the end of an era

Dairy Foods, Oct, 2001

Suiza Ascends to the Top, Even Without the Dean Acquisition

Each year the Dairy Foods staff works to bring you the Dairy 100(tm), one of our most ambitious and valuable annual features. This year we timed the presentation to coincide with the excitement of the Worldwide Food Expo. And this year's Dairy 100 adds to the excitement. There was a big change at the top of the table this year as Suiza Foods quietly reached the pinnacle. The Dairy 100(tm) is a snapshot of where the industry stood this year, and our analysis will help you understand how the picture developed. For that reason we are excited about this feature and hope you are too. And perhaps more than anything else we do throughout the year, the Dairy 100 relies on the cooperation of a broad spectrum of our readership. So we wish to thank those of you who were asked to take the time to respond to our survey. As always, we are open to your comments and suggestions. -David Phillips

If dairy processors are ever cognizant of a race for first place, of whose portfolio or whose sales are bigger, Suiza Foods Corp. has finally won the race. And it hasn't even employed its secret weapon.

Even without its pending acquisition of Dean Foods Co., Suiza stole first place from longtime front-runner Kraft Foods North America in this year's Dairy 100, our annual ranking of the largest dairy companies in the United States and Canada. Suiza did it during calendar year 2000 by recording its first full year of ownership of Southern Foods Group (itself a billion-dollar processor) and Valley of Virginia Cooperative.

When and if that blockbuster Suiza-Dean merger finally gets approved, the result will be an even bigger entity, at $10 billion (including some non-dairy foods) unassailably at the top of next year's Dairy 100. The new company will be called Dean Foods but will be headquartered in Dallas and with Gregg Engles taking over as chairman and CEO after only a few months with Howard Dean as chairman-maybe less if the anti-trust process continues to drag.

It will mark the end of an era in the dairy industry. Maybe the end of innocence, as they say. Sure, Dean was a publicly traded company, and even something of a diversified firm (it still has holdings in pickles, and its frozen vegetables business was jettisoned as recently as 1998). But there still was a guy named Dean in charge, grandson of the founder, and the second Howard Dean to run the company.

A similarly big deal happened earlier this year in Canada. The acquisition of Agrifoods International Cooperative by Saputo Group, completed Feb. 5, continues the foundational changes under way north of the border. It means the end of Canada's second largest cooperative; the diversification from a cheese-exclusive operation for an already US$1.2 billion company (Saputo); and a strong fluid milk base for a Canadian-based company that already is twice as big on the U.S. side of the 49th parallel. How long before some of that Great White North milk flows south?

For the past several years, these introductory stories to the Dairy 100 have talked about the consolidation going on the dairy industry. Last year, ironically, it predicted "Consolidation's Peak." Hardly.

But out of consolidation arises opportunity for some. As Southern Foods doubled its size in 1997 with the acquisition of numerous Borden properties, those plants that had to be divested for anti-trust reasons became Milk Products LLC. And when Suiza bought Adohr Farms in 1998, that freed the Adohr partners to create Stremick's Heritage Foods.

This year, even before the Justice Dept. and even Congress began eyeing the Suiza-Dean deal, the two partners announced they expected to be required to spin off certain dairies in areas where they were the only competitors. So out of the shadows of Suiza steps three names familiar to the dairy industry plus the world's largest dairy cooperative, which has a history of being a deal-maker. As National Dairy Holdings LP, they will buy the castoff Dean and Suiza properties as well as the Marigold and Crowley units of Wessanen USA and probably will debut in the top 15 of next year's Dairy 100 as a billion-dollar-plus sales organization (see related story).

Speaking of Kraft, the world's largest marketer of cheese pulled off two feats in the past year. Last December, while still wholly owned by Philip Morris Cos., it acquired Nabisco Holdings Corp. While not affecting the dairy world immediately, it does give Kraft some heavyweight brands (Snackwells, Nabisco, Oreo) that could just as well carry lactose as they do sucrose. Then, this past June, Kraft began a separation from the cigarette-making parent, putting 16% of the company in public hands in an initial public offering of stock. An interesting footnote is that Betsy Holden, head of the Kraft Cheese Div. 1995-1998 and well known to the dairy industry, is now co-chief executive of the whole company.

Some other interesting points from our table:

* Land O'Lakes stepped down one notch, having sold its fluid milk business to Dean back in June 2000; but the large co-op spent the year buttressing its cheese and butter businesses, where it now plans to focus. It also announced in August a planned four-way merger for one of its divisions that would increase its milk production capacity