The most cutting-edge beverage around these days may not be a high-octane energy drink or a bottled water with a hint of fruit flavor, but a glass of milk. A perennial staple of the typical shopping basket, milk is currently experiencing double-digit growth in the organic segment, benefiting category performance across retail channels.

Although organic milk has traditionally made up just 2.5 percent of total dairy sales, dollar sales of gallons, half-gallons, and quarts of organic milk in natural supermarkets and conventional food, drug, and mass merchandiser stores for the 52-week period ending Nov. 3, 2007 increased by 13.5 percent, 13.2 percent, and 12.2 percent, respectively, according to SPINS, a market research and consulting firm for the natural products industry.

Similarly, Nielsen LabelTrends found that refrigerated organic milk sold in food, drug, and mass outlets for the 52-week period ended Oct. 6, 2007 increased 20.4 percent, on top of a whopping 32.3 percent surge last year, while during the same period, unit volume grew 18.5 percent, after jumping 23.8 percent in 2006.

What's behind this impressive performance? "Consumers gravitate toward organic milk primarily because of its perceived health benefits, as it is produced without the use of synthetic pesticides, growth hormones, or antibiotics," says Sonja Tuitele, spokeswoman for Boulder, Colo.-based Aurora Organic Dairy, a leading provider of private label milk. "The fast-growing nature of organic dairy, its widespread consumption among the mainstream population, and the fact that consumption of dairy products is higher among children have led to increased interest and high consumer adoption rates relative to other organic categories."

Theresa Marquez, chief marketing executive at La Forge, Wis.-based Organic Valley Family of Farms and a 30-year veteran of the organic food industry, points to shoppers' "erosion of confidence" in government agencies FDA and USDA to enforce food safety in the wake of highly publicized food recalls of such items as bagged spinach and frozen ground beef as a key reason for the recent prevalence of organics -- including milk -- along with a rising consumer preference for foods produced and transported without damaging the environment.

Another reason for organic milk's current popularity has to do with price evolution. "A few years ago conventional milk costs began to increase, reducing the price difference between conventional and organic options, which made organic milk more affordable for consumers," explains Stephanie Steiner, grocery merchandiser at PCC Natural Markets, a Seattle-based retail cooperative of eight stores (a ninth is due to open midyear). "In addition, demand for organic dairy is exceeding supply, which has led to higher retails, and, accordingly, to more media attention."

All of the milk producers contacted for this article said that their business has generally kept pace with the growth in the organic dairy segment.

Do it yourself

With all of this interest in organic milk, it’s no wonder that major retailers such as Cincinnati-based Kroger and Issaquah, Wash.-based Costco (the latter supplied by Aurora) have come out with private label lines. But is such a move right for all grocers?

"Retailers who are interested in entering the organic market develop a private label organic milk program as one of their first products because of its wide acceptance among mainstream shoppers and double-digit growth rates," notes Aurora's Tuitele. "If retailers haven't yet developed a store-brand organic milk program, now is an excellent time because, unlike two years ago, when supply was an issue, there's currently [an] ample supply of organic milk on the market, because more dairy farmers have converted to organic in the last year than ever before to take advantage of a rule change in the National Organic Program. This oversupply has kept pricing down for retailers while the organic milk market continues to experience dramatic revenue growth."

Kroger, which operates 15 dairies and three ice cream plants, has been particularly busy this past year, expanding its line of private label organics under the Private Selection brand, which includes milk. The grocer also offers organic milk under the Naturally Preferred brand.

As well as organic, Kroger has addressed other consumer health issues by introducing cholesterol-reducing fat-free milk under the Active Lifestyle in-house brand and pledging to sell only milk certified as being free of the synthetic hormone recombinant bovine somatropin (rBST) in all of its Midwest and Southeast banner stores by next month. The grocer had already transitioned the milk it sells in the western United States to a certified rBST-free supply early last year.

PCC Natural Markets undertook to eliminate the artificial hormone, also known as rBGH, from all of its dairy products. According to Steiner, "PCC’s commitment to ongoing improvement of our product offerings, especially in light of growing evidence of health risks associated with the use of artificial hormones, was behind [our] decision to ban dairy products produced with rBGH, including liquid milk, yogurt, sour cream, butter, cheese, ice cream, and kefir. The transition to rBGH-free fresh dairy began several years ago, and as of April [2007] PCC announced that all of its dairy products are rBGH-free. Customer response has been overwhelmingly positive."

Steiner added that the co-op was planning a private label milk program for the near future, but declined to give specifics.

