Lessons in Leadership

October 1, 2005
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Lessons in Leadership
By James Dudlicek
We have a golden opportunity in this industry,” Roger Capps says matter-of-factly. “With all the talk about obesity and consumption of sodas and so forth, I believe the soft-drink industry is beginning to get that message, and before somebody slaps their hand really good, they’re going to get carbonated beverages out of the cafeteria.”  ·
Capps, executive vice president and chief executive officer of Carlinville, Ill.-based Prairie Farms Dairy Inc., is talking about dairy’s opportunity to take back the schools and reclaim its rightful share of youngsters’ stomachs. It has been a hard fight against changing tastes and deep-pocketed pop companies, but Capps is taking his company head-on into the fray. Results of his St. Louis School Milk Test show he’s on the right track.
Not that Prairie Farms is taking all the credit, but the others involved with the experiment are eager to offer praise.
“When Roger called and asked us to take part in this, we said yes, unhesitatingly,” says Rita Duncan, executive director of the St. Louis District Dairy Council. “If you can’t change eating habits of kids, you might as well give up. If kids have a bad milk experience in school, they are not going to drink milk when they have a choice.”
And that’s exactly the point Capps is trying to drive home to the entire industry, by showing his peers that treating schools as a market rather than just a bidding situation will go a long way toward ensuring the long-term survival of beverage milk.
Indeed, Prairie Farms has always been committed to the dairy industry for the long term. With $2.1 billion in annual sales, including joint ventures, it has grown from an alliance of rural Illinois creameries to one of the largest dairy cooperatives in the United States. Prairie Farms manufactures and markets a full line of dairy food products out of its own 17 plants, along with 13 others through subsidiary companies and joint ventures throughout the Midwest.
Curing St. Louis’ Blues
Flush with success from the St. Louis school test (see sidebar), Prairie Farms is ready to expand this strategy to schools throughout the company’s marketing area.
Capps says he came up with the idea for the test after attending various industry presentations that discussed improving school milk programs. “Points that were being continually made were that we needed to give students retail quality in flavored milk. We needed to give them more choice in flavors. We needed to improve the graphics on the packaging. And the milk needed to be served cold, and our industry needed to work with the schools to assure the milk was served cold,” he says.
“We offered four different choices — white milk, chocolate, vanilla and strawberry. We added new graphics on the cartons, more colorful graphics. We gave them the same quality chocolate as in our regular lines, not the ‘bid chocolate’ that the industry for years has put into the school lunch program. And we worked with the school district on the temperature the milk is served at, and really stressed the importance of cold milk. Then, it was really a lot of follow-up by Prairie Farms, the St. Louis District Dairy Council and MilkPEP to give strength to the program.”
Duncan called the council’s participation in the test a no-brainer. “If it makes kids drink more milk, we want to be a part of it,” she says. “It has to be a positive experience to get them to come back again. We’ve had foodservice directors calling us all summer long [after learning about the test results] asking, ‘When can we participate?’”
In-school promotions included mobiles, posters, static clings and “got milk?” buttons and hats. “Cafeteria workers wore ‘got milk?’ shirts,” explains Ed Mullins, senior vice president. “Some schools had their art departments work on milk mustache posters and had teachers participate to see who had the best-looking milk mustache. One school did a scientific study and charted sales by flavor, by day, as part of a math and science project.”
Things like that show children are developing an earlier understanding of the benefits of good health. “Kids are more aware of good health than ever,” says Bill Montgomery, director of advertising and promotion, “and the dairy industry should be right there to support this.”
Meanwhile, school foodservice officials took to the airwaves of local public television. “When we kicked off the campaign, we had a ‘what’s happening in the district’ show and talked about obesity and the need for increased milk consumption,” recalls Leslie Fowler, marketing and communications manager for Aramark/St. Louis Public Schools.
Fowler says the study was of particular interest in urban-area schools with high black student populations. “People say African-Americans don’t drink milk [due to a higher occurrence of lactose intolerance],” she says, “but our sales went up 40 percent, so that went right out the window.”
According to Mullins, Fowler’s response to the program is typical of the glowing feedback from foodservice directors and other school officials. “It also helped raise the average daily participation rate in the lunch program, which is a real benefit to the school district,” he says. “That was something they were very excited about.”
The kids are excited, too, over their newfound enjoyment of milk. One interesting development due to the new flavor offerings, Fowler notes, is that many kids like to pour vanilla milk over their Cocoa Krispies for breakfast at school.
