nutrit.Sup/Meal Replcmt Energy Drinks Soy/Rice/Nut Bev. Other Source: Kantar Worldpanel and sports drinks were
introduced as compared to
Source: Kantar Worldpanel
just 1,170 new fluid milk
7
2
products. Milk’s historical status as a commodity and
February, 2013. Indeed, despite a 43 percent increase
low margin product at the processor and retail levels,
in U.S. population between 1975 and 2010, total milk
3
with a focus on operational efficiency as opposed to new
consumption increased just 4 percent. In 2012, a mere
product development, has contributed to this slower pace
26.5 percent of milk production was marketed through
of innovation. Additionally, many other beverage category
fluid products versus 46 percent in 1975.4
innovations have carried strong legacy brand names or
It’s been a painful time for the fluid milk industry. Will
have made significant marketing investment in building
the future bring more of the same and continue to
national brands, further increasing the competitive
drive processors towards the manufacture of other
pressure on the traditional fluid milk business model.
dairy products, or can fluid milk regain momentum
Overall, in looking at the last decade, the proliferation of
with today’s American consumer and provide greater
beverages and categories has contributed importantly
opportunity for the fluid processor?
to the continuing decline in market share for fluid milk
(Figure 1).
ConsumpWon Trend % Share, Average What’s Behind the Downtrend?
There are several pieces to the story of how fluid milk got
to where it is today. One major factor behind the erosion
is that the beverage industry has become increasingly
complex, a trend that has only accelerated in recent
years. While an individual still consumes on average
221-224 gallons of beverages a year (30-33 percent
of which is tap water), the choices one now faces have
broadened significantly. 5,6 We essentially went from milk,
carbonated soft drinks (CSDs), coffee and juice in the
1970s to a myriad of alternatives available today. A trip
along the coolers or beverage aisles in the grocery, club
or convenience store can be a dizzying experience if one
steps back to look at the plethora of options.
Even as all of these alternative beverages have emerged,
an additional handicap for milk has been the required
standards of identity for fluid dairy products. Whereas
other products are able to position themselves as 99
percent fat free, milk must still focus on its fat content
of 1 percent. In a “fat free” oriented environment
this requirement places fluid milk at an immediate
disadvantage in the eyes of the discriminating consumer.
Essentially the playing field is not a level one.
In addition to choice and standards of identity, changing
consumption patterns by age group, especially the
young, have been pronounced. While older Americans
are less likely to drink milk overall, the younger
2
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Figure 2: Mean Intake of Fluid Milk
Mean Intake of Fluid Milk
Cups per day
2
to 18-24 percent for their non-Hispanic
counterparts.10
1.5
1
1977-78
0.5
2005-06
0
2 to 11
12 to 19
20 to 49
50+
Age in years
Source: USDA ARS: Fluid Milk Consumption in the U.S., September 2010
Source: USDA ARS: Fluid Milk Consumption in the U.S., September 2010
generation is consuming significantly less milk than in
times past (Figure 2). A recent USDA research study
concluded that, “…trends showing decreases in per
capita [fluid milk] consumption since the 1970s mainly
reflect changes in consumption frequency. Between
the 1970s and 2000s, people have become less apt to
drink fluid milk at mealtimes, especially with midday
and nighttime meals, reducing the total number of
consumption occasions.”8
America’s changing demographics are also playing a
role. Whereas the population of those aged 0-19 years
(who consume milk most frequently) will increase 17
percent between 1980 and 2020, the 50+ population will
increase a whopping 102 percent over that same time
period. From 2010-2020, the Hispanic population, which
made up 17 percent of U.S. population in 2011, will grow
33 percent versus 6 percent for non-Hispanic minorities.9
Looking at these two high-growth groups, projections
suggest that seniors will be turning away from milk
even more. Baby boomers, who are now reaching that
65+ milestone, want to maintain their quality of life,
but they’re not necessarily looking to milk as a way of
maintaining their health and independence (Figure 3).
While Hispanic milk consumption should increase
overall, it will grow at a slower rate than the Hispanic
population as Hispanics are also cutting back on
drinking milk. And a further cloud exists as just 15-18
percent of Hispanic teens consume milk as opposed
Where consumers get their beverages has
also evolved. Purchases away from home
now account for nearly half of total U.S.
food expenditures.11 And whereas over 50
percent of consumers drink milk at home,
only 14 percent do so away from home. In
comparison, 22 percent of overall beverage
consumption happens away from home.12
Consequently, consumers are more likely
to consume beverages other than milk
when eating out.
