Milk’s Bumpy Ride
In Mintel International’s new “Milk in the U.S.” report, senior analyst David Browne predicted a “bumpy ride” for the $11-billion milk market. Few categories, he noted, are as volatile as milk, which is reflected in the wild dollar sales swing during 2004-09.
“Volatility may return to the market in late 2010 as the USDA is expecting milk prices to go up because of a reduced milk supply, while others such as the Western United Dairymen, which represents farmers who produce about 60% of California’s milk, believe prices may decrease because the milk supply is larger than demand.”
Mintel christened private label/store brands “the clear leader for the major milk segments such as skim/lowfat, whole and flavored milk. The success of private label is helped by the fact that consumers view milk as a commodity product with negligible difference between store and name brands.”
Plus, the ongoing recession is forcing shoppers to cut corners wherever possible, which plays into private label’s strength as typically being the lowest priced option. “Private label organic milk is now readily available, which has caused prices on this type of milk to come down as well,” Browne concluded.
The cola wars are long over. These days, companies seem to be engaged in a series of battles involving food products that are meant to be perceived as healthier fare. The fights are being waged among competing brands in fast-growing categories like yogurts and milk products.
In fact, milk and other dairy products are coming very much to the fore nationwide as product diversity expands and parents look to stem the tide of childhood obesity. These are trends of which conveniences stores should take full advantage.
“I think the American family is not going to go to a convenience store to buy the majority of its milk and dairy products because they have to pay more,” said owner Charley Manino of three-store Dairy Del, a family-owned and -operated convenience store chain in Utica, N.Y., that also operates a dairy farm.
That said, a good dairy offering can serve as a potent point of differentiation for a store. “If you go into a lot of stores, it’s almost as if they’re clones,” Manino said. “They all have the same sizes of coffee, they’ve got the same routine things. It must work for them because they seem to be all on that same page.”
David Browne, a senior analyst with Chicago-based research firm Mintel International, said milk definitely shows growth potential.
“One of the things that became apparent is that household penetration on milk hasn’t changed in the last several years. It’s something around 96% of households use milk, so it’s clearly something all retail outlets that can sell grocery probably should sell,” said Browne, who authored Mintel’s “Milk in the U.S.” report.
Indeed, many large school districts across America have begun offering rice or soy milk, with nearly 17% of all school districts offering lactose-free milk. Beyond that, according to the Web site www.freshhealthyvending.com, 71% of milk served to students nationwide is flavored.
In New York City, for example, school food officials said that fat-free chocolate milk fills almost 60% of the 100 million cartons that are served each year, leaving plain milk at an all-time low 1%.
With the start of the current school year, students from the District of Columbia are only being served low-fat white milk. In Berkeley, Calif., schools prohibit chocolate milk in cafeterias, a decision Florida school officials are said to be mulling. These are trends c-stores should be watching closely.
Of the major milk segments, flavored milk was the only segment to show any share growth in 2009, according to Mintel, increasing by .6 percentage points to a 6.7% share with sales of $723 million. “This segment benefits from more innovation as the variety of flavors is almost unlimited,” Browne noted.
According to the Dairy Farmers of Washington, flavored milk varieties currently available include chocolate, strawberry, vanilla, banana, cappuccino and coffee, with even more exotic flavors being explored.
In few categories does the convenience factor come more into play than with milk and other dairy products. “Convenience,” Browne said, “remains a major driver for a lot of consumers. It comes down to the time the consumers have and don’t have, and that’s what drives them to c-stores to begin with. It is likely going to be the same motivator that will justify future purchases.”
Still a Core Product
It is and will remain necessary for convenience stores to carry milk and other dairy products, said Mintel’s Browne.
“Certainly they have to be very selective about the product mix. Maybe they’re not carrying gallons; maybe they’re only carrying half-gallons and smaller. Maybe they’re emphasizing single-serve, which is potentially a good move,” Browne said. “Parents are concerned about their kids drinking soda and other sweetened beverages, and there is definitely more of an awareness overall about the obesity issues that are going on. Single-serve milk being promoted by the dairy association as a more healthy option may resonate, to a degree, with some of these kids. And so selling those types of products is an outlet.”
Another potentially lucrative field for c-stores, according to Browne, is functional milk offerings—product that boasts added vitamins or other healthful ingredients. “It may even be packaged in a way that is attractive to a teenager,” he said.
Filling a Need
Dairy Del’s Manino said he considers it essential for dairy to fill a particular need in a given location. “If it’s a neighborhood store offering a little convenience, the guy is going to get that paper every day and his coffee and his lottery ticket and he might pick up a gallon of milk for his wife and kids for breakfast. I really believe it’s exactly what it says: it’s a convenience item.”
Location, Manino emphasized, is paramount because it plays into convenience. “It’s the same old story. You can be successful if you’ve got a good location,” he said. “But I don’t think operators are really into dairy products for the sake of the consumer. It’s like, ‘we have it, here it is.’”
Dairy Del came into being because the family processes its own milk. Its retail strategy is to keep prices as low as possible. “We want people to know our milk is the cheapest, and it’s good milk—and that it’s local milk. And it’s non-chemical. We’re into that heavy,” Manino said.
Those points serve as Dairy Del’s point of differentiation, something every retailer needs. “Stewart’s Ice Cream Shops now has its own thing with a milk club rewards program, which is a very good idea,” Manino added. “Anything that involves milk or dairy products is ultimately good for business. A lot of times c-store operators don’t really put emphasis on that, but they should.”