Kroger's cholesterol-lowering milk contains CoroWise plant sterols, an all-natural ingredient sourced from plants and found in such foods as vegetables, seeds, and nuts. Two eight-ounce servings of the milk, when consumed with meals, provide the minimum daily amount recognized by FDA as providing a heart-healthy benefit, as part of a diet low in saturated fat and cholesterol.

"For people with borderline-high blood cholesterol levels, this can potentially help them to get to the normal range and potentially avoid medication," notes Kroger v.p. of corporate brands Linda Severin. "For others, it is one way to shave off points for better heart health -- and we know every point counts."

The half-gallon carton is available at a price point comparable to Kroger’s other regular milk varieties, according to the retailer.

Of course, organic branded manufacturers have been offering innovative products as well, such as fortified milks.

"Our biggest launch this year was Horizon Organic Milk Plus DHA omega-3, fortified with an essential fatty acid studied for its positive role in brain, eye, and heart health," says Sara Loveday, spokeswoman at Broomfield, Colo.-based WhiteWave Foods, which produces the brand. "Horizon Organic launched this product both in response to consumer demand for functional foods and for its commitment to offering nutritious products to health-conscious consumers and their families. Since DHA is particularly important in perinatal health and child development, this is a product that parents can feel especially good about giving to their children."

In fact, notes Loveday, Horizon Organic was the first nationally available organic milk to be fortified with DHA omega-3.

In line with appealing to dairy's most frequent consumers are child-oriented packaging and flavors. "[B]ecause milk and dairy products are a staple in children's diets, and many parents choose organic milk for their kids as a gateway to greater organic food consumption, products and packaging that are kid-friendly, like single-serve flavored milks, are always in demand and on trend with what consumers want from the dairy case," notes Aurora's Tuitele.

Organic Valley's Marquez notes that among the company’s new and upcoming products is lactose-free milk in a shelf-stable liter-sized package, due early this year, as well as single-serve vanilla- and strawberry-flavored milk varieties. She adds that shelf-stable packaging will gain in popularity as milk producers expand their export markets and consumers respond positively to the greater convenience, longer shelf life (three to four months), and higher energy efficiency of such containers.

The local advantage

The recent explosion of interest in local foods has naturally enough extended to milk. For organic milk producers, many of which depend on local family farms for their supply, that interest is far more than academic.

"As a national organic brand, Horizon Organic partners with 425 family farms in 22 states, from Maine to California, to produce its organic milk supply," says WhiteWave’s Loveday. "Family farms…represent about 80 percent of its milk supply. As such, the local identities of the farms behind our milk are extremely important to us."

"Consumers today more than ever have an interest in where their food comes from, how it is produced, and they want to know that it was minimally processed with the fewest unnecessary additives as possible," observes Tuitele at Aurora. "In addition to the obvious food safety concerns, consumers want to know that companies are being stewards to the environment in every aspect of their operation. We are embarking on study with the University of Michigan to measure our total carbon footprint so that we can reduce our impact on global warming, with an end goal of being carbon-neutral. For example, this includes the benefit of having our farms close to organic feed sources for our cattle, which can be a huge cost in freight and subsequent expenditure of CO2 emissions for any dairy farm."

Notes PCC's Steiner: "Emphasis on -- and support of -- local food production is not an aspect [of our business], but a commitment. This isn't just part of what we do, it is part of who we are. We have strong relationships with our local producers that help us to assure our shoppers that they're being offered the freshest, safest, most delicious dairy products available….Where all other factors are equal, local always wins."

What seems clear is that organic milk is on upward growth trajectory, and that in addition to the organic alternative, producers and retailers will keep figuring out ways to offer the classic beverage in better-for-you, environmentally sustainable, and convenient forms. Additionally, more organic milk also means more organic dairy products of all kinds. As Loveday of WhiteWave notes, "[A] bolstered supply of organic milk will allow for increased organic dairy items ranging from functional beverages to cheese, yogurt, and ice cream."

A case against organic milk

The milk category, one of the vanguards in the mainstreaming of organics, could also be shaping up as the stage for a face-off between forces for and against "big-business" organic production.

As of December 2007, five lawsuits have been filed, against retailers Wal-Mart, Costco, Target, Safeway, and Wild Oats, alleging consumer fraud for marketing suspect organic milk. All of the grocers named in the suits sell private label organic milk supplied by Boulder, Colo.-based Aurora Organic Dairy.