And in the home, with the abundance of early-morning
alternatives available, breakfast cereal consumption has
been decreasing. While milk naturally goes with cereal,
breakfast bars or other foods can be accompanied
by any beverage. This shift has also pressured milk
consumption.
In one of its traditionally most secure bastions –
schools – milk has been under attack. Fat content,
flavorings, and added sugar have all been viewed with
disdain as the country struggles with its child obesity
epidemic. Seemingly lost in this flurry are milk’s
nutritional benefits and the tradeoffs in steering or
switching children to other beverages. Prompted by
Figure 3: Consumers Gained/Lost For HighGrowth Demographics, 2012-2020
Beverage
Milk
65+
Hispanic
million drinkers
-1.3
5.5
Fruit Juice
1.3
-8.9
Iced Tea
11.2
7.5
Bottled Water
11.9
*
Smoothies
4.1
4.9
CSD and Energy
1.0
3.0
*
3.4
Non-dairy
* data not reported
Source: Kantar Worldpanel
3
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Figure 4: Milk Vs. Beverage Prices
Milk Vs. Beverage Prices
January 2000-December
2012
January 2000-­‐December 2012 160 137 2011 2010 2009 2008 Beverage Source: USDA, DMI, Consumer Price Index Source: USDA, DMI, Consumer Price Index
% Occasions these attacks, flavored milk sales across all channels
dropped 2.5 percent in 2011 and an additional 1.6
percent in 2012.13 And in-school flavored milk sales
have dropped even more sharply. As flavors, added
sugar and fat have been removed (added sugar has
been reduced by 40 percent and calories are down 21
percent from 2007), the final product that reaches the
schools – if flavored products are allowed at all – is less
appealing. Additionally, packaging options frequently
remain limited to the awkward gable top carton as
school contracts are essentially cost driven. As a result,
the industry risks losing its opportunity to create the
lifelong habit of consuming (and enjoying) milk with the
future generation.
2012 YTD Milk 2007 2006 2005 2004 2003 2002 2001 60 2000 110 Finally, consumer pricing has played a
role. Fluid milk prices are more volatile and
have increased more than prices for other
122 beverages (Figure 4). When fluid milk store
prices peaked in December 2012, volume
declined 3 percent. Unfortunately, consumers
haven’t always made their way back to the
dairy case after prices drop back down.
Consumers are subjected to these price
swings because processors can’t directly
hedge against the volatility, given the current
system where the higher of Class III or Class IV
prices sets the minimum price for Class I, and that Class
III prices are the base for Class I price approximately 65
percent of the time.
Beverage Consumption and Milk’s Role
In recent years, consumer research has been conducted
to gain a better understanding of (non-alcoholic)
beverage “occasions” and the respective needs they
address. The objective has been to understand not
just what people reach for, but also why they select
their beverages of choice. The research suggests the
key drivers of beverage consumption are thirst, taste,
accompaniment with food and fluid replenishment,
although other rationales also exist. Of particular note,
however, is how these needs align with
consumers’ white milk drinking occasions.
While milk excels in the lesser needs
Figure 5: Milk Strengths vs. Consumer Needs
of going well with a food or snack and
nutritional benefits, milk performs poorly
60% around the more important areas of thirst
50% All Beverages and fluid replenishment (Figure 5). One
40% White Milk important point to note around nutrition,
30% however, is that this category is defined as
20% much by the absence of negatives (such
10% as calories to the diet conscious) as the
0% presence of positives (such as quenching
thirst, or the presence of calcium or
vitamin C for the nutritionally-oriented),
which is one reason why tap and bottled
water as well as fruit juices compete so
effectively against milk on this front.14
Source: Kantar Worldpanel, 2012
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Evidently, milk isn’t fully in synch with the reasons why
consumers choose beverages. Whereas competitive
beverages have done a good job of targeting these needs
with functional claims such as heart health, immunity,
or energy, milk has fallen behind. For example, meal
replacement beverages (some of which contain dairy
ingredients) have displaced milk with nutritional and
health claims as have fortified waters, which have the
added benefit of addressing thirst.
