By Sherry Bunting, Market Moos, Farmshine, Friday, February 28, 2020

Winter dairy conferences have been replete with talk of a changing dairy industry along with optimism about the future of innovation in dairy foods and beverages. If you’ve read the food and grocer trade magazines or watched the dairy case at supermarkets, the name of the game is new-new-new, everyone wants to put out something new. Some new products fly off the shelves, others not so much.

The big new non-dairy competitor in the milk case these days, for example, is oat beverage — and as the trade journals state, it’s a virtual explosion.

But dairy beverages are getting a makeover too in some quarters.

Meanwhile, we have retailers telling us that 95% of shoppers put a gallon or half gallon of real dairy milk in the cart.When asked what can be done to put more of those attention-getting nutrition tidbits on fancier milk labels, the answer inevitably is “there’s only so much real estate to work with on a gallon milk label,” or “we don’t change our gallon milk labels very often,” or “there are a lot of regulations about what we can and can’t put on a gallon milk label.”

Of course dairy producer audiences are always reminded that that The Milk is a low-margin product.

Put simply, this means the industry doesn’t want to do much with low-margin commoditized milk, they’d rather put their effort into high-margin products, which means new, different, adjusted, blended, extended, ultrafiltered and differentiated products for which they can charge more — all the while loss-leading The Milk right into low-margin or no-margin territory because 95% of shoppers put in their cart. Something is wrong with this picture.

When asking a retailer who spoke at a dairy conference recently in the Southeast if there’s anything that can be done to stop the ridiculous levels of loss-leading we see at stores (outside of Pennsylvania of course), his answer was a question: “How does that sell more milk?”

Explaining that the extreme loss-leading for real dairy milk ($1.50, $1.25, 99 cents/gal) pushes stress back through the supply-chain and conditions consumers to disrespect the most nutritious option — that admittedly most shoppers still put in their cart — my explanation was met with a shrug, and this reminder: “It’s got to be moved, and we eat the loss, and the only thing more expensive than selling milk cheap is throwing it away.”

Hmmmmm. Doesn’t the decision to do extreme loss-leading make The Milk an even lower-margin product?

By the looks of the whole milk shelves in supermarkets and convenience stores — more often than not these days — they’re understocked, hardly in danger of being overstocked, even in Pennsylvania where loss-leading is prohibited.

With all of these new and “high-margin” dairy case beverages and foods and blends and mixtures and substitutes competing for space, at least one retailer revealed that shelf space will begin becoming an issue.

There are opportunities for real whole dairy milk within this strange set of marketing circumstances. It is a curious fact that sectors with more variety — like today’s dairy case — do more in sales overall, but where is the respect for The Milk?

It becomes apparent why the gallon jug is both loved by retailers as the “get you in the store loss-leading staple with a high turnover (but shorter shelf life) ” and at the same time ignored precisely because it is the low-margin high-turnover product they say they don’t make money on taking up all of that space that could be used for high-margin products with longer shelf life and better return.

The answer lies somewhere in the middle of this scenario, and maybe it begins with a simple request of retailers and the dairy industy: please respect The Milk. If we don’t respect it, how can we expect consumers to respect it, desire it and want to pay what it is worth?

Single-serve 16 ouncers with pretty packaging, that’s one way to differentiate that so-called low-margin whole milk. Experiential flavors is another. Flavored milk is hot, growing by double digits year over year.

But gallons? For families? They are the shopper-draw that doesn’t “capture growth” … just captures customers through the doors where they can buy it cheap.

Processors and cooperatives that are innovating in the real fluid milk space have their work cut out for them when store-brands continue to loss-lead The Milk into a space of disrespect within a dairy case that is literally bursting at the seams with high-margin new products seeking to capture growth… after taking it away from The Milk that got the shoppers in the door.

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