Putting a spin on the old Blood, Sweat & Tears classic, “Spinning Wheel,” what comes down must go up. That’s exactly what’s happened in the butter category, where last year’s comfortably low prices have become just a vague memory.

In recent months, prices have risen rapidly, surging from $1.39 per pound on January 5 to $2.36 on March 25. One year ago, that figure stood at $1.09, a disparity that has led processors to be understandably concerned.

“The market has accelerated in the past two months to unprecedented levels, so everything in terms of costs has accelerated very rapidly as well,” says Tom Hickey, marketing manager, Level Valley Creamery, West Bend, Wis. “The butter market is the highest it’s ever been this early in the year, and there’s a lot of trepidation as to what the supply of milk is going to be over the summer months and into the fall when everybody’s demands increase dramatically.”

According to Hickey and others, some retailers try to manage such price fluctuations by “playing the market.” That is, they build up their inventories while prices are low so they will be able to meet demand without raising prices during times of crisis. This tactic may be a wise one, as butter demand has remained high so far. According to data from Chicago-based Information Resources Inc. (IRI) for the 52-week period ending March 21, 2004, unit sales of butter in supermarkets, drugstores and mass merchandisers, excluding Wal-Mart, dropped just 1.1 percent.

Still, “retail sticker shock” is bound to hit consumers in the near future, says Jed Davis, director of marketing, Cabot Creamery Cooperative, Cabot, Vt. But he’s encouraged by the continued strong demand for butter, which he sees as evidence that the American food industry has finally fully rebounded from the setback it suffered following the 2001 terrorist attacks.

Growing awareness of the dangers of trans-fatty acids, present in most margarines and spreads, has helped many consumers recognize the benefits of sticking with real dairy butter, according to Debbie Boyce, director of foodservice and retail sales, Odell’s, Reno, Nev. Indeed, IRI data shows high pricing has not resulted in any sort of mass exodus from butter to other alternatives, as unit sales of margarine, spreads and butter blends fell 6.3 percent during the same 52-week period.

“As there’s more consumer awareness of the health impact of those types of alternatives, consumers will be hesitant to move away from butter, which is an all-natural product that doesn’t have trans-fats or hydrogenated oils,” says Boyce.

Some processors cite the Atkins diet craze as another factor contributing to the continued strong demand for butter. While it certainly seems logical that a diet promoting the consumption of high-fat animal products would boost interest in butter, a closer examination reveals the whole low-carbohydrate trend is actually a double-edged sword. On the one side, weight-conscious consumers are no longer afraid of fat and, thus, more willing to incorporate such previously taboo foods as butter into their diet. At the same time, many of butter’s most popular carriers, such as bread and baked potatoes, are deemed no-nos for Atkins enthusiasts.

On the foodservice side, previous spikes in butter pricing have caused restaurateurs and food manufacturers to seek out alternatives to butter. This time around, however, processors report they have not witnessed such a trend. In fact, Hickey reveals that sales of Level Valley’s butter/vegetable oil blend product have not increased as expected. In part, he credits high soybean prices for keeping demand for such products low and, thus, enabling operators and manufacturers to stick with butter.

Granted, processors must do their part to give consumers reasons to stick with butter. For a category in which innovation doesn’t come naturally, however, flexing one’s R&D muscle hasn’t been easy. That said, industry groups like the American Butter Institute have long been aware of the issue that presents the greatest opportunity for processors.

“One of the largest complaints we’ve always had about butter is that it’s not spreadable,” says Jerry Kozak, executive director of the Arlington, Va.-based organization. “Anybody who has ever tried to microwave butter to get it soft right from the refrigerator has found they can’t seem to get it down just right.”

Responding to those consumer needs, top branded butter maker Land O’Lakes, Arden Hills, Minn., recently introduced two new products — Land O’Lakes® Soft Baking Butter with Canola Oil and Land O’Lakes Spreadable Butter with Canola Oil. By adding oil to the mix, Land O’Lakes has accomplished its goal of providing customers with products that are spreadable straight from the refrigerator. While the Spreadable Butter allows consumers to more readily use the product on bread, pancakes and other foods, spokesperson Lydia Botham says the Soft Baking Butter has opened new doors for home bakers, frustrated by the limitations of traditional butter.

“When baking cookies, if you over-soften the butter, your cookie dough tends to be too warm, so it spreads quickly in the oven and you get these flat cookies,” she explains. “With this new product, you just take it out of the refrigerator, put it in your mixing bowl and, in about 20 minutes, you’ve got a batch of fresh cookies made from scratch.”

