Thinking about dairy

Analysis & Commentary

By Victor Martino

For the past few years I’ve been thinking seriously about, writing about and, when wearing my food and beverage marketing hat, trying to offer positive suggestions on dealing with what is being called by many in the press and elsewhere the dairy crisis in America.

Many dairy farmers are struggling today, as are some milk processors and dairy companies, including giants like Dean Foods, which has seen its stock value drop by a whopping 60% this year.

Cow’s milk consumption in the United States had fallen precipitously in the last decade, as consumers, driven by dietary restrictions, new preferences and environmental concerns, increasingly reach for milk alternatives like almond, soy, cashew, walnut, hemp and oat milk, the newest plant-based milk alternative on the market.

For example, Americans bought $16.16 billion of cow’s milk in the year ending in late March 2015, according to the respected market research firm Nielsen, but that number dropped to $12.13 billion at the same time this past year. Meanwhile, sales of alternative milks were up 8 percent year-over-year, as of January of this year, hitting $1.7 billion, according to Nielsen data.

Total sales of cow’s milk still dwarf sales of alternative milk. However, sales of cow’s milk are declining, while alternative milk sales are growing by near-double digits. If you’re in the food and beverage business the metric that matters most is sales growth, particularly long-term, which is exactly what’s happening with alternative milk. People are choosing it instead of cow’s milk in growing numbers.

Value-added dairy products based on cow’s milk, like yogurt and quality cheeses, are faring better — as is premium quality whole fluid milk — but sales of plant-based alternative dairy products are growing like crazy and even challenging dairy in these categories.

Earlier this month while checking out the dairy case selection in an independent supermarket in the San Joaquin Valley, I got to thinking about how much the state of dairy farming and the dairy industry reminds me of the evolution of grocery retailing in America over the last nearly half-century.

I grew up in the grocery retail business in the 1960s and 1970s. My father owned a successful independent supermarket in California for 54 years, selling it in 1994 when he decided to retire.

He alternately thrived and survived as an independent grocer by constantly differentiating himself from the big chains because he obviously couldn’t compete with the “big guys” on price, although he came close.

For example, he had a deli where you could get lunch meats sliced to order, plus other goodies. He had an “old-fashion” full-service meat department with a top-flight butcher who ran it. He carried specialty and imported groceries that the chains didn’t offer. He had grocery delivery. Call your order in, get it delivered. And he featured locally-grown produce before the term was invented.

I started working at the market at age 11, and by age 18 when I left was a pretty decent grocer who was given an early education in the practices of differentiation and positioning — although my dad didn’t use those business school terms; he just did them — which was helpful to me later in life working in nearly every segment of the food, grocery industry and agribusiness industries.

In the 1960s and 1970s independent grocers were ubiquitous in America. Big cities had them in spades, smaller cities by the dozens, and virtually every small town had two or three independents.

Today the independent grocery retail segment is a shadow of its prosperous past. The majority of independent grocers, be it chain or single-store, that existed in the 1970s and 1980s are gone today, having either sold to bigger national chains, gone bankrupt, or simply closed their doors. Only those operators who’ve adapted by differentiating their stores, offering something the chains don’t, or in those rare cases that can do it all much better and more efficiently than the mega-chains do, have survived. I don’t recall the press or others calling it a crisis though, although It has been one for many independent grocers.

Grocery retailing is a highly-competitive, often brutal marketplace-based business. Please the customer year-in and year-out or die. The government doesn’t bail independent grocers out. They’re on their own.

In contrast, dairy farming and the dairy industry are dependent to a very large degree on the government, which sets milk prices, offers price supports, and buys unsold dairy commodities from processors.

There are some good and valid reasons for this system, and my objective here isn’t to argue for or against it, although I will suggest that it’s a broken and largely outmoded and outdated system, which I think is partly responsible for the struggles many dairy farmers – as well as dairy as a whole – are having today.

A growing number of dairy farmers agree with this and are taking things more into their own hands. Don’t forget, farmers also are entrepreneurs.

These dairy farmers, like Burroughs Family Farms, Nutcher Farms and Alexandre Family Farms here in California, have vertically-integrated, creating their own brands of milk and value-added dairy products and they’re selling them at farmers markets and in supermarkets. Like the independent grocers who’ve survived, these dairy farmers are adapting and differentiating.

What these dairy farmers and many others in California and throughout the nation’s dairy states are doing isn’t something every dairy farmer can do. But the object lesson here is that it’s all about adapting to survive

The brutal reality of the marketplace is that consumers are changing. Plant-based foods and beverages are the fastest-growing segment in the food and grocery industry. They’re here to stay and aren’t going away.

Millennials and Generation Z prefer alternative milk to cow’s milk by a majority, although they are buying cow’s milk yogurt in decent numbers as a breakfast meal alternative to eating cereal and milk.

This brutal marketplace reality leads us to another sad reality, which is that dairy farmers will continue to go out of business, and the dairy industry in general will likely continue to decline overall.

But individual dairy farmers, processors and companies can make it, like my father and the other independent grocers who alternatively thrived and survived while many others around them didn’t make it, by finding their own secret sauce, adapting and differentiating.

For example, dairy company HP Hood is on the right track, I believe. In January the company began shipping four varieties of its Planet Oat milk to supermarket chains. It’s HP Hood’s first standalone plant-based milk brand. It’s made from oats, dairy-free, free of all major allergens, low in added sugar and has a richer, creamier taste than many other plant-based alternative milks.

The milk was created by the company’s own product development team, the same folks who create HP Hood’s branded cow’s milk products. The oat milk is selling well at supermarkets and also on Amazon.

Rather than fighting the alternative milk folks, HP Hood is joining the fray. They’re adapting, differentiating and looking reality right in the face, just like those scrappy independent grocers left today do every morning.

Dairy farmers can’t milk oats like they do cows, but they can perhaps take some of the acreage they’re currently devoting to feed corn, which isn’t a very profitable crop, and plant oats, which they can sell to the growing number of companies producing oat milk, sales of which are booming.

Not every farmer wants to or can create their own milk brand and market it. Dairy farmers however might want to lean more heavily on the dairy trade associations or cooperatives they belong to, suggesting to them that they focus as much on marketing as they do on government relations and lobbying. These organizations need to adapt as well

It’s legal now to grown hemp in California. Hemp foods and drinks like hemp milk are in growth mode. Dairy farmers with land might want to investigate growing hemp as an adjunct to milking cows. Diversify.

I don’t have the solution to the struggle dairy farmers and the dairy industry as a whole are having. All I have are constructive ideas and suggestions.

What I do know though is that the dairy industry is far from alone in struggles and crisis. The steel, textiles and automotive industries are just three examples of other industries that have experienced decades of struggle and crisis. And of course there are those independent grocers.

The prescription for most struggling industries comes down to adapting, changing, differentiating, diversifying and always being nimble.

There are more food and drink choices for consumers today than ever before. Tastes and preferences change. If for example you told someone in 1980 that bottled water would be the top-selling beverage product in 2019 they likely would have laughed at you.

My hope for dairy is that it to will adapt and change, allowing as many dairy farmers and processors as possible to survive in business today, unlike the many independent grocers I remember growing up with and around who’re no longer in business.