Prices have moderated and the industry’s latest message about milk points out that milk offers a significant nutritional bang for the buck. Meanwhile, overall beverage sales have been growing, and some of the most active beverage categories include tea and juice.

The dairy industry sees milk as an essential beverage, right up there with water. Most recently it has seized on new recommendations from the American Academy of Pediatrics (AAP), which advise parents to offer children water and milk between meals. Skip the sugary carbonated drinks all together, and limit juice drinks to four ounces a day, the academy says. The AAP’s statement was published in the December issue of the journal Pediatrics.

“The recommendation that children should only consume milk and water between meals and limit their juice intake provides further support for parents to encourage their children to drink nutrient-rich low-fat or fat-free milk,” says Ann Marie Krautheim, a registered dietitian and senior v.p. of nutrition affairs for the National Dairy Council.We can expect that industry organizations like Dairy Management Inc. (the umbrella organization of the Dairy Council) and the Milk Processor Education Program (MilkPEP) will add this endorsement to the arsenal it utilizes in waging a war against flat a declining milk consumption. The news from the AAP will join numerous nutritional studies, countless image makeovers and a variety of promotion and marketing tools that have been employed over the years with varying levels of success. Every little bit helps, says Tom Gallagher, CEO of DMI,  adding that, even in a down economy, milk will remain a beverage of choice.

“The opportunity for milk lies in reinforcing and leveraging milk’s unique value proposition,” Gallagher says. “As consumers seek value in their food purchases, dairy has an opportunity to reinforce the unique benefits that milk delivers by providing the most nutrients per calorie and per penny.”

Milk is the body and soul of the dairy industry, while cheese and cultured products have broadened dairy’s appeal, and ice cream is always there to sweeten the pot. Fluid milk usage accounts for about 30% of the milk supply in the United States, and total value of the milk produced annually is around $25 billion or more than 20% of the industry’s total sales, according to USDA and Census Bureau calculations.

AAP’s policy statement further positions dairy’s role as part of a healthy diet and reinforces the commitment that dairy producers have to child health. Specifically, it suggests that parents:

• Give their children no more than 4 ounces of 100% fruit juice per day.

• Avoid serving children carbonated beverages and juice drinks.

Encourage eating patterns consistent with the MyPyramid recommendations from USDA.

In recent years the industry’s unified message about milk has shifted back to the fundamental proposition that milk is good for you. It’s a shift that is well suited to the current climate of increased concern about obesity, nutrition, and the politics of food.

Additionally, the industry will soon have a better understanding of how and where milk is sold, thanks to a newly completed study covering all sales channels.

For a further breakdown on milk sales trends, see this months Dairy Market Trends.

Gold Peak, a premium RTD tea line from the Coca-Cola Co., recently introduced chilled tea in a stylish 59-oz carafe. Like other products in the 3-year-old Gold Peak lineup, it is made from hand-selected, high-quality tea leaves. Coca-Cola also now holds a stake in organic Honest Tea. Premium quality tea continues to be a growing segment.

Nine nutrients

You know that calcium is great for bone density, but did you realize that niacin promotes normal enzyme function? A glass of milk offers 30% of the RDA of niacin.   

Once upon a time, the milk industry realized that milk needed an image makeover. It was a stodgy product that was being relegated to the fringes by the flash and fizz of competitors like juice and carbonated soft drinks. So the Chug, “got milk?”  and their ilk made milk more exciting.

Maintaining a hip image is certainly important, but more recently the talk has been all about nutrient density.

“Milk’s competitive status within the non-alcoholic beverage category varies depending on which target you choose to focus on,” says Kurt Graetzer, CEO of MilkPEP. “If we’re talking about the primary purchaser, moms, milk is in as good a position as it has been in years for two reasons. First, milk continues to be perceived as the healthiest beverage, a primary deliverer of calcium and numerous other nutrients, beneficial when trying to lose weight and essential for the healthy development of children.”

Graetzer says MilkPEP messages in 2009 will key on nutrient density for moms, while continuing to appeal to teens with campaigns like Body by Milk.