The legal filings in federal courts in Seattle, Denver, and Minneapolis, which seek class action status on behalf of people who purchased the milk, and request their money back in addition to punitive damages and attorney fees, came in the wake of at least eight class actions filed against Aurora by law firms representing plaintiffs in over 30 states, alleging consumer fraud, negligence, and unjust enrichment regarding the sales of organic milk.

An investigation of Aurora’s practices by the USDA Agricultural Marketing Service (AMS) led last year to the parties signing a consent agreement, under which the dairy agreed to make changes at some of its facilities, including, at its Platteville, Colo. location, providing daily access to pasture during the growing season and acknowledging that lactation isn't a reason to deny access to pasture, reducing the number of cows to a level consistent with available pasture with agreed maximum stocking densities, eliminating improperly transitioned cows from its herd and not marketing those cows' milk as organic, and agreeing to use the more stringent transition process in the National Organic Program (NOP) regulations for animals added to its dairy herd.

Another facility, in Dublin, Texas, was singled out for inconsistencies between its operations and NOP regulations regarding improper transitioning of animals and failure to keep records, and both the Dublin and Platteville locations were required under the agreement to file new organic systems plans addressing the problems uncovered by the AMS. Aurora additionally agreed not to renew the organic certification for a third facility, in Woodward, Colo.

The agreement also bound the dairy to a one-year probationary review period under the watchful eye of the AMS.

The battle lines are clearly drawn.

"This is the largest scandal in the history of the organic industry," says Mark Kastel of The Cornucopia Institute, a Wisconsin-based farm policy research group that in 2005 filed the complaint leading to the USDA probe. Kastel has been quoted in the media as referring to the department's consent agreement with Aurora as a "sweetheart deal."

"We are confident these lawsuits are without merit, because our consent agreement with USDA confirmed that our organic certifications have always been, and continue to be, valid," notes Aurora spokeswoman Sonja Tuitele. "Therefore, our milk has always been, and continues to be, certified organic, and allegations to the contrary are false."

Tuitele characterizes the legal actions as "the latest in a series of copycat lawsuits inspired by the false claims of 'activist' groups engaged in a smear campaign against large-scale organic producers." The ultimate reason for such a campaign, according to Tuitele, is "to limit the supply of organic milk and drive up the price paid by American families. This…would harm consumers and slow the spread of organic agriculture."

In response to allegations of conditions at Aurora, Tuitele responds: "Not only are our farms and facilities audited by UDSA-accredited certifiers, but our customers are the largest retailers in America. As a result we are under a tremendous amount of scrutiny, and we have put many practices into place that go beyond organic regulations, such as our third-party animal welfare audits, our use of renewable energy, and our animal care and health standards."

Tuitele adds the changes at the Platteville are unrelated to activist allegations, pointing out that renovations at the facility, among them razing several buildings to increase pasturage, reducing the size of the herd, and increasing research activities, have been "in the works for the last 18 months and will be complete in the spring of 2008."

Merchandising milk

When it comes to making sure that organic milk sells briskly, shopper education is perhaps the most important strategy.

"The best way to merchandise and market any milk in the dairy case is to explain the benefits of that product to your consumers through point-of-purchase materials and side-panel information right on the milk carton," attests Sonja Tuitele, spokeswoman for Aurora Organic Dairy, a Boulder, Colo.-based producer of private label milk. "Consumers have a thirst for information about the products they purchase, where they come from, and who produced that product. For organic milk specifically, consumers want to know that it came from cows that weren't given antibiotics or synthetic growth hormones, that pesticides weren't used in the feed, and that the animals are treated humanely."

In the case of private label, adds Tuitele, "it's no different. The benefit of private label organic milk for consumers is a store brand will have superior quality and taste, but come at a more affordable price because that product doesn't rely on marketing to build its brand. This encourages trial and helps to expand the overall market for organic milk….We work with our retail customers to participate in their store-level demo programs, and when consumers taste the quality of their store-brand organic milk, it’s one of the best ways to convert conventional milk drinkers to organic."

According to Theresa Marquez, chief marketing executive at La Forge, Wis.-based Organic Valley Family of Farms, cartons, informational signage, and posters can be employed in or near the dairy case to introduce consumers to the area farmers who actually supply the milk, sending a "powerful message" that the product is made by "real people," not a faceless factory farm.

Thanks to such merchandising tactics as "clear signage" and "information features in our print media," shoppers at Seattle-based PCC Natural Markets "overall make well-informed selections" in the milk category, as well as throughout the store, notes grocery merchandiser Stephanie Steiner.

