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    CSNews Exclusive: Opportunities Found in Milk & Dairy

    Prices are volatile and sales are down, but opportunities are on the horizon.

    NEW YORK -- There’s no use in c-stores crying over spilt milk. It’s true the channel’s sales were down in almost every milk subsegment last year, and this trend continued through May of this year, but analysts expect overall milk sales to pick up between 2010 and 2014 -- and there are some fluid category opportunities for c-stores.

    Of all the c-store subcategories tracked in fluid milk last year, only all other fluid milk products -- which includes soy-based, lactose-free and aseptic milk products -- posted a sales gain, according to Convenience Store News 2010 Industry Report. This smallest category in terms of sales had the largest jump in share of dollar sales, increasing from 4.3 percent in 2008 to 5.2 percent in 2009 -- clearly a growth opportunity for the channel, albeit a small one.

    While all the subsegments of 2 percent, whole, 1 percent and skim so far this year (for the 52 weeks ending May 15, 2010) continue to mirror their similar double-digit dollar sales decreases of last year, 2 percent appears to be pulling out ahead of whole milk in total dollar sales for the first time in the channel. This, coupled with the alternatives trend, could indicate an overall “healthier” trend in milk slowly catching on with c-store customers.

    In the food, drug and mass channels, skim/low-fat milk is clearly the most popular variety, grabbing more than 60 percent of category sales, according to Chicago-based market research firm Mintel’s latest category report, “Milk in the U.S., April 2010.”

    However, slicing the milk category a different way, another lion’s share segment is private label, again accounting for nearly 60 percent of overall milk sales, according to David Browne, a senior analyst with Mintel.

    “What we observed through the report is that once the recession hit, consumers were trading down to private label milk. They don’t see a difference in taste or nutritional profile with private label milk, and in some cases, they don’t even know it’s a store brand,” he told CSNews Online. “They’re just looking at the price.”

    And in the case of convenience stores: “Their whole business model dynamic is developing relationships with distributors, and investment may not be justified in private label milk,” Browne said. “Some may have faced an uphill battle with milk pricing, especially facing competition from stores like Walmart, where there is a huge price difference on its milk.”

    But that’s not the end of the story, because prices have gone up, down and all around. “Because prices have fluctuated quite a bit in terms of milk lately, it’s our perception that name brands have more wiggle room to lower and maintain prices, whereas private label doesn’t have that,” Browne said. “So suddenly, name brands are looking a little better. The disparity or value proposition on name brands is looking better to the consumer lately, and that’s good news for c-stores that carry name-brand milk.”

    Flavor Craze Flavors are another area of milky opportunity. According to Mintel’s report, flavored milk was the only segment to show any share growth in 2009 -- it increased 0.6 percentage points to a 6.7 percent share with overall sales of $723 million. This segment clearly benefited from innovation, with more than 1,500 product introductions in the category since 2004, with cream & creamers (403) and flavored milk (393) being the subcategories with the highest number of introductions, according to Mintel.

    Flavored milk varieties currently available include chocolate, strawberry, vanilla, banana, cappuccino and coffee, according to the Dairy Farmers of Washington. But even more exotic flavors are reportedly being explored.

    “There is a clear opportunity for convenience stores to market more milk towards kids, especially through flavored and single-serve offerings,” Browne suggested.

    Rutter’s Dairy is one on top of both trends. The York, Pa.-based chain recently unveiled Rutter’s-branded vanilla and strawberry milk pints to the consumer market. For years, the two flavors were available only as part of Rutter’s school milk program.

    “These two flavors have been very popular with schoolchildren,” said Todd Rutter, president of Rutter’s Dairy. And addressing what Browne spoke of regarding private label, Rutter added: “Our goal is to get the Rutter’s brand into more market segments rather than be a distributor for other brands.”

    The new pints are sold in plastic bottles and are the first new flavors of milk introduced by Rutter’s in a few years.

    Tied in with that trend are flavors specific to the Hispanic market, according to Browne. “The Hispanic population are big consumers of milk and flavors and brands specific to the Hispanic market are another growth opportunity for c-stores,” he said. “Nestle’s La Lechera is one, but there are other innovations coming out.”

    Packaging is another area of milk innovation where c-stores should be on the lookout. Square-shaped milk containers were explored as efficient shipping and stocking options, but the reaction from consumers was less favorable, according to Browne.

    “I think the most wiggle room we have in packaging innovation is in environmentally friendly packaging,” he stated. “It also aligns with other trends in the category, such as hormone-free milk, which is a good, happy medium for health-conscious consumers who don’t want to pay organic milk prices.”

    In other countries, such as China, India, Poland and Canada, milk by the bag is popular, reportedly utilizing 75 percent less packaging than plastic bottles. Earlier this year, the trend began taking hold in the U.K., whereby reusable jugs, designed to hold and pierce the new “milk bag” packaging, were given away to consumers to help them get used to the idea.

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