It’s been known for many years that there are nine nutrients in milk, but until recently, it was not known for sure how many different sales channels there are for milk, and how each of them function. At last month’s Dairy Forum, Prime Consulting  Group, Bannockburn, Ill., presented data from the first comprehensive multichannel study of how and where milk is sold.

This study especially illuminates the 41% of grade A milk sold outside of the main channels. Watch for more information on the study in the March issue of Dairy Foods.   

Recessionary thinking

Some of the most dramatic strides milk has made in recent years have involved foodservice, an area with tons of potential, but a flimsy track record. With the economy sagging, one would think that those success stories involving McDonald’s and Starbucks would be a thing of the past. 

In fact, the ways in which the recession could hit the dairy industry remain to be seen. There is reason for optimism, however. Graetzer notes that milk is still by and large consumed at home, and there may  be a silver lining for the burgeoning food service market, Gallagher says.

“In foodservice, while sales are flat overall in 2008, quick serve restaurants (QSRs) are experiencing slightly higher sales as consumers, seeking greater value, ‘trade down’ from sit-down chains to QSR outlets,” Gallagher says. “With more than 60,000 QSR chains now offering single-serve milk on the menu, increased QSR traffic is good news for milk.”

While price sensitivity and economic worries could impact higher-value product lines, organic and natural products appear to have some staying power.  Organic and natural milk has been a fast growth area for several years, and while many consumers will undoubtedly cut back on organic purchases to save money during tough times, others are fully committed to organics and would never move back to conventional.

Through September USDA showed continued strong growth for both whole (+26.5%) and reduced-fat (+23.9%) organic milk though these monthly increases are steadily declining as each month goes by.

Graetzer expects that deceleration will continue.

“No doubt this is due to economic pressures on consumers who are now beginning to forgo the added price that organic milk commands,” he says. 

But a recent report from SPINS, the leading information and service provider for the natural foods industry, hints at more resilience. SPINS surveyed more than 800 natural retailers found that in the 12 weeks ended Oct. 4 growth rates were still hitting about 10%.

One of the country’s top protein beverages for athletes is Muscle Milk Nutritional Shake. Brand owner CytoSport Inc., Benicia, Calif., recently added a Light line that offers loads of nutrition in a 160-cal 14-oz bottle. Studies have shown that flavored milk serves as a an excellent recovery drink for athletes, and this product is a great example of how to capitalize on the research.

From flavor to function

Flavored milk, in convenient single-serve bottles, was one of the new innovations set to usher the dairy industry into the 21st century. Flavored milk sales  grew steadily by all measures in the early part of the decade, but eventually that growth tapered, particularly in supermarkets. Still, flavored milk plays a key role for the overall dairy industry.  Flavored milk in single-serve packages, perhaps more than anything else, has nudged milk slightly out of its commodity status and allowed it to act like a beverage. In convenience stores and cafeteria lines, attractive, high-quality flavored milks stand shoulder to shoulder with the drink de jour.

Gallagher points out that flavored milk is doing well in QSR channels and in school cafeterias, and is therefore keeping kids interested in milk.

“In addition, recent product launches at retail include a post-exercise recovery flavored milk, which is showing positive signs and gives consumers a new time and occasion to drink milk,” he adds.

Indeed, functional products like Muscle Milk (see page 32) may be the flavored milk of the future. Currently in the market are reformulated products that provide a higher level of protein and calcium, while lowering fat and carbohydrates. There are a number of relatively new milk products fortified with ingredients that help reduce cholesterol . 

“Innovation is the most important thing the industry can focus on to build the value proposition and increase sales,” Gallagher says.

Stremicks Heritage Foods, Santa Ana, Calif., teamed with Disney Consumer Products North America to create a value added milk formulated specifically for kids. Disney Little Einsteins Milk is made from the milk of cows not treated with rBST and is fortified with 32mg of docohexaenoic acid (DHA), an omega-3 fatty acid, shown to support brain and eye development, and heart health.

Sizing (and seizing) the competition

In fact, the overall beverage industry is fueled by innovations and trends.  Milk competes against many different beverages and dairy processors have the opportunity to participate in many beverage categories.

According to Mintel Research, nonalcoholic beverage sales through all channels, including Walmart, reached $84.5 billion in 2007, growing 24% in current prices and 8% after measuring for inflation during 2002-07.