So when do people consume milk? By far, milk’s biggest
occasion is breakfast at home, which accounts for over
30 percent of total fluid consumption. Subsequently
dinner at home accounts for 17.5 percent, while lunch
at home and lunch at school account for 7.3 and 4.2
percent of consumption, respectively. Other before,
between and after meal at home occasions total another
22 percent.15 As noted previously, milk’s role away from
home has remained limited. The problem, however, is
that the frequency of consumption occasions has been in
a long, slow downtrend as the population has aged and
other consumption choices have emerged.
Given this scenario, can anything be done to reverse, or
at least slow this downtrend? Or is the future growth of
America’s dairy industry destined for other non-fluid milk
products and overseas markets? A number of industry
experts, including Dairy Management, Inc. (DMI),
International Dairy Foods Association (IDFA), processors
and academics, have been taking a hard look at this
challenge, conducting extensive consumer research and
looking at new products and ways to address the market.
DMI and IDFA identified key opportunities as:
•
Protecting the core of current milk drinkers at
occasions such as in-home meals, in-school
breakfast and lunch with continued reinforcement
•
Creating new opportunities involving current low milk
penetration and high growth potential occasions
such as working out/sports or health (functionality),
enjoyment (taste) and after dinner
•
Using milk as an ingredient to create lighter, fresher
beverages that can address the thirst category
The balance of this report aims to identify industry
innovations and best practices in the fluid milk sector,
and is based on a series of interviews with industry
experts and additional research.
Process, Product, Package and
Distribution Innovation
What’s wrong with the gallon jug? In many ways,
nothing’s wrong. It’s the easily recognized and reliable
industry standard: inexpensive to produce and fill and an
efficient package for moving significant volumes through
retail to consumers. The processor model is essentially
built on moving bulk. And for many consumers this
fits the bill. Unfortunately, however, as outlined in the
discussion above, the world and its lifestyles have
evolved while the gallon jug has essentially remained the
same, and now it’s time to catch up.
Mike McCloskey, CEO of Select Milk Producers, has
emphasized the need for innovation throughout the value
chain to address product, distribution, branding and
packaging challenges. He states, “The industry needs to
embrace and reward creativity.” And Suley Muratoglu,
Vice President of Marketing and Product Management
for the U.S. and Canada for Tetra Pak, notes how the
industry has started to evolve. “The decade of 20002010 was fairly stagnant, but in just the last couple of
years things have been different. Processors are looking
much more towards consumer needs and how they
can meet them.” And Mr. Muratoglu suggests that as
60 percent of U.S. households are now comprised of
1-2 people, further change is needed to reach these
households that no longer reflect the traditional family
model. Jim Wegner, CEO of Darigold, suggests that
innovation can be expensive but necessary. “We have
to meet the changing needs.” And because of its
commodity origins, “dairy hasn’t moved as fast as other
beverages, which has put us at a disadvantage.”
The industry is now addressing consumer needs more
aggressively. First, let’s look at how the processing side
has opened doors and enabled product innovation that
has started to take hold in the marketplace. The key here
is shelf life and shelf stability. Whereas the most common
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Figure 6
Figure 6: Fluid Milk Sales by Volume
Additionally, Farmland’s (Borden’s)
ESL line of Special Request™ products
Trad White Pint & Smaller* Lactose Free/Reduced* TradiFonal Flavored* offers an array of added healthOrganic* Health Enhanced* oriented benefits including added fiber,
3% coenzyme Q10, and others similar to
2% 4% 1% 0% <1%
those of Darigold and Smart Balance.16
John Kaneb, Chairman of HP Hood,
2% suggests “mature people want better15% for-you products with more protein,
more calcium, probiotics, low fat,
73% and no lactose.” Accordingly, Hood
* Growth categories distributes its Calorie Countdown™
Shelf stable = .54% of total dairy beverage nationwide, a low
Source: MilkPEP, Symphony IRI
carbohydrate, low sugar and low
calorie product (which has seen limited
success), and Kroger is marketing its CARBmaster™
pasteurization approach provides refrigerated fluid
reduced sugar milk.
products with a shelf life of 14-22 days, ultra pasteurized
or extended shelf life (ESL) products, while still requiring
However, due to higher temperature pasteurization, some
refrigeration, can have a shelf life of 90-120 days. Finally,
consumers do notice a slightly different taste to ESL milk.
