Reveling in progress made in key channels, milk processors invest heavily in new products that meet consumer demand.

It’s a good time to be in the milk business. Despite the high prices that have plagued the category much of the year, processors are feeling undeniably upbeat about the present state of the category, as well as its prospects for the near-term future.

In large part, that’s due to the growing sense that milk has finally turned the corner and is recapturing a portion of the share of stomach taken by soft drinks, juices and other beverages. By and large, processors believe a renewed interest in health — and a renewed recognition of the role that milk can play in a healthy diet — is responsible.

“We have very high expectations for the category at this point,” says Jim Lesser, director of marketing, Oakhurst Dairy, Portland, Maine. “Consumers and manufacturers alike are becoming more aware of the nutritional value of milk. As a result, the industry has seen more activity in recent years than it has in a long time.”

However, data from Chicago-based Information Resources Inc. (IRI) doesn’t bear out Lesser’s optimism; throughout supermarkets, drugstores and mass merchandisers, excluding Wal-Mart, whole milk sales fell 3.9 percent in dollars and 5.0 percent in units during the 52-week period ending June 17, 2007. Skim milk fared just slightly better, rising 1.3 percent in dollars, but falling 0.8 percent in units, while flavored milk inched up 0.1 percent in dollars, while falling 1.6 percent in units.

While those figures are certainly not impressive, processors we interviewed do not appear to be worried.

“The IRI data is flawed in that you are not getting a clear picture,” says Stephen Raiola, merchandising and marketing manager, Farmland Dairies LLC, Wallington, N.J. “It’s not accounting for a lot of the single-serve sales in C-stores, independent retailers and schools, for instance, where consumption seems to be on the increase.”

By all accounts, those are areas where milk has made significant inroads in recent years. Due in large part to the efforts of the Milk Processor Education Program (MilkPEP), school milk sales have soared. Processors have invested in redesigning school milk packaging and developing tasty new kid-friendly flavors in order to boost consumption among kids.

Orrville, Ohio-based Smith Dairy Products Co., for example, introduced a line of single-serve and limited-edition school milks this past January. The line boasts “electrifying label graphics, quick-open grab-and-go-play plastic bottles and slurpable flavors,” including strawberry, vanilla, chocolate and orange cream. That kind of initiative is exactly what is needed to boost milk consumption in schools, according to Gail Barnes, vice president, fluid innovation, Dairy Management Inc. (DMI), Rosemont, Ill.

“Research tells us that kids will drink more milk if it’s offered in flavors, in single-serve plastic bottles and served icy cold,” Barnes says. “Serving milk that way drives sales increases in schools and sets the stage for sustained consumption throughout life.”

Barnes also points to the growing number of shelf-stable milks as being important advances in being able to increase out-of-home consumption in venues such as schools, vending and convenience stores. “Increased availability is key,” she says. “To meet unmet demand, we need to ensure that milk products are available at times and in places where people normally drink soda, juice, or other non-dairy beverages.”

All milk produced by North Palm Beach, Fla.-based Bravo! Foods is shelf-stable. that gives the company a “tremendous trade advantage” in that Bravo can ship its milk across the country, retailers can then store it ambiently, and then chill it before serving, says chief marketing officer Stan Harris, who has since left the company. Admittedly, in the United States, Harris says, consumers have trouble warming up to milk that doesn’t require refrigeration.

That same observation has been made by Theresa Marquez, chief marketing executive at Organic Valley Family of Farms, La Farge, Wis. The company sells a line of four shelf-stable single-serve organic milks in white, chocolate, strawberry and vanilla flavors. As with Bravo’s shelf-stable milks, Organic Valley’s milks can be stored at room temperature for six months or more. While it is safe to drink at room temperature, Marquez doesn’t expect American consumers to start chugging warm milk anytime soon.

“The rest of the world is used to having shelf-stable milk — South America, Central America, Mexico, Asia — but I don’t have any hopes of swaying the American consumer,” Marquez says. “In fact, we don’t even want to change the American consumer. It’s just another option for convenience.”

Phoenix-based Shamrock Farms recently announced plans to introduce a line of refrigerated organic milk. For the time being, the milk will be available only in Arizona, as it is a fresh product with a standard shelf life. But director of marketing Sandy Kelly says that may change as supply ramps up.

Shamrock’s other big news was nationwide, as the company announced an agreement to provide 1% white and 2% chocolate single-serve milk as healthy options for Subway Fresh Fit and Subway Fresh Fit for Kids meals in more than 20,000 Subway restaurants across the country.