Mintel says the 2002-07 growth is impressive, considering that the top three segments-milk, carbonated drinks, and fruit juices-that accounted for 62% of the total market sales in 2007, displayed flat or declining sales during the same review period.

Enhanced bottled water, energy drinks, and RTD tea have been the hot products both for sales and for new product introductions.

Dairy processors have a chance to get involved in these growth areas, and ought to do so.

Orange juice remains the most popular juice offering. However,  “superfruit”-based juices have gained mainstream traction in recent years. Pomegranate is now a well-established juice flavor, paving the way for other emerging superfruits including açaí and goji berry.

Americans prefer their tea iced. Ready-to-drink teas are one of the most successful beverage categories this year, enjoying an increase of almost 9% to nearly $1.2 billion in sales through food, drug and mass merchandise outlets, according to Information Resources Inc. North American volume for RTD teas last year was 3.1 billion liters, Euromonitor reports. Western Europe consumed 2.6 billion liters, while most other regions never neared the billion-liter mark.

But even the United States’ growing penchant for iced tea doesn’t come close to the volumes consumed in Asian countries (see sidebar).

With their youthful, often counter-culture attitude, it may be difficult to think of energy drinks as a maturing category. But sales figures from IRI show that while energy drinks still enjoy strong growth, the category may be stabilizing.

As energy drinks become a more permanent fixture in the beverage marketplace, the category also is becoming more diverse.

This is a subcategory that seems to be begging for an infusion of wholesome, natural products made with milk.

A Spot of Tea ... with a Dash of Dairy: Global Innovation in Dairy-Tea Drinks

Global consumers may be wildly diverse in their fashion, music and entertainment preferences, but they are united by their love of one beverage-tea. In 2008 Mintel’s Global New Products Database (GNPD) showed tea was the most popular beverage sub-category, with 2,795 global introductions. In the United States alone, Mintel Oxygen shows that 76% of Americans consume bagged tea and 44% drink RTD tea.

Based on tea’s prominent role in global food culture, it is not surprising that this superfood has migrated to the dairy category. Appearing in everything from drinkable yogurts to whey drinks, tea is establishing a solid presence in dairy beverages worldwide. Although this ingredient has yet to penetrate the American dairy market in a meaningful way, a major foodservice initiative suggests that change is coming. In January 2009 Starbucks launched a line of tea-based lattes in black, vanilla rooibos (red) and London Fog (Earl Grey) varieties, bringing the dairy-tea marriage to the masses.

In the retail market, American companies can take a cue from southeast Asia where milk teas are ubiquitous. Typically sold in can or coffee shop-inspired RTD cups, black and green tea lattes are most common. But in beverage-obsessed Japan, many manufacturers have updated traditional milk teas with unique, indulgent ingredients. In December Coca-Cola launched a limited edition “luxury dessert milk tea” with Assam tea, milk and strawberry flavor, while Lipton introduced a Carmel Tea Au Lait with a milk base.

But dairy-tea beverages aren’t just found in southeast Asia. More of these products are being launched in the mature European dairy market. In Spain Central Lechera Asturiana recently debuted a new milk range flavored with various teas. White, green and rooibos tea varieties are now available. And in Italy whey, not milk, is the base for an iced tea drink sold under the Latella brand. It combines sweet whey with black tea extract and peach flavor.

One of tea and dairy’s greatest synergy is nutrition, as both carry a healthy halo recognized by consumers. Increasingly that halo is being leveraged for weight control benefits. EGCG, a powerful catechin found in green tea, has become a mainstream weight management ingredient in products including sparkling Enviga co-marketed by Coca-Cola and Nestle.

Now antioxidant-rich green tea is being added to dairy drinks that promote healthy weight loss. In September 2008 Cedilac-Candia launched Weight Control Milk in France. In addition to Fabuless-a patented satiety ingredient-this milk contains green tea extract. And in Austria Nöm, which has already launched a line of yogurt-based satiety beverages, broadened its dairy profile in 2008 with the introduction of Fasten Tea Drink designed to stimulate the metabolism and control weight. It is made with green tea extract.