That’s the kind of enthusiasm that Capps stresses is sorely needed. “We want milk to be something that’s an enjoyment for the children,” he says. “I’ve always had the feeling quite often that the way we treated the school lunch program — as a bid, a very competitive thing — that by the time a student got to be a freshman in high school, they no longer wanted milk, and they were looking for alternative beverages. The drive here is to try to make an attractive beverage for the children to enjoy, not only in grade school but in high school and in adult life.”
Out of School
Of course, Prairie Farms has plenty of things cooking outside the classroom.
“Our success in the past year has been the expansion of our plastic line,” Mullins says. “Plastic quarts and plastic pints continue to show great growth.”
Prairie Farms is also taking advantage of the changing retail scene. As many mass merchandisers expand to offer refrigerated grocery items (for example, recent Target expansions in the Chicago area), Prairie Farms milk, juice and cultured products can be found lining their dairy cases. “The trend is to expand on this,” Mullins says. “They’re adding more items in more stores.”
Brand visibility is rising in other areas as well. “We’re making a special-edition milk over in Indiana, tying in with the NFL’s Indianapolis Colts,” Montgomery says. “It’s a partnership between Prairie Farms and the ADA in Indiana. The Colts’ colors are blue, so this is a blue raspberry milk. We designed a special package and developed all the merchandising support.”
The plastic pints will be distributed primarily through convenience stores in Indiana, as well as the Colts’ stadium. And the new blue raspberry flavor has joined the school milk program lineup as well, in paper half-pints.
“We hope Indiana consumers enjoy this,” Montgomery says. “We have highly engaging graphics to call attention to it. We think it’s going to be fun for kids and for fans, and should be a unique opportunity to position milk as a top-of-mind, mainstream beverage.”
Prairie Farms’ product line features fluid milk, juices and drinks, cottage cheese, sour cream, yogurt, ice cream, soft-serve ice cream mix and frozen novelties. Branded unit sales exceed 50 percent of total units sold.
The company’s customer base continues to evolve and includes traditional retail supermarkets along with other fast-emerging formats in convenience stores and mass merchandisers, as well as the fast-food industry. Serving this expanding base makes maintaining topnotch service crucial.
 “It goes back to the essential promise of the Prairie Farms brand, which is to provide the highest-quality product on a consistent basis, and to go along with that, a high level of customer service,” Montgomery explains. “That’s key to Prairie Farms and to long-term success.”
It goes back to the company’s roots, Capps says. “You see the pictures of F.A. Gourley and Leonard Southwell on the wall in our lobby, the gentlemen who really put together this organization. They always said, ‘Let’s keep it simple,’ and that is to produce quality products, be very efficient and give the best service to customers. That was our motto in 1938 and it remains ours today,” he says. “We have always believed that if we do those things right, we don’t have to worry too much about the profit — it will be there, because the salespeople can sell with confidence, be proud of their products and get a respectable price, and then the margin will take care of itself. Even though we’re a co-op, we’ve always believed that we must have a profit, no different than a publicly held company. We must generate earnings for our members.”
Prairie Farms utilizes television, radio, newspapers and billboards to support its brand, as well as FSIs, in-store coupons and other consumer programs.
“The equity of our brand is very powerful,” Montgomery says. “Our strong presence throughout the Midwest over the years is yielding what most marketers hope to achieve: loyal customers. Consumers purchase our products with confidence, relying on the quality they have come to know and trust from Prairie Farms. While at the dairy case, consumers make their choices in five seconds or less. With so many choices, we can proudly say that once the consumer recognizes our brand, the sale is made. We will continue to build on our quality reputation by listening to our consumers and addressing their needs through product development and innovation.”
Taking on the Future
Supporting product development requires keeping up with technology. Latest developments at Prairie Farms are still under wraps while they make their way through the budgeting process.
“Up to a third of our earnings goes right back into keeping our facilities updated, keeping new delivery equipment out on the street and so forth,” Capps says. “It’s very important we give the plants the tools they need to maintain quality, efficiency and customer service. We also are constantly looking for ways to improve our products. Even though we feel like Prairie Farms is already making the best cottage cheese, we’re continually working to see if there’s a better way to make cottage cheese or sour cream or yogurt. Cultured products is really where technology comes into play. It’s so important with your brand to have cultured products that are excellent and let those products be the driving force for some of the more commodity-type items like a gallon of milk.”
Certainly, dealing with that commodity mindset is a challenge for an industry trying to increase consumption by stressing differentiation from alternatives. But the forces of a dynamic economy have brought about some other serious issues.
“I think one of the biggest financial challenges companies are facing right now is the tremendous increase in fuel costs,” Mullins says. “It’s not easy to recapture all those costs quickly as they occur, and it’s always challenging to pass along the necessary increases. Such costs cut through all levels of production, from the farm to the plant, the supplies we buy and have trucked in, then on to the finished product and distribution.”