Not everyone is so enthusiastic about these strategies for making butter more consumer-friendly. Hickey expresses concern over the potential confusion such products could cause in the marketplace if consumers fail to understand that “spreadable” products are not pure butter. Meanwhile, Joe Fallon, vice president of marketing, Keller’s Creamery LLC, Harleysville, Pa., feels processors are “blurring the line between butter and non-butter products” and risking the integrity of butter in the process.

As for Land O’Lakes, Botham argues the company was very clear in naming the two products, stating upfront that they are butters “with canola oil,” so consumers will know exactly what they are getting. Because they contain zero trans-fatty acids and eliminate the spreading problems of traditional butter, Botham is confident consumers will react positively to them.

“These are definitely exciting additions to the category because there hasn’t been a lot of innovation over the past few years,” she says.

Land O’Lakes may find itself with some stiff competition in the form of Silver Spread, a newly developed all-natural alternative that boasts the taste and mouthfeel of a full-fat spread, but with 70 percent less fat and 60 percent fewer calories than butter or margarine. Free of chemicals, emulsifiers and preservatives, Silver Spread
is manufactured exclusively from milk and dairy byproducts, and has been classified by the Food and
Drug Administration and the U.S. Department of Agriculture as a light butter. Although it contains no hydrogenated oils or trans-fatty acids, the product spreads directly from the refrigerator and is suitable for baking and cooking.

“It’s quite distinctive from anything else on the market,” says Jules Silver, president of Silver Research Inc., the Boca Raton, Fla.-based development company that formulated the product with the assistance of Rosemont, Ill.-based Dairy Management Inc. “It’s really the ideal product both from a health standpoint and from a farmer’s benefit standpoint.”

For Odell’s, the focus has been on bringing its foodservice butters to the retail market. The company offers a 100 percent natural clarified butter, sold using the tagline, “For cooking, for baking, for flavor,” as well as its Chef’s Butter line of shelf-stable “seasoned finishing butters” in flavors such as Basil Pesto, Garlic Herb and Steakhouse.

Cabot rolled out a “baby-pack” version of its salted quarters, containing two sticks per carton instead of four. Keller’s, meanwhile, introduced a new package for its popular Falfurrias butter. Designed to appeal to the burgeoning Hispanic-American population, it features both English and Spanish text. “It’s a brand that has a very strong Hispanic following, so we’re catering to that market and acknowledging that market very strongly,” says Fallon.

While some consumers remain stringently brand loyal, private label products account for 50 percent of retail butter sales. This trend could be considered a negative in that it perpetuates the “commodity” image many dairy products, including butter, have fought to shed. But many processors believe private label actually may enable some consumers to stick with butter during times of high pricing because they can temporarily switch to a value-priced store brand and then return to their branded favorite once prices calm down.

“As the market goes higher and you see retails on butter all over three dollars, people are going to be reluctant to choose the brand,” says Hickey. “When they see that the private label alternative is at least 40 to 50 cents less per package, they are going to be far more likely to put that product into their grocery cart.”

Top 10 Butter Brands*
	$ Sales (In Millions)	% Changevs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$478.2	-1.1	100.0	446.2	-1.0
Private Label	236.7	-3.4	49.5	231.0	-3.6
Land O’Lakes	125.3	-3.4	26.2	112.7	-2.0
Challenge	18.7	3.8	3.9	15.3	5.0
Crystal Farms	9.8	16.2	2.1	9.5	17.1
Tillamook	9.1	17.5	1.9	9.1	17.5
Kellers	8.5	12.8	1.8	8.1	11.7
Breakstone	13.4	1.4	2.8	7.2	2.3
Hotel Bar	7.5	13.4	1.6	6.7	10.3
Cabot	5.1	14.2	1.1	5.1	14.2
Darigold	4.1	-13.1	0.9	4.0	-12.7
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending March 21, 2004.SOURCE: Information Resources Inc.

Top10 Margarine/Spreads/Butter Blend Brands*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$861.5	-6.3	100.0	1,077.4	-6.3
Shedds Country Crock	100.0	-2.3	11.6	194.0	-3.3
Private Label	116.6	-5.0	13.5	166.9	-4.6
Blue Bonnet	93.8	-13.9	10.9	115.2	-11.9
Can’t Believe It’s Not Butter	109.2	-8.2	12.7	110.5	-8.7
Parkay	73.5	-9.4	8.5	81.0	-9.3
Imperial	73.0	-7.1	8.5	81.0	-9.3
Land O’Lakes	47.2	15.9	5.5	44.4	9.0
Country Crock Churn Style	19.2	-12.5	2.2	40.0	-7.5
Fleischmanns	34.4	-11.9	4.0	34.3	-11.6
Can’t Believe Light	30.7	-15.8	3.6	32.5	-15.6
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending March 21, 2004. SOURCE: Information Resources Inc.