Niche markets for milk

Do your shoppers frequently request raw milk? How about nonhomogenized milk products? Don't be surprised if these relatively small niche markets gain a higher profile as consumers continue to look for what they believe to be the purest, most minimally processed milk available.

Theresa Marquez, chief marketing executive at La Forge, Wis.-based Organic Valley Family of Farms, refers to the raw milk market as a sort of "underground" movement, whose adherents believe that the pasteurization process kills the enzymes necessary for properly digesting milk. Many raw milk proponents prefer the milk of cows fed on organic grass, which leads to increased levels of a beneficial fatty acid called conjugated linoleic acid (CLA) in the milk.

Drinking raw milk carries risks, however. It can potentially contain such dangerous bacteria as listeria, salmonella, E. coli, or campylobacter. Most states have some restrictions governing the sale of raw milk products.

Nonhomogenized milk, in which the cream rises to the top, is likewise believed by those who prefer it to be easier for lactose-intolerant individuals to digest, explains Marquez. It's also said to have a sweeter taste than its homogenized counterpart. One thing to keep in mind: all raw milk is nonhomogenized, but not all nonhomogenized milk is "raw," i.e. unpasteurized.

While neither segment is set to take off into the stratosphere, Marquez believes that they will endure and even grow, while once-niche markets like organic milk become decidedly mainstream.

Kraft 2% Milk cheese SKUs to go rbST-free

Northfield, Ill.-based Kraft Foods will produce its Kraft Natural Cheese Made with 2% Milk and Kraft 2% Milk Singles in the United States with milk certified from cows not treated with recombinant bovine somatotropin (rbST). The company’s decision to offer the 30 to 40 converted SKUs came about as a way to offer an option for consumers who have expressed concerns about eating dairy products from cows treated with the synthetic hormone, which is administered to supplement naturally occurring bovine somatotropin and enhance milk production.

"We need to keep finding ways to ensure our products are relevant to consumers' lives and interests," notes Kirsten Lynch, v.p. of marketing for Kraft's cheese & dairy sector. "We see an opportunity to appeal to current consumers and attract new users to the category through the conversion of our…line of 2% Milk cheeses."

Kraft chose the reduced-fat line for conversion because it includes popular flavors as well as such briskly selling forms as shreds, snacking sticks, and sandwich slices.

The new SKUs will be available in supermarket dairy cases across the country by the end of 2008's second quarter.

Buyers Alert: Dairy beverages

The choices have never been greater in the dairy beverage category as manufacturers embrace such features as ethnic flavors, probiotics, all-natural ingredients, and fewer calories augmented by higher protein and fiber content.

LightFull Foods

Mango Oasis Satiety Smoothie: Like its four fellow varieties in the San Francisco-based company's line of Satiety Smoothies, Mango Oasis is packed with fiber and protein (five grams each), making the all-natural, 90-calorie snack surprisingly filling. Additionally, the entire product line now comes in portable, more convenient bottles with resealable caps, and is scheduled to be certified kosher dairy by spring 2008.

Suggested retail price: $2.19 to $2.79 per 8.25-fluid-ounce bottle

Available since: October 2007

For more information: www.LightFullFoods.com

SolMaya Brands

Latin American dairy beverage line: Consisting of four ready-to-drink varieties -- Mexican Style Horchata, Horchata Sabor de Morro, Morir Sonando/Orange Jubilee, and Avena/Oatmeal Shake -- New York-based SolMaya Brands' new line brings Latin American flair to the dairy beverage category. Made from natural, authentic ingredients, the products combine nostalgic drink recipes with modern shelf-stable packaging.

Suggested retail prices: $1.39 per 11-ounce can; $1.69 per 9.5-ounce bottle

Available since: December 2007

For more information: www.solmayabrands.com

Yakult U.S.A.

Yakult: Developed in Japan in the 1930s to promote longevity, each bottle of citrus-flavored Yakult contains 50 calories, no fat, no cholesterol, and an impressive 8 billion Lactobacillus casei Shirota -- a probiotic exclusive to the beverage that helps balance the digestive system and support immune functioning. The unique, architect-designed bottle keeps the product cool during shipping and is comfortable to hold, according to the Torrance, Calif.-based company.

Suggested retail prices: $2.99 per five-pack of 2.7-ounce bottles

Available since: October 2007 in general markets and major supermarket chains in California, in addition to Asian and Hispanic markets

For more information: www.yakultusa.com
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