Skimming The Surface

Innovation in flavor and function seems to be the best hope for moving more milk.

Few categories are as volatile — or as taken for granted — as milk.

The need for milk provokes many a trip to the supermarket, where the beverage competes for attention with flashier and better-financed options. Despite its nutritional bounty and new value-added products offering functional advantages, milk is viewed by most folks as a commodity — it had better be there for their cereal and cookies. And when the price goes up — the result of wild swings in the commodities market brought on by the high cost of feed or farmers' herd-culling tactics — grocers will hear about it from customers who just got a similar slap in the face at the gas station.

Meanwhile, conflicting nutritional studies send some consumers dashing out for soymilk, almond milk, rice milk and other alternatives.

As a result, growth in the "plain old milk" category is perennially flat or negative, though some specialty segments have experienced some action. Such is the ongoing challenge of marketing milk to a public that has increasingly shown the product's demand to be much more elastic than dairy processors and producers would like it to be.

"The trend continues with milk alternatives gaining ground against fluid milk," says Mike Malone, category manager at Tyler, Texas-based Brookshire Grocery Co., which operates 150 supermarkets in Texas, Louisiana and Arkansas. "Innovation and better flavor profiles have made it possible for milk alternatives to make their way into more households. Households are looking for better-for-you beverages that can take the place of the traditional breakfast drink. With the WIC changes now complete, 1 percent and 2 percent milk continue to show growth, while whole is showing a slight decline."

Total milk sales approached $10.8 billion for the year ending Nov. 27, 2010, at grocery stores with at least $2 million in sales (excluding supercenters), according to Schaumburg, Ill-based Nielsen. That's an increase of just 0.8 percent over the same period a year earlier, when dollar sales plummeted more than 15 percent vs. that period in 2008. Volume was down 4.1 percent, with nearly 4.2 billion units sold, the fourth consecutive year of volume decreases for that period.

The strongest milk segment is eggnog, shakes and drinks, which saw an 8.7 percent increase in dollar sales, to more than $626 million, for the year ending last Nov. 27, according to Nielsen data. Other specialty products also sold well, with the flavored milk/buttermilk and fresh cream segments seeing increases of 4.3 percent and 6.3 percent, respectively; these increases may be partly explained by the holiday baking season during this data reporting period. The fresh milk segment — encompassing standard offerings such as whole, skim and 2 percent milk — saw a sales drop of 0.3 percent.

Private label and store brands continue to be the clear leaders for 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," reports Chicago-based market research firm Mintel. "Plus, the ongoing recession forced 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."

Brookshire's — which has a captive milk-processing operation for private labels that are sold in its stores alongside major brands — employs a three-tiered approach to milk merchandising. "We offer our price-conscious shopper a competitively priced gallon of milk, followed by our own branded milk," Malone explains. "For the customers who are looking for a national brand, we offer that in all locations. We market our own brand by pushing its quality, that it's locally produced and that it's award-winning. We do not devalue our brand by getting into the price war with our own brand. We use our 'price-fighter' label to combat cheap pricing."

FDMx outlets are the retail channels of choice, accounting for 99 percent of sales, Minte reports, noting that natural food supermarkets' share has grown slightly but not enough to put a dent in the dominance of FDMx.

Mintel expects modest dollar sales gains during 2010-14, reaching $12.1 billion in 2014.

More Than Just Taste

Under attack by dietary watchdogs and on many school nutritionists' hit lists, whole milk accounts for about a quarter of all milk sales. While still enjoyed by consumers for its richer, creamier taste, whole milk is increasingly eclipsed by sales of skim and low-fat varieties, which have benefited from product innovation. Nearly two-thirds of the milk category's sales in FDMx are generated by refrigerated skim/low-fat milk, though its share is still down 0.4 points since 2007, according to Mintel.

Some producers are enhancing their milk to more closely resemble whole milk in taste, which may be affecting sales, Mintel reports. Brands like Over the Moon (sold by Dallas-based Dean Foods under several of its regional labels) and Smart Balance offer skim products that claim to deliver the creaminess and texture of whole milk, by replacing some of the water with additional milk solids. Functional benefits — such as omega-3s for heart health — add to milk's healthy product profile, and fortified milks are among the leaders in product introductions, with about 600 such products launched since 2004, according to Mintel's Global New Products Database.

Phoenix-based Shamrock Farms has introduced its Calcium Plus milk line that purports to provide 100 percent more calcium per 8-ounce serving than regular milk, along with nine essential nutrients. Shamrock Farms developed Calcium Plus to address the shortfall of many Americans' intake of key nutrients, including calcium, potassium and vitamin D. The product lunch coincides with the latest National Milk Mustache "got milk?" campaign that encourages families to "Pour One More."