According to Barnes, it’s this kind of increased availability that will ultimately result in increased milk consumption. “It’s all about increasing the occasions to purchase in places where one hasn’t been able to purchase before,” she says. “You’ve got to have milk available wherever the consumer is, so that when the need state arises, it can be fulfilled.”

To encourage consumers to opt for milk when faced with a bevy of choices, Oakhurst has embarked on a campaign to promote milk as a nutrient rich food. Each package features a burst that reads, “Naturally Nutrient Rich.” In addition, the company launched a new TV campaign spotlighting milk’s natural goodness and conveying messages promoting milk as a healthy drink and an important contributor to a diet designed for optimal health and wellness.

The notion that consumers need to be told that milk is a healthy beverage choice seems ludicrous to Harris, who believes the secret to boosting milk consumption lies in conveying its coolness, rather than its healthfulness, to consumers.

“We don’t need to tell people that milk is good for you — they already know that,” he says. “What they don’t know is that milk can be fun and hip and exciting. That’s what we need to do from a marketing perspective — create an affinity and a relationship with our consumers, just like a brand of car or any other consumer product would do.”

Increasingly, processors are finding that bringing added value to their milk through the addition of beneficial ingredients is a meaningful way of bringing added value to the consumer – and shaking off any remnants of the old milk-as-commodity image.

“There is tremendous potential in value-added milks, or ‘milk-plus,’ as we call it,”  Barnes says. “It’s saying, ‘Here we have a perfect base in terms of a nutrient-rich food; now let’s make it even more perfect.’ As a result, you’re seeing milk plus omega-3s, milk plus probiotics, milk plus antioxidants or anything else that can address a health concern.”

In response to the growing consumer demand for products fortified with omega-3 fatty acids, Farmland Dairies recently reformulated its Special Request 1% Plus, reintroducing it as Special Request 1% Plus with Omega-3. The product contains 55 milligrams of omega-3 fatty acids, which have been shown to be beneficial in the treatment of a number of illnesses, ranging from heart disease to arthritis to bipolar disorder.

The product joins a growing number of omega 3-fortified dairy products. In Hayward, Calif., for example, Omega Farms, a subsidiary of Pacific Cheese Inc., sells an entire line of omega 3-fortified dairy products, including four varieties of milk: Vitamin D Milk, 1% Low-Fat Milk, 2% Reduced-Fat Milk, and Chocolate 2% Reduced-Fat Milk. Each serving contains 75 milligrams of EPA/DHA omega-3 fatty acids.

Seeking to appeal to health-conscious men and women over age 35, San Antonio-based Promised Land Dairy rolled out Your Ultimate Milk (Y.U.M.), a fat-free offering enriched with plant sterols, which have been clinically proven to lower LDL (“bad”) cholesterol. The first product of its kind to be available in the United States, Y.U.M. is sold in glass quart bottles in white, chocolate and white chocolate varieties.

This spring, Cincinnati-based Kroger Co. also launched a new milk designed to reduce cholesterol levels. Sold under Kroger’s Active Lifestyle brand, the milk also contains plant sterols. Although Y.U.M. was available first on a regional basis, the Kroger product is billed as the first national launch of a cholesterol-cutting milk.

Bravo! Foods, meanwhile, rolled out Bravo Blenders, a meal replacement milk beverage geared towards busy women who simply don’t have time to sit down long enough to enjoy a balanced meal. Much to Bravo’s surprise, Harris says, Blenders have also proven popular with college students, who often find themselves on the go and in need of a nourishing snack. In that regard, Blenders are competing head-to-head with such long-time meal replacement staples as Boost and Ensure.

In San Francisco, Dreamerz Foods Inc. developed a new milk-based beverage designed to address the growing problem of sleep deprivation. The product, Dreamerz, contains melatonin, a naturally occurring hormone which has been shown to aid in sleep, and lactium, a hydrolyzed milk casein clinically proven to promote relaxation, as well as naturally occurring tryptophan, which has also been shown to aid relaxation and sleep. Since restless consumers have long turned to a warm glass of milk to help them fall asleep, founder and chief executive officer Amanda Steele says they were open to the idea of a milk-based product specially formulated to help them catch their z’s.

