Insights: Got Margins?
"We (milk companies) are creatively limited because of commodity issues," an employee of a "major" dairy company recently told Bob Messenger's "The Morning Cup," a delightful daily dose of food news and analysis.
Replying to an earlier Messenger message, the dairy person (who asked to have his name withheld) continued: "Price matters. We need to produce our product as cheaply as we can just to make a few pennies on the margin. We need to sell as cheap as we can because consumers see us (milk) as a commodity."
Milk sales have doubled at McDonald's since the launch last year of single-serve, plastic, re-closeable bottles. Wendy's has had similar success. Neither restaurant has done it on the cheap. Milk in a paper carton was selling for about 89 cents per half pint; in the plastic, half-pint bottles, milk is selling for as much as $1.19. It is not a commodity.
As I write this, Burger King has just completed a two-month long test of plastic bottles. By the time you read this, the folks at BK, the third largest quick-service burger chain, may have already announced a national roll-out for early 2006.
The razzle-dazzle, when McDonald's and Wendy's rolled out milk-in-a-bottle, was aimed squarely at kids. Now, both chains are "testing" making milk available to adults as a beverage option when ordering one of numerous combos or meals. Why? Because once the chains offered milk in a convenient package, sales to adults also increased significantly.
"The companies behind branded milk need to quit bellyaching about ‘commodity-related' issues and start banging away at each other like real marketers do," Messenger accurately countered. "They (dairies) could also get a little more creative with content and packaging. Like real marketers do," he concluded. To which, I add: Amen.
The most basic of sales numbers help make Messenger's and my point: During 2004, ‘sales of fluid milk products' were 1.2% lower than during 2003. Yet, flavored, reduced-fat (a proxy for milk in a plastic bottle) milk sales were up 10.2%.
I understand 2004. Record-high prices knocked the wind out of sales. That's exactly what Messenger and I are talking about. If a commodity's price takes a jump, sales take a slump. Milk in a plastic, re-closeable bottle isn't as likely to be viewed as a commodity.
I can hear you groaning. Ya, Jerry, but flavored, reduced-fat milk sales only account for 6% or 7% of total milk sales. Your math skills are excellent. Now, do two things: (1) Commit more marketing dollars to flavored milks and other value-added products already in the market; and (2) create some more value-added milk-based products that you introduce to the marketplace with some real marketing. Grow the entire category.
Go talk to your buddies in the premium ice cream business. You need to add value to the product and you need to add value in the minds of the consumer before you will be able to add margins to your bottomline.
Go talk to your buddies in the yogurt business about offering consumers a wide variety of flavors, styles and package sizes.
Your colleagues in the cheese business can also help you. They understand convenience and variety-not just cheese varieties, but variety in product configuration and packaging.
One final thought: Make these valued-added dairy beverages available. Most retailers deserve a kick in the butt-out-of-stocks are killing dairy. Nearly half of my trips to the supermarket are saddened by the empty space in the cooler where my lowfat, single-serve (14 to 16 ounces) chocolate milk was supposed to be waiting for me.
You're worried about low margins. No sale means no margin.