"Extra calcium, combined with our 96-ounce Smart Fit bottle, provides moms with a great way to get their families the calcium they need," says Sandy Kelly, Shamrock Farms marketing director.

Lactose-free milk products are growing as well, along with an expanding section of substitute beverages made from soy, almonds and rice. "The trends seem to warrant additional space and SKUs on the milk alternative items," Brookshire's Malone observes. "This is being addressed with additional items and space in all stores."

Refrigerated flavored milk is the only major milk segment to have a higher share in 2009 compared with 2007, which could be down to all of the innovation taking place in the segment, Mintel speculates; its 393 product introductions between 2004 and 2010 exceeded all other segments in the same period. Among such products, the St. Paul, Minn.-based Kemps Select brand has seen its sales grow from $4.7 million to $10 million. Meanwhile, its Southern Comfort-branded eggnog enjoys sales in excess of $7 million.

Facing Facts

Of course, developing milk products attractive to supermarket shoppers is one thing; presenting them is another.

St. Louis-based Hussmann, a division of Ingersoll-Rand, developed its EcoVision doors for refrigerated dairy cases, which are traditionally open for greater shopper visibility but result in energy loss. EcoVision employs a unique French door design without a center mullion to allow easy access and clear visibility of products while contributing to energy savings of up to 65 percent. LED lighting allows for further energy savings, while motion dimmers — which kick the lights on as shoppers approach to grab a container of milk — can improve savings by more than 80 percent, Hussmann reports.

Another system aims to ensure milk is always at shoppers' fin- gertips. Front Up Rollers, or FUR, is designed to keep dairy cases constantly faced as product is removed, ensuring that cartons stay within reach and holes aren't mistaken for out-of-stocks.

"It's a bit crazy to think about how poorly some of the equipment currently works in market, and that both the retailers and shoppers have lived with this for so long," says Charles Somers, insights and development director for DisplayPlan, the Chicago-based division of Leggett & Platt Inc. and developer of the FUR system. When cases aren't faced, adds Somers, "[t]his affects shopability for the consumer. The average American woman is only 5-foot-4, so when the product gets stuck in the back, especially on the top shelf, it becomes unshoppable — not to mention the hours of labor that are spent fronting or rotating product on a solution that is supposed to do this task for the merchandiser. We truly believe that the FUR system will change and improve the way milk is merchandised."

While the system is in wide use overseas, it's just being introduced to the U.S. market. "Walgreens and Supervalu, along with ^ other regional grocery players, have rolled out FUR in all of the major beverage categories," Somers says. "FUR is currently under varying levels of rollout, testing, trial and consideration at nine of the top 30 North American food retailers. Giant Eagle and Safeway are currently testing FUR specifically for milk."

Somers says the self-cleaning system provides retailers with substantial labor reduction, rotation improvement, better reset efficiency and, ultimately, a sustained sales lift.

"Given the battle retailers have for same-store sales growth and shopper loyalty," Somers notes, "we believe a milk category that ranks second in sales and third in volume, and attributes 19 percent of grocery profits, is a pivotal category to have the most robust and functional system in place, and is of key importance to the grocery community."

Ultimately, anything that can be done to enhance shoppers' ability to buy milk is going to benefit all concerned: shoppers who can easily obtain the healthful products they want, suppliers who can move more of their innovative products as well as traditional staples, and retailers who can pull more folks into their stores with good products, great deals and a pleasant shopping experience.

"I believe it will be more important for us to have the ability to add space to the milk alternative section," Brookshire's Malone says. "If milk continues to be the competitive price driver, retailers must find ways to merchandise the milk case to encourage other purchases, while keeping enough space on fluid milk to eliminate out-of-stocks."

Smith's Holds Contest to Name its Chocolate Cow

Grocery shoppers in Ohio are already familiar with Dorothy D.,Twyla 2%, Wanda 1% and Sally Skim, but who's their sister bovine on bottles of chocolate milk from Smith Dairy?

The Orrville, Ohio-based dairy processor is sponsoring a contest to find a moniker for the nameless chocolate cow that graces Smith's 1% Lowfat Chocolate Milk.

"We decided a contest to name the newest addition to our milk herd would be fun for our customers and especially fun for kids," says Jerry Cosentino, Smith Dairy marketing service manager. "After all, how often does a child have an opportunity to name a chocolate cow?"

One grand-prize winner will receive 1 gallon of Smith's chocolate milk each week for a year, or can choose the cash equivalent of the prize. Entries will be accepted through May, and the winner will be selected on June 3.

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