Dreamerz is available in three flavors: Chocolate S’Nores, Vanilla Van Winkle and Crème de la REM. Sweetened with organic crystallized cane juice, erythritol and stevia, the all-natural product is low in fat and contains 100 calories per 8-ounce serving. All three varieties are available in shelf-stable 32-ounce containers, while Chocolate S’Nores is also available in an 8-ounce single-serve container.

In Athens, Tenn., Mayfield Dairy Farms launched Nurture by Mayfield, a 1% low-fat milk and 2% reduced-fat milk containing probiotic cultures proven to boost the body’s immune system. Meanwhile, Oakhurst Dairy recently rebranded its probiotic-containing NuTrish product line, dubbing it Oakhurst Plus. According to Lesser, that move provides Oakhurst with “a platform for value-added milk products.” Before the end of the year, he expects new Oakhurst Plus offerings to reach the dairy case, offerings he describes as “value-added milk products that have other functional types of ingredients added.”

For many consumers, all the added value they want in their milk is what’s not in their milk — specifically, milk from cows not treated with artificial growth hormones. In May, Smith Dairy rolled out a new variety of rBST-free milk, one of the latest processors to announce it wouldn’t offer milk from treated cows, a growing list that also includes California Dairies and several Dean-owned processors.

Meanwhile, the issue of artificial growth hormones was identified as such an important issue to consumers that Shamrock began actively communicating the fact that its milks have always been rBST-free. And shortly before press time, Kroger — the largest dairy processor among grocery retailers — announced it was going rBST-free on all of its own brands of milk.

Increasingly, concerns over obesity and diabetes have dairies investing in reduced-sugar offerings. While she resists pressure to develop reduced-sugar products in other categories, such as yogurt, Miriam Erickson Brown, president and CEO of Des Moines-based Anderson Erickson Dairy, says dairies really have no choice but to begin development on reduced-sugar milks. She reveals that such products are already on the horizon at AE.  

“With the IOM report and the Alliance for a Healthier Generation reports, it’s forcing dairies to look at other options for sweeteners and for lowering the sugar content in their products,” Brown says. “I believe that the lower sugar alternatives that we’re looking at will help spur the flavored milk category.”

While high milk prices certainly aren’t making investments in R&D easy, the alternative is simply not acceptable to Brown, adding that AE was already six months into the development cycle on several new products before it became clear that milk prices were going to soar. She’s quick to point out that fact is beside the point, however, because new product development is simply part of AE “brand architecture” and something that cannot be sacrificed, particularly when problems such as high pricing arise.

“When times are tough, it’s not a good time to eliminate R&D efforts,” she says. “Brands are smart in that they recognize that they need to continue to invest in innovation and R&D in order to separate themselves from the commodity image.”

TOP 10 INDIVIDUAL SKIM/LOWFAT MILK BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$7,025.2	1.3%	100.0%	2,792.0	-0.8%
Private Label	4,361.1	0.8	62.1	1,796.8	-0.8
Lactaid 100	238.8	6.9	3.4	67.6	3.6
Horizon Organic	154.8	12.1	2.2	38.2	7.2
Organic Valley	92.0	24.3	1.3	23.4	17.2
Dean’s	87.5	6.8	1.3	41.6	10.0
Garelick Farms	72.5	-4.7	1.0	30.4	-7.9
Prairie Farms	72.4	2.7	1.0	32.3	2.7
Hood	71.0	5.3	1.0	26.5	0.9
Kemps	66.7	-18.5	1.0	27.0	-16.8
Mayfield	55.8	-0.8	0.8	15.4	-5.6
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending June 17, 2007. SOURCE: Information Resources Inc.

TOP 10 INDIVIDUAL FLAVORED MILK/EGGNOG/BUTTERMILK BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$745.5	0.1%	100.0%	389.4	-1.6%
Private Label	221.7	-1.5	29.7	116.3	-3.8
Nestlé Nesquik	106.0	4.5	14.2	59.1	3.9
Dean’s	26.3	-6.6	3.5	14.9	-3.9
Kemps	20.5	14.2	2.8	10.8	18.3
Prairie Farms	16.8	14.9	2.3	9.3	13.3
Borden	15.1	-4.4	2.0	7.7	-6.9
Mayfield	12.0	-5.7	1.6	5.3	-9.1
Garelick Farms	11.7	-0.2	1.6	5.4	-2.9
Hiland	11.4	-1.4	1.5	6.4	-3.6
Hood	11.3	2.6	1.5	4.3	4.2
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending June 17, 2007. SOURCE: Information Resources Inc.