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Supermarket GROCERY Business: Got milk, need space

Moove over OJ, blended juices, iced teas, lemonade, and all you other beverages that have been crowding the dairy case; you're getting some serious competition from an old nemesis—milk.

Milk processors are working hard to keep the category from going sour. They're inventing new package sizes—look for three-quarter-gallon jugs on store shelves this year—new flavors like root beer and Creamsicle, and even new uses, like licuados (see sidebar). Throw in the Got Milk? and Milk Mustache ad campaigns, and the results are paying off. According to the Wisconsin Milk Marketing Board, flavored milks are credited with the first rise in consumption among teenagers in six years. In 2001, milk consumption by teens reached 22 gallons per capita, a 3 percent gain from 2000.

The average teenager still consumes some 868 cans of soft drinks annually, but it is a start, and the industry views the increase as significant because teens' milk consumption had been declining for two decades. Even the much-maligned whole milk is seeing an uptick in sales.

"We're seeing lots of new varieties of flavored milks," says Dave Bavrnk, v.p., marketing, fluid & related products at the Madison-based Wisconsin Milk Marketing Board. "One of the secrets to berry, Creamsicle, root beer, and other flavored milks is to try and make milk something the consumer can equate with a different experience, like a root beer float."

"Line extensions and lifestyle targeting are the latest tactics for selling milk," notes Carol Christison, executive director of the International Dairy-Deli-Bakery Association, also in Madison. "Lifestyle targeting is pretty much age- and/or activity-specific. Portability and convenient packaging are really expanding the category, too."

The amount of shelf space retailers allot to milk has not been increasing. If anything, it is being squeezed by the expansion of chilled juices, drinks, and soymilks. "The size of the milk case hasn't changed, but the number of products crammed into it has increased dramatically," Christison says. "The dairy department is pretty much a destination location for most supermarket shoppers. But that means retailers are struggling with how to merchandise it so that these shoppers will find the products they want quickly and conveniently." She says retailers accomplish this through various means, including stocking fewer commodity sizes and more specialty products, using large, gravity-fed roll-in merchandiser cases, or simply keeping smaller quantities of everything in the case and restocking more frequently.

"Retailers are now creating separate sections for specialty milks—the lactose-free, soymilks, etc.—along with separate sections for flavored and single-serve milks," says Clay Boatright, v.p., trade marketing at Dean Foods' Dean Dairy Group division in Dallas. Dean is by far the largest milk supplier in the U.S., marketing 30 percent of the nation's supply through regional brands that include Tuscan, Lehigh Valley, Dean, Garelick Farms, Meadow Gold, Borden, TG Lee, and Mayfield.

"You're starting to see retailers merchandise milk elsewhere in the store, like single-serve sections in the deli section," Boatright says. "Some retailers are creating fast-lane aisles where they will have a cooler with milk at the checkout along with other refrigerated fast-movers, like eggs."

Milk and cookies

Retailers should also look at merchandising milk in the bakery department, suggests Bavrnk. "My kids would always get a free cookie when they went to the store. They are young adults now, and till this day they still remember that," he says. "This is a great opportunity for milk. The bakery is the perfect place for it, especially with the tradition of having a glass of milk to go with something sweet."

Another up and coming way to merchandise milk is through vending machines. "Research suggests that vending machines are a tremendous way to sell flavored milk," says Jeff Manning, executive director of the California Milk Processor Board in Berkeley. "You can get a lot more innovative in vending because you are not stocking huge amounts, and there is a fairly high turn."

Manning says high turns are behind the scarcity of flavored milks on the supermarket shelf. He thinks they are more suited to delis, convenience stores, and lunch trucks. "With flavors, the issue is that the retailer needs a certain amount of volume to justify the shelf space. If someone wants to buy a root beer milk off of a lunch truck, that's fine, but for Safeway to give it five facings it better move a lot of product," he says.

"Clearly chocolate is still the No. 1 flavored milk, followed by strawberry," says Boatright. Dean's sister company, Dallas-based Morningstar, markets the Hershey line of flavored milks under a licensing agreement with Hershey Foods Corp. "Morningstar has done an absolutely terrific job, not only with the basic milk business, but also with the introduction of Hershey MilkShakes, which have been very successful," says Rick Ruskin, manager of licensing at Hershey Foods in Hershey, Pa. MilkShakes are available in chocolate and cookies & cream, with a vanilla cream variety being introduced early this year.

Another fast-growing segment is organic milk. That market is dominated by the Horizon Organic and Organic Valley brands. "Space in the dairy set is always at a premium, but retailers recognize that the organic customer is a very important and valuable consumer for them to have in their stores," says Laura Coblenz, director of marketing at Boulder, Colo.-based Horizon Organic. Space is also at a premium in many home refrigerators, which is why Horizon Organic is testing a 96-ounce (three-quarter-gallon) plastic jug in the New York/New Jersey market. "For a family, a half-gallon is not enough, and a gallon is a lot of milk," Coblenz says. "Our 96-ounce fits on the door and has a good, ergonomic handle. We're testing it in New York, and if it's successful we'll take it nationwide."

Sales are also being aided by snazzy packaging, especially when it comes to single-serve flavored milks. "The processors seem much more interested in making the product, especially the plastic single-serve and quarts, just a lot more interesting," Manning says. "There is some licensing going on with some Looney Tunes characters."

Soymilk surge

But for the lactose intolerant, drinking milk can be analogous to getting hit on the head with an Acme anvil. "A lot of people, especially blacks, Asians, and Hispanics, have trouble breaking down milk sugar. Soymilk fits the bill for them," says Timothy Redmond, v.p., sales and marketing at American Soy Products in Saline, Mich.

"Many of these demographic groups are shopping the juice aisle now, and in order to shop the dairy aisle they either have to buy a lactose-free dairy product or soymilk," says James R. Walker, regional sales manager at Jasper Products in Monroe, N.Y. Walker points out that soymilk is also rich in isoflavons, compounds that metabolize and increase estrogen levels in women. "Most people who use soymilk are women over 40, but that percentage is declining because more men and younger people are using it," he says. Most soymilk is still sold in shelf-stable aseptic packages, but that is changing and it has become a major presence in the dairy case.

"Nobody buys soymilk on impulse," Walker says. "They buy it because somebody told them to—their doctor, uncle, or next-door neighbor. When people walk into a grocery store and ask themselves where they are going to find soymilk, they try the dairy case first."

Refrigerated soymilk was originated six years ago by White Wave, the Boulder, Colo. manufacturer of the Silk brand. It's packaged in a familiar gable-top paperboard carton. "Soymilk was mispositioned in the retail environment," says James Terman, White Wave's v.p., pictures & words. "Americans are not used to drinking dairy beverages or dairy alternatives in an aseptic package. We wanted to come out with something fresh in a familiar package."

Silk is available in vanilla, chocolate, and plain flavors. "Vanilla is still the leader, but plain is right on its heels, which tells us that people are moving to not needing the extra flavors to enjoy it on their cereal," Terman says.

On the opposite end of the spectrum, whole milk is making a comeback in some markets. "In California we've seen a big surge in whole milk," says Manning. "I don't really know why, but we do know that Hispanics love whole milk and are a little bit less concerned about fat and cholesterol."

Or perhaps consumers just want to make a richer-tasting batch of My-T-Fine pudding.
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