Dairy Facing Higher Costs

Closer management of the dairy category will be crucial in 2011. According to the U.S. Dairy Association (USDA), dairy will be among the food groups with the highest price increases in 2011—4.5 to 5.5%—due to rising energy and cattle-feed costs.

While the industry has evolved, many chains, such as Byrne Dairy Co. in Syracuse, N.Y., still have their roots in the dairy business. Founded in 1933, Byrne has a loyal network of farmers in a 40-mile radius of its headquarters, and so is not as subject to commodity pressures as it could be. It delivers direct to retailers throughout New York state and New England, but the stores can be found only in New York.

Consumers know the name, and the cost-savings from the Byrne’s vertical flow from production to Byrne Dairy Stores make its products competitive on price. The company sells its own brick cheese and ice cream, but milk takes up the majority of the 15-20 cooler doors in a typical store, including four varieties of white milk in gallon containers and smaller, plus chocolate milk in half-gallons and smaller. It features “ultra” products—milk, cream and half-and-half that has 120-day shelf life because it is heated longer in production.

The chain’s dairy strategy is currently driven by its a loyalty program, with texts and discounts—a recent promotion awarded a gallon of milk or a half-gallon of ice cream each week for a year—and all stores sell gas. “It may be a forgotten category for some chains, but we are a destination for dairy products and have high expectations for the category in 2011,” said Tim Mody, Byrne’s director of sales.

2010 Share of Frozen Dessert Market by Product Volume

60.5% Regular ice cream
26.2% Low-fat and nonfat ice cream
4.9% Frozen yogart
3.9% Water ices
3.5% Sherbet
1.0% Other
Source: USDA, NATIONAL AGRICULTURAL STATISTICS SERVICE

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