GROCERY: Dairy: Milking it

CBS' "60 Minutes" correspondent Andy Rooney might want to check his facts before spouting off about the dairy industry. On the show's Nov. 6 telecast, the longtime curmudgeon took aim at milk producers, claiming that milk sales were off and the dairy industry was struggling to figure out why. He then lambasted the industry for selling products with too many added and artificial ingredients.

"My advice," quipped Rooney, "is if the dairy industry wants to sell more milk, they should concentrate on selling what comes out of the cow."

Well, Andy, retailers actually are selling plenty of what comes out of the cow. And while milk makes up a lot of that, much of the new product excitement infusing the dairy department is coming from nonmilk dairy products.

The fact is that total milk sales in 2004 increased 7.3 percent over the previous year, when there'd been a slight decline of 0.7 percent. And fresh milk, as of Jan. 1, 2005, was up 7.1 percent over the previous 52 weeks, according to ACNielsen.

Moreover, in late October the U.S. Department of Agriculture estimated that September milk production was 4.5 percent greater than in the same month last year. After virtually no growth in 2003 and 2004, milk production as of November 2005 was up 3.6 percent, according to Bob Yonkers, chief economist at the International Dairy Foods Association.

But Rooney's grumbling about additives, and the "half and half" he bought not really being half milk and half cream, no doubt resonates with many consumers, even as the traditional "wall of white" in the supermarket is being filled and refilled with colorfully and creatively packaged products ranging from yogurts to smoothies and convenience packs of cheeses. The merchandising of the nonmilk components along that once white wall is proving especially strategic, according to industry experts.

"Research has shown that consumers who purchase milk plus one more dairy department item tend to have higher total basket rings than consumers who purchase only milk on a shopping visit," explains Alan Hiebert, education information specialist at the International Dairy-Deli-Bakery Association (IDDBA).

"In light of that," continues Hiebert, "one-time commodity products like milk and cheddar cheese are differentiating themselves with colorful, functional packaging that adds convenience, with qualified health claims approved by federal regulatory agencies, or with additives that provide a healthful benefit."

According to the IDDBA's industry trends report, What's in Store 2006, three dairy department "megatrends" are driving the health-conscious and/or pleasure-seeking dairy case consumer: convenience/portability, health, and premium/self-indulgence.

"Products that can deliver on two or more of these drivers will be the winning ticket," notes the IDDBA report. There's certainly no lack of opportunity for products to make an impression in the department, since it's one of the biggest magnets for product introductions in the store.

"When it comes to portability, new product styles, and new flavor trends, refrigerated dairy department products set the pace," contends the IDDBA. The dairy department is "the second-leading department, next to bakery, for global new product launches." Suppliers fed the dairy pipeline with more than 7,250 new products last year alone.

Combining taste and nutrition

And the innovation has continued throughout this year. For example, Purchase, N.Y.-based PepsiCo, Inc. has just introduced a new line of flavored milk beverages called Quaker Milk Chillers. Made with 2 percent reduced-fat milk and fortified with calcium and seven essential vitamins, the beverages come in chocolate, strawberry, and vanilla. Rollout for the line coincided with back-to-school promotions, with product debuting in stores in the Northeast and mid-Atlantic regions during the second week of August.

"Many people want the health benefits of milk, but they don't like the taste of plain milk," says Chad Dick, director of marketing innovation at Pepsi-Cola North America. "Quaker Milk Chillers enable them to get many of milk's nutrients in the form of a great-tasting beverage without all of the calories and sugar found in most flavored milks."

In a similar vein, Bravo! Foods International has introduced Breakfast Blenders, a lactose-free flavored milk with added protein and fruit-based fiber and nutrients. At presstime the North Palm Beach, Fla.-based company was preparing a November rollout of the product.

Bravo! Foods currently markets a line of fortified milk drinks under the Slammers brand, distributed to retailers under an agreement with Coca-Cola Enterprises.

Hiebert of the IDDBA says the intersection of health concerns and the diary case is spawning additional opportunity for grocers.

"Both functional foods, which often have additives specifically meant to address a health issue, and organic/natural foods are more prevalent in the dairy department than in any other food department in the store," notes Hiebert. He predicts that dairy sales will grow as consumers become more interested in the impact that diet has on overall health; where their food comes from, leading to the growth of organic/natural products; and food allergies and other conditions such as lactose intolerance, which has increased the popularity of soy-based products and other nondairy refrigerated items.

What's more, the dairy case, in essence, can serve as a relatively wholesome refueling center. "Today's consumer lives both a physically and mentally demanding life," says Hiebert, "which has caused a fatigue epidemic in the United States. Many dairy case products are positioning themselves to help fight it."

High culture

Cultured products, for example, are often a good source of B vitamins and live and active cultures, which can help increase energy. Other products sold in the dairy case have added B vitamins, added caffeine, or other additives that can help boost vitality.

A little more than a year ago, the yogurt and overall cultured product categories appeared to be losing steam, with total sales slowing from 10.6 percent growth in 2002 to just 4.9 percent growth in 2003, as reported by ACNielsen. But sales for the 52 weeks ending Jan. 1, 2005 moved back up a healthy 5.7 percent over the previous year.

Moreover, consistent with the need for convenience combined with a good-for-you feel, sales of refrigerated yogurt shakes and drinks skyrocketed by 103.4 percent in 2003 and increased another 46.9 percent last year.

The new dietary guidelines from the federal government offer a big boost for dairy case sales. Among the guidelines are specific recommendations that, at the very least, retailers should be aware of, if not responding to directly through merchandising and promotional tactics:

-Include milk at meals, but choose fat-free or low-fat milk, and gradually switch from whole milk if you need to.

-Add fat-free or low-fat milk instead of water to oatmeal and hot cereals.

-Have fat-free or low-fat yogurt as a snack.

-Make a dip for fruits or vegetables from yogurt.

-Make fruit/yogurt smoothies in a blender.

-Top casseroles, soups, stews, or vegetables with shredded low-fat cheese.

-Top a baked potato with fat-free or low-fat yogurt.
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