From indulgent to better-for-you products, tea is allowing dairy-based beverages to innovate in unique ways.

Contributed by Krista Faron, Senior Analyst, Mintel International

Reformulation May Need More Work

Acooperative effort in the dairy industry has produced a new, reformulated flavored milk that comes in at under 150 calories and still tastes good, but now it looks like the unpredictable debate over nutrition knocked the glass over and spilled it all over the furniture.

The industry responded quickly in late 2007 when it appeared as if new school nutrition guidelines would exclude the standard 180- to 200-calorie flavored milk from the schools. Flavor houses and processors worked with MilkPEP and DMI to reformulated flavored milk, and several have made there way into schools. But the latest proposals may result in school nutritionists looking at how flavored milk contributes to the saturated fat total in a given meal, sending flavored milk back to drawing board.

“The School Nutritionists Association has taken the debate toward national nutritional standards that would reduce the fat in flavored milk,” says Doug Adams, pres. of Prime Consulting Inc., which helped MilkPEP with the reformulation project that began in 2007.

Shifting to lower fat while retaining a desirable flavor and body is not so difficult, and it has already happened with much of the flavored milk in schools. What’s more troubling is that some public opinion has called for the elimination of flavored milk altogether, Adams says. And flavored milk makes up 65% of the milk sold in schools.

“Anyone who advocates that is overlooking all the great nutrients that would be lost,” he says. “As an example, milk contributes up to 40% of the calcium in the average school meal, and there is just no way to make up the loss of nutrients like calcium and Vitamin D.”

In Wisconsin, Laura Wilford, dir. of the Wisconsin Dairy Council, agrees that a lot hangs in the balance and all parties are keeping a close eye on what will happen with this year’s reauthorization of the Congressional Childhood Nutrition Reauthorization Act, which may or may not provide a standard.

“Wisconsin doesn’t have statewide guidelines because we do site-based management,” Wilford says.

“What I am hearing from the individual schools is that they want milk that they think the kids will drink.”

Price pinch

Wilford and others who work in the school milk arena say the recession is bringing renewed concerns about price to a channel that has only recently begun to emerge from a commodity mindset of notorious proportions.

“All the schools are concerned with price right now,” she says.

Camellia Patey is the VP of School Milk at DMI, and as such has been heavily involved in the New Look of School Milk program, which promotes the use of 8-oz. plastic bottles and an expansion of flavors as a way to increase school milk consumption.

“There is some concern right now because of the cost difference,” Patey said. “But we expect to maintain and grow beyond the 10,600 schools that are currently involved. We have set up recycling stations and the kids have taken it on as an environmental project. DMI presents research that shows meal participate and consumption increase dramatically with this packaging.”

Other evidence, including the St. Louis Milk Study, has shown dramatic results through more attractive paperboard packaging and enhanced flavors (see sidebar). In fact, the St. Louis/Southern Illinois area, served by Prairie Farms, which participate in the study, continues to be the highest selling school milk market in the United States.

Lower-calorie formulation can boosts prices too, Wilford says, but the selling point there can also be that they taste great and kids will drink more.

Milk vending has been fairly well established in Wisconsin schools for years, Wilford says, but there is room for more growth.

“I had anticipated that we might be seeing more machines because they have been taking out some carbonated products, but in some cases they are being replace with other products from the same companies like 100% juice and sports drinks and waters,” she says. “Those are better and soft drinks, but they don’t have nearly the nutrition of milk.”  n

Sidebar: Carton Program Reaches Milestone

Milk Rocks!, the successful campaign to promote health and nutrition to kids, has reached incredible milestones in the first year of the program’s existence, and has even more exciting new projects in 2009.

Through its partnership with Evergreen Packaging, Milk Rocks! has rolled out an astonishing 2.6 billion milk cartons with side panel messages to kids of all ages in elementary, middle and high schools nationwide. These cartons have engaged students through fun, kid-friendly activities which, in addition to being entertaining, influence positive dietary decisions.

Schools and dairies have seen significant increases in milk consumption up (to 34%) after updating carton graphics, offering more flavor options, and incorporating simple promotional tools like posters and side panel messages.