ultra high temperature (UHT), aseptic (sterile) processing
This taste difference becomes more pronounced with
and light block packaging create a shelf stable product
shelf stable aseptic products, especially as they move
with a shelf life that can range from 6 months to one year.
towards the end of their shelf life, which has historically
hindered consumer acceptance and therefore product
Longer shelf life products have important benefits for
development, according to Dr. Phillip Tong, Director
retailers. According to Jim Wegner, ESL milk allows for
of the Dairy Products Technology Center at California
slower turn or niche products to be more viable in the
Polytechnic State University. By moving aseptic milk
marketplace. Calcium enriched, lactose reduced, creamy
earlier in its shelf life to minimize this taste difference,
fat free and probiotic milk can all command shelf space
this can perhaps help transition people to the taste of
to meet specific consumer needs with less chance of
aseptic milk. Recent product innovations, however, are
spoilage. Club or mass retailers find single serve multihelping to reduce this aseptic taste barrier.
packs attractive; ESL provides for a more reliable quality
product from vending machines, and ESL has enabled
In aseptic products there’s been a renaissance for
Darigold to extend its market to include Alaska, Hawaii
flavored milk, as flavorings essentially mask the different
and military bases around the world. Even though the
taste issue. In fact, fluid milk sales are actually growing
more standard ESL products (e.g. 2 percent half gallon
for these and other specialty type products, although they
and flavored) are seeing growth, Darigold continues
currently make up a small percentage of overall sales
to seek ways to make the package and product more
(Figure 6). Chocolate has been at the core of this upturn,
convenient for the consumer. Additional opportunity
including DMI’s recent campaign highlighting milk’s
exists to move ESL into the gallon, as well.
benefits for post-workout recovery.
Other ESL products that are catering to consumer niches
In addition to the renewed popularity of flavored
include Boulder Brands’ Smart Balance™ line up of
milk, consumers (as well as retailers) are looking for
products. These generally cater to the health conscious
convenience, and single serve aseptic fits this bill.
or those with lifecycle needs as they include added
Although processors recommend aseptic products
calcium, omega-3s, plant sterols and lactose free options.
Trad White Gallon Trad White 1/2 Gallon Trad White Quart 6
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Figure 7: Fair Oaks Farm Brands Core Power
Product Line
the protein beverage market to be $500 million, and he
hopes Core Power can take a significant chunk of it. Core
Power is the initial Fair Oaks offering, but the five year
vision is to develop a complete line of Fair Oaks Farm
Brands dairy products and become “a leading health and
wellness company and the most trusted brand leader in
dairy nutrition.”
be served chilled, the shelf stable feature allows for
inexpensive and longer-term warehousing, shipping
and stocking.
Other milk based recovery beverages exist, such as
Darigold’s ESL Refuel™ and Safeway’s Lucerne brand
Protein +™. Oh Yeah!™ is another recent high protein
shelf stable entrant, and Shamrock Farms has developed
a full line of intense and muscle recovery products under
the Rockin’ Refuel™ brand. And of course, conventional
chocolate milk, on which the original workout recovery
research was based, fits this bill, as well.
hasn’t been ignored, however. National
Figure 8 Indulgence
brands Nesquik™ and Hershey’s™ (licensed by HP
A particularly interesting entrant in the refuel category
is the Fair Oaks Farm Brands’ aseptic product Core
Power™ (Figure 7). The ingredient list is relatively simple
and straightforward because the added protein that
is separated is kept in solution (versus dried and then
added), requiring less taste masking.
Originally test marketed in 2010 in Texas as Athlete’s
Honey Milk™, the Fair Oaks Farm membrane filtered high
protein product piqued Coca-Cola’s interest beginning
last year. By mid-2012 Coke took on distribution of the
product, and in December an equity agreement between
Select Milk Producers and Coke’s Venturing and Emerging
Brands created Fair Oaks Farm Brands, bringing Coke
into the dairy industry. (PepsiCo distributes ready to
drink Muscle Milk™, which contains dairy ingredients.)
Additional processing capacity is under construction in
Michigan, and what is currently 12-state availability is
moving towards nationwide distribution.
Clearly having the distribution reach of Coca-Cola is
powerful, but its consumer brand beverage marketing
expertise is a benefit, as well. In fact, Steve Jones,
Fair Oaks’ CEO, is a Coca-Cola marketing alumnus.