Eventually, Mullins says, processors are going to feel another crunch as consumers start making significant changes to offset their gasoline expenses. “You have a percentage of shoppers who are shopping at the super center because they can get everything at one time. Then you have a large percentage of consumers who are shopping in three different channels. They go to the supermarket for their groceries, then they go on to mass merchandisers and dollar stores to purchase something else,” he says. “I think as the economy tightens up and the discretionary dollars start to shrink because of fuel costs and other costs that families are facing, I think you’re going to see some of these concepts even emerge more. It’s a changing environment at all times.”
Meanwhile, efforts continue to boost consumption across the board, with emphasis placed on a key demographic. “Prairie Farms continues to focus on ‘moms’ as our core target,” Montgomery says. “We realize moms are the gatekeepers of beverages consumed by children, and we leverage this as much as possible by emphasizing our products are a healthy and delicious choice for their children, as well as themselves. Many in the food industry are reformulating their product lines in order to offer healthy choices to the consumer. We have a distinct advantage over other beverage companies, which is milk — nature’s most perfect food.”
But as the industry strives to increase consumption, Capps has concerns about maintaining a skilled work force to keep up with demand. “One the biggest challenges the whole dairy industry faces is the recruitment and development of personnel. It is really, I think, the number-one challenge we face,” he says of the labor-intensive, time-demanding business.
“It’s a challenge for the industry to recruit new personnel and, hopefully, develop them into dairy leaders.”
Opportunities exist in many areas, among them a population of better-informed and educated consumers growing beyond just a trend toward healthier diet and lifestyles. “The dairy industry must act upon its inherent strengths by aggressively building the momentum of appreciation for the essential everyday health benefits of dairy products,” Montgomery says.
Helping that along is the USDA’s revised dietary guidelines, which recommend Americans over age 8 should consume three servings of lowfat or fat-free dairy foods daily. Further, through the efforts of industry-wide promotions, awareness of dairy’s role in weight loss continues to grow; by May 2005, 74 percent of moms had heard about the dairy/weight loss link.
“Prairie Farms will build on this powerful message by leveraging national programs at local levels and developing marketing programs to effectively reach these consumers,” Montgomery says.
As the food industry further consolidates and new retail formats emerge, those consumers are finding their grocery shopping needs met in locations other than traditional supermarkets.
“I think the greatest opportunity is in the trend toward alternative formats that have expanded distribution beyond traditional grocery stores to dollar stores, mass merchandisers and convenience stores,” Mullins says. “We will continue to address the ever-changing needs of our loyal customers by providing healthy, delicious and convenient products to fit their lifestyle. We are consistently investing in technology and upgrading our manufacturing facilities.”
All in the Family
Prairie Farms preaches a seemingly simple management philosophy through its mission statement: to increase equity value balanced with organization growth; to encourage each employee to attain his or her maximum potential; to simply do what is right, and conduct business with professional integrity; to strengthen its competitive edge by embracing the principle of innovation; to be the leader in high-quality products and services.
Included in that employee enrichment is encouragement to take on leadership roles outside the company as well. “We want our personnel to be active in the community,” Capps says. “For example, we encourage it by paying their dues for membership in local civic organizations. We are generous in our donations to advanced education as well as other charitable organization. We just try to be good corporate citizens.”
At the same time, the company shuns credit for its good deeds. “We keep a low profile,” Montgomery notes. “We go about these things, but we don’t look for a lot of publicity.”
So, while quietly enriching the industry, its employees and the communities in which they live, what’s the goal of Prairie Farms in the foreseeable future?
“What we’d like to see, looking back five years from now, is that we’ll have had a growth of 25 percent,” Capps says. “It’ll come through brand development, acquisition and moving into new marketing areas. That would be our ambition.”
And in its position near the top of the heap among dairy co-ops, what is it that sets Prairie Farms apart from its peers?
“We don’t measure our success by the number of co-op members, but rather by adding value to the raw milk our farmers supply, and then the amount of compensation we are able to return to our members,” Mullins says. “This is what sets us apart as a farmer-owned dairy cooperative.”
Capps agrees, while stressing the importance of seeing the company as a family. “We say that sincerely. We want people, when they come to Prairie Farms, to want to make it their home and their career,” he says.
“So we try to be a family, whether it is farmer members, manufacturing personnel, corporate staff, sales or delivery. It hurts whenever we lose an employee. We just don’t like to see a Prairie Farms employee go elsewhere. The key is developing employees to their full potential and being able to reward them financially for the contribution they make.”
A concerted effort among the entire Prairie Farms family to provide the highest-quality products available in the marketplace is one of the things of which the company’s leaders are most proud. As Capps stresses, people make the difference.
