Changing channels

Dairy Field, Aug 2003 by Cook, Julie

As an increasing number of milk sales take place outside the supermarket, processors find they need to think more like marketers.

For decades, milk processors watched helplessly as sodas, juices and other beverages stole their share of stomach. Soda machines cropped up in every office building, hospital and shopping mall, and "Coke or Pepsi?" became the principal question of the casual dining experience, while milk was usually relegated to a one-line mention on the back of the menu. Even schools, where milk had long held a treasured spot on every child's lunch tray, became fair game for soda marketers.

The milk industry could have easily developed an inferiority complex, as soda seemingly usurped its position as the all-American beverage. Processors have proven they're not about to give up without a fight, however, and in recent years, they've hit back hard, unleashing a bevy of product and packaging improvements, all the way slowly making their way into the venues where soft drinks have long reigned supreme.

At first blush, data from Chicago-based Information Resources Inc. (IRI) wouldn't suggest that milk has made much headway. During the 52-week period ending April 20, 2003, sales of whole milk declined by 4.2 percent in dollars, but rose 0.1 percent in units in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart. Skim/lowfat milk fared even worse, falling 4.4 and 0.9 percent, respectively. The only growth came in the flavored milk arena, where sales rose 3.1 percent in dollars and 2.5 percent in units.

However, industry groups argue that IRI data is not truly representative of milk's actual performance because it fails to take into account the so-called alternate channels - convenience stores, Wal-Mart Supercenters, vending and the like - where an increasing number of milk sales are taking place.

"The IRI numbers are somewhat misleading in that they do not reflect the shift of the core business out of grocery stores and into alternate channels," remarks Tom Nagle, vice president of marketing, International Dairy Foods Association (IDFA), Washington, D.C. "What we have seen in our multi-channel outlook study every year is a continuing shift out of traditional grocery stores into the alternate food store format."

Seeking to make her organization's members aware of emerging opportunities, Molly Murphy, marketing director for Quality Chek'd Dairy Association, Naperville, Ill., has identified "dollar stores" as an up-and-coming trend. Because such a vast number of people shop in these stores, Murphy has included information on them in e-mail news flashes she sends out to Quality Chek'd's members.

"Minor as their impact may be today, I think they are a contender," reveals Murphy. "I would think if you jumped on board early with this type of venue, you could build some loyalty."

Convenience stores emerged as a primary focus of the milk industry several years ago, as processors sought to encourage consumers to grab a cold single-serve bottle of milk while stopping off for gas or a quick snack. Some processors, such as Portland, Maine-based Oakhurst Dairy, report great success in C-stores. Because the average convenience store customer tends to be male, chocolate and whole milk have fared especially well for Oakhurst in this venue, according to Ed Stadolnik, vice president of sales and marketing. Consequently, he believes his company has succeeded in taking share away from carbonated beverages, which in turn, has earned Oakhurst the respect of convenience store operators. "When the convenience store chains do the category analysis, we are shown to be very profitable for them versus the old line beverage companies, the carbonated beverage companies," he explains. "Therefore, they are giving us a significant amount of space in their stores."

Other processors, such as Phoenix-based Shamrock Farms, speak enthusiastically about the kind of results that have been achieved through the impulse purchase-oriented C-store channel. These days, however, some in the industry have begun to consider such venues old hat. "Milk has been there for a while," says Craig Plymesser, vice president of market planning and implementation, Dairy Management Inc. (DMI), Rosemont, Ill. "They're doing OK, but it's really the Kmarts, the Costcos, the Wal-Marts those types of places, where it's new to people coming in."

Building the Brand

Indeed, as a growing number of mass merchandisers equip their stores with coolers and a full complement of food and beverage choices, milk processors have identified the brightly lit, discount-priced venues as a prime opportunity for increasing sales. Today's time-pressed consumers want to make as few stops as possible, leading them to pick up groceries while shopping for clothes, personal products or household goods. As a result, mass merchandisers seek to have available just about everything consumers could possibly want including milk.

"Mass merchandisers are asking for it because they see milk popping up everywhere else," says Plymesser. "They're going to their supplier and saying, 'Why don't I have it?' And then the processor is more than happy to put it in."