Mr. Jones identifies Core Power’s functional benefit
as “getting protein back in the body post-exertion to
rebuild strength,” and the emotional benefit as “you can
overcome the challenge.” In 2012 Mr. Jones estimated
Hood) as well as regional brands
such as Upstate Niagara’s
Figure 8: Upstate
Crave™, have come on to
Niagara’s “Candy Bar
the market (Figure 8). Mark
in a Bottle”
Serling, Senior Director of Sales
and Marketing for Upstate
Niagara, mentioned some of
the challenges of launching a
new consumer brand. “Crave
is intended to be more than
a chocolate milk beverage.
It’s an in-between meal snack
that is more of a food. It’s a
candy bar in a bottle, but the
consumer awareness has been
slower than forecast.” Their
approach to distribution has
included sports stadiums, mass
merchants, convenience stores and now traditional
retail; and the shelf stability is especially attractive to
food service, although the container and processing are
more expensive than traditional flavored milk for Upstate
Niagara. However, as retailers are still making more on
a bottle of soda, it’s an ongoing battle for shelf space,
according to Joe Duscher, Chief Operating Officer for
Upstate Niagara. Finally, it’s been hard to compete with
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Innovative products with
Nesquik, an established national consumer brand, which
has more recently entered the beverage space.
The other shelf stable dairy category that has surfaced in
recent months is meal replacement. One can find Cow
Wow™ cereal milk in Southern California (or shipped in
an 18-pack), but a bigger name just entered the space
in late-February. Kellogg’s rolled out its Breakfast to Go™
product, available in chocolate, strawberry and vanilla
shakes that nutritionally equate to a bowl of cereal with
milk. And General Mills is currently testing their BFast™
product in the Northeast. While the Kellogg’s product
may be found near the milk case at the convenience
store, General Mills and Kellogg’s are sending consumers
to the grocery store cereal aisle to find their new products
alongside Carnation’s (Nestlé’s) Breakfast Essentials™, a
similar product offering.
And then there’s the organic dairy market, where yearon-year sales were up 7.2 percent in January, 2013.17
One growing brand in this space is WhiteWave Foods’
Horizon™ milk. (WhiteWave is a recent spinoff from
Dean Foods.) Founded in 1991, Horizon is a recognized
and nationally distributed brand with friendly and colorful
packaging that serves this consumer segment. Horizon’s
half gallon product is its largest and has a conventional
shelf life, but much of what they sell and are recognized
for is their single serve shelf stable flavored and white
milk products. Horizon President Mike Ferry suggests
one of the main benefits of these milk boxes is
convenience. “They are easy to grab on the run and are
shelf stable, so they are great for lunch boxes and make
great snacks.”
Horizon’s most recent entrant is the DHA omega-3 single
serve milk boxes, which provide 32 mg of this sometimes
lacking nutrient.18 Horizon is the first on-the-go DHA
enriched organic product, and so far it has been well
received by retailers and consumers, according to the
company. Mike Ferry points out that the company uses a
plant versus fish-based source of DHA, which caters well
to the vegetarian segment of their consumer base.
Beyond ESL and shelf stable products, conventionally
pasteurized products are not to be taken for granted,
however, as new entrants and value added packaging
clear consumer benefits are
finding success.
continue to target consumer needs and interests. Prairie
Farms recently introduced Vanilla Almond Milk™.
Shamrock Farms has a Calcium Plus™ line of products
in a 96 ounce, easy to pour and store Smart Fit™ bottle.
HP Hood has also had significant success with its 96
ounce Lactaid™ (lactose-free) product. For their gallon
products, Hood has introduced a LightBlock Bottle™ to
help preserve freshness and nutrients that can degrade
as milk is exposed to ultraviolet light. Upstate Niagara
adds a white pigment to their resin (Light Block™)
for gallon and half gallon packaging to minimize this
problem. Additional packaging concepts in development
include 1¼ to 1½ gallon containers with a tapper
targeted to families so kids can get their own milk from
the refrigerator, and environmentally friendly bagged milk
that reduces packaging requirements.