And whether it’s enhancing the school milk experience to ensure a new generation of milk drinkers or investing in human capital to ensure a new generation of dairy industry leaders, Prairie Farms’ CEO delivers an important message: “Our opportunity is now.”  m
Prairie Farms History
Prairie Farms Dairy Inc. had its humble beginnings as a cream-buying station in Carlinville, Ill., in the back room of the Macoupin County Farm Bureau building. The gathered cream from that location was shipped to the Farmers Creamery in Bloomington.
In 1937, the Bloomington Creamery helped organize a butter plant in Carlinville. With the United States still in the throes of the Great Depression, economic conditions were not favorable to sell capital stock to start a creamery. Butter was selling for 10 cents a pound, so a $25 share of stock was a real sacrifice for farmers.
But the money was raised, and the board hired F.A. Gourley to be the manager of the new Producers Creamery of Carlinville. A recent college graduate, Gourley went about the task of purchasing equipment and preparing the creamery for operation.
As early as 1932, the Illinois Farm Bureau was encouraging local creameries to organize statewide to market their products in Illinois. Soon, Illinois Producers Creameries was formed to help co-ops market their cream together to the large proprietary companies, and increase farmer income. Twelve co-op creameries eventually joined the group, including Producers Creamery of Carlinville in 1938.
The creamery changed its name to Prairie Farms Creameries during the 1940s, and the latter part of that decade entered the fluid milk arena by purchasing equipment to process and package milk in disposable paper cartons.
Meanwhile, the industry was changing rapidly; co-ops’ larger producers wanted to sell Grade A milk instead of farm-separated cream, and the creameries could not compete against the milk buyers. Several of the 12 allied plants were either sold or joined other organizations.
The three surviving co-ops merged in 1962 to form Prairie Farms Dairy Inc., with Gourley as general manager.
By March 1988, the organization had become the product of nine mergers, 38 acquisitions and four joint ventures.
Gourley retired from the top management position in 1988 and was succeeded by Leonard Southwell, his right-hand man for 25 years. The two continued to work together on new acquisitions until Gourley’s death in 1991. Southwell served as chief executive officer from 1988 to 2000, and was succeeded by Roger Capps. During that time, total net sales continued to grow until they surpassed $1 billion, with net worth topping $335 million. Joint ventures developed to include the Roberts, Hiland, Muller-Pinehurst and Madison Farms dairy companies, plus subsidiaries Ice Cream Specialties, East Side Jersey Dairy and Hawthorne- Mellody.
Capps now serves as executive vice president and chief executive officer.  
Head of the Class
Prairie Farms test offers hope for future of school milk marketing.
With childhood obesity on the rise and per capita consumption of fluid milk by school-age children declining, Prairie Farms Dairy Inc. decided it was high time to step up efforts to promote milk as a healthy alternative to juice and carbonated drinks.
With the help of the International Dairy Foods Association, Milk Processor Education Program (MilkPEP), St. Louis District Dairy Council and its carton manufacturers, Prairie Farms launched a test to see how improved ingredient quality, enhanced packaging and more flavor choices would impact school sales.
The test began in January 2005 and involved 165,000 students at some 300 St. Louis-area public schools. Youngsters were offered new flavors and improved formulations in new multi-color paperboard packaging to determine which products were most popular. In addition, milk was offered in alternate locations through placement of vending machines and ice merchandisers in à la carte lines.
Participating schools were divided into three groups, each of which received a combination of enhanced paperboard packaging with colorful kid-friendly graphics and new flavors including chocolate, strawberry and vanilla. One group was offered white, chocolate and strawberry milk in enhanced packaging. Another group was offered the same packaging with vanilla milk added to the lineup. A third group received all flavor varieties in cartons depicting active kids. A control group of 120 schools had no changes made to milk offerings.
To raise student awareness of the program, each school in the test received a point-of-sale kit to promote the “new look” of school milk. Lunchroom servers wore “got milk?” shirts and buttons, while other promotional materials further delivered the intended message.
Final results of the St. Louis School Milk Test exceeded expectations, generating sales increases of more that 12 percent per school, or 11 additional units per student annually. If applied nationally, Prairie Farms says, the results would translate into more than 600 million additional units of milk sold each year.
Armed with this success, Prairie Farms will expand the program throughout its marketing area during the 2005-06 school year.
“We are only at the beginning of seeing the true potential of treating schools and children as customers and consumers,” says senior vice president Ed Mullins. “Milk consumption habits are defined at an early age and determine a lifetime of consumption. Prairie Farms will remain steadfast in developing products and programs to meet the needs of young consumers.”  

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