If consumers could be made receptive, Dr. Tong also
suggests there may be a future in concentrated milk
products. “Sustainability, energy and packaging savings
resonate with many of today’s consumers. Providing a
3x, mix-at-home concentrate that could be reconstituted
like a juice could be a welcome product.” He suggests
the technical hurdles for creating this type of product
would be minimal as reverse osmosis or perhaps vacuum
evaporation technologies could be applied. Although
additional packaging innovation would be required, with
CO2 head space, concentrates could have an additional
30 days of shelf life; more easily move across country
and potentially enable some plant consolidation. The
Good Cow Company currently sells concentrates to
food service, but broader consumer applications are an
untapped opportunity.
One remaining targeted area for innovation is quenching
thirst. Although this is on the product development
radar screen, significant advances have yet to be
made. And consumer perceptions will remain at least a
moderate hurdle here, so success in this arena may be
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found through dairy ingredients as opposed to directly
through fluid milk.
Key takeaways from the innovation trends are that big
brands are seeing potential in dairy, and that innovative
products with clear consumer benefits are finding
success. Going it alone can work. Where strong brands
don’t already exist, new products (and brands) can be
built. However, partnerships or licensing agreements can
create opportunities, as well. Otherwise, companies can
extend their existing brands as Dean has done by moving
TruMoo™ into flavored single serve ESL and more
recently to shelf stable flavored single and multi-packs.
Bottom line, it appears that product innovation in the
dairy industry may be finding a foothold, but processors
need to continue to push the innovation envelope. Jim
Wegner says, “Consumers continue to look for something
that is new and interesting. Milk has to capture their
attention.” While processors face the expense and
logistic hurdles of transitioning to some of these newer
products and processes, it appears that opportunities are
surfacing in the marketplace that may help justify and
drive further investment.
What’s in a Message?
In today’s retail environment, brands rule. In fact, brands
have become so powerful that most private label food
products are now branded, including some private store
fluid milk products. Part of the challenge that has faced
fluid milk in this environment is its commodity versus
brand status with many consumers and retailers. In
addition to innovation in processing, packaging and
products, value can be created through the strength and
power of a brand, as well as through the message that
conveys the brand’s story. Suley Muratoglu suggests that
although it takes a long term perspective and requires
commitment to invest in resources and develop these
competencies, branding can bring products to life.
For example, in the Northeast where the local food
movement has taken hold and people yearn to have
more connection with those who produce their food,
Upstate Niagara has used the high impact TV medium
to emotionally bond with its customers. Their current
ad aims to connect the consumer with the farm family
while emphasizing the wholesomeness and purity of
their products. It’s a powerful message. In addition to TV,
Upstate Niagara does many grass roots activities, taking
trailers and games to activities, events and school sports.
Ultimately Upstate Niagara is working to add value to
milk, or essentially selling value in a beverage format.
And unlike the downtrends across the country, Upstate
Niagara has managed to maintain its branded fluid sales.
Across the country in the Northwest, Darigold reinforces
its brand by leveraging their Fresh Magazine to bolster
interest at home in milk not just as a beverage, but also
as a food. Recipes are included; ideas are sought and
shared. To increase interest in the food service side,
recipes from local chefs are featured as well. Traditional
advertising is also employed, but Fresh Magazine can now
be downloaded as a smartphone app. So if someone’s
shopping at the store and looking for meal ideas, Darigold
is just a touch away. Along with previously mentioned
innovation efforts, these promotional activities are helping
Darigold buck the national fluid milk sales downtrend.
One message that seems to have gotten lost, at least to
some extent, is the nutritional value of milk. Although
this isn’t one of the highest consumer needs, it can still
help to differentiate and provide a competitive advantage
for milk. For example, originally it was just milk that had
calcium. Then orange juice processors fortified their
product with calcium. What about the protein? Can your
juice do that? Perhaps milk’s value proposition can be
reinvigorated with the nutritional benefits – like protein –
that it can bring to the table.
In fact a recent IDFA MilkPEP webinar on breakfast at
home singled out orange juice as a competitive target.
Messages that worked in consumer testing include:
•
Competitive on nutrition versus orange juice
•
The nutrition profile
•
Super food/brain food
•
Building/maintaining muscles
•
Strong bones
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Figure 9: California Hispanic Ad Campaign
Fluid Milk Going Forward
They also noted that it’s key to give consumers the facts.
Ultimately, the strategy is to “fuel active, successful days
by starting every day with milk.” Jim Wegner suggests that
“if people forget the nutritional piece, milk loses value for
them.” Effectively communicating that value is essential.
Messaging opportunities exist for key demographics, as
well. For the after dinner occasion, a recent California
Milk Processor Board ad campaign encourages
Hispanics to “Sleep well, dream well, drink milk”
(Figure 9). And focus on maintaining lifestyle with
convenience for boomers as a part of healthy aging
should resonate. Finally, looking at opportunities to pair
milk (instead of water) with products like oatmeal with
point of purchase displays can get consumers thinking
differently about milk.
Many recent dairy innovations involve low volume,
niche or branded products that require high marketing
investments to compete effectively against other
beverage categories, and some have the added benefit
of providing higher margins to processors. Although on
the surface this may not be as appealing to producers
(who are keen to maximize volume), improved margins
enable processors to gain a better return on their overall
investment and therefore be better positioned to reinvest
in plants for mass and niche-produced products and
further product innovation. Additionally, stronger brands
built on niche or lower volume products may ultimately
help drive interest in milk and therefore commodityoriented product sales, which might get or keep more
people interested in milk.
In today’s dairy industry the decision is no longer whether
to make a change, but about what that change needs
to be and how to do it most efficiently and effectively.
There will be trials and errors, but learning, adapting and
investing (where appropriate returns can be realized) are
how processors are finding success in fluid milk. The
gallon jug, conventional pasteurization and traditional
message will continue to have an important role for the
American consumer, but innovations in product, process,
package, distribution and message will remain essential
as fluid milk continues its battle for share in the crowded
beverage market. It’s a tough fight, but stories like the
ones shared in this paper may help stem that long, slow
slide and hopefully turn the corner.
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References
USDA ERS, Fluid Milk Sales by Product. For the purposes of this report, fluid milk refers to all Class I dairy products
as defined by USDA. This does not include, for example kefir or drinkable yoghurts, which are Class II products.
1
2
USDA AMS, Milk Processor Education Program (MilkPEP)
3
Multpl.com, USDA ERS
4
USDA AMS, ERS
5
USDA for milk figures, BMC for all other beverage categories, Monitor Analysis
6
Kantar Worldpanel
7
Innova, Innovation Center for U.S. Dairy
Stewart, Hayden, Diansheng Dong, and Andrea Carlson, “Why Are Americans Consuming Less Fluid Milk? A Look at
Generational Differences in Intake Frequency,” ERR-149, USDA ERS, May 2013.
8
9
Kantar Worldpanel
10
Monitor Beverage Study, 2010
11
USDA ERS Food Expenditure Series
12
Kantar Worldpanel
13
USDA AMS, MilkPEP
14
Kantar Worldpanel
15
Monitor Beverage Study, 2010
According to WebMD, “coenzyme Q10 (CoQ10) is a substance similar to a vitamin. It is found in every cell of
the body. Your body makes CoQ10, and your cells use it to produce energy your body needs for cell growth and
maintenance. It also functions as an antioxidant, which protects the body from damage caused by harmful molecules.”
16
17
Daily Dairy Report, April 11, 2013
18
Docosahexaenoic Acid (DHA) is a necessary fatty acid that is good for a healthy diet. It is naturally found in fish.
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I want to extend a special thanks to those who were interviewed for this project.
I appreciate their willingness to share their insights and expertise. Thanks to Jim
Wegner, CEO Darigold, Ed Luongo, CFO, Joe Duscher, COO and Mark Serling,
Senior Director of Sales and Marketing for Upstate Niagara, Suley Muratoglu, Vice
President of Marketing and Product Management for the U.S. and Canada for
TetraPak, Mike Ferry, President Horizon Organic and Dr. Phillip Tong, Director of
the Dairy Products Technology Center at California Polytechnic State University.
Finally, thanks to Tom Gallagher, Leah Cook, Madlyn Daley and others from Dairy
Management, Inc. for their contributions and collaboration on this project.
CoBank’s Knowledge Exchange Division welcomes readers’ comments and suggestions.
Please send them to [email protected].
Disclaimer: The information contained in this report has been compiled from what CoBank regards as reliable sources but is provided for general
informational purposes only and is not advice. CoBank does not make any representation or warranty regarding the content, and disclaims any
responsibility for the information, materials, third-party opinions, and data included in this report. In no event will CoBank be liable for any decision
made or actions taken by the user while relying on information contained in this report.
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