A Promising Sector

by Pamela Accetta Smith

Private label milk and dairy products are making the most of recent success.

Milk and other dairy products are doing tremendously well these days, and things are looking up for dollar sales and growth, especially on the private label side. In fact, private label and store brands continue to top their national counterparts as sales leaders in most dairy segments.

These products have come a long way, continuing to evolve from less-expensive generic products to offerings that present a range of characteristics not offered by the national brands, including a value price.

According to Chicago-based Information Resources Inc. (IRI), private label milk sales rose 6.8 percent during the 52 weeks ending February 20, 2005, owning more than half of the entire milk category’s dollar share at 58.7 percent. Subcategories of milk, such as skim/lowfat and whole milk, also have a hold on more than half the dollar share versus the total subcategory, with 62.8 and 64.4 percent dollar share, respectively. Private label butter also had solid growth, increasing a whopping 23.9 percent and bringing its market share to 45.9 percent against the total category.

After last summer’s pricing wars and diet trends casting milk in the shadow of high carbohydrates, it’s amazing to note that milk and other dairy foods have stood tall and haven’t budged under the pressure. In fact, it’s exactly the opposite as milk and dairy products continue on in an attempt to maintain category growth. “We’ve seen, obviously, that [milk] is a growing category versus the brands,” says Julie Buric, senior director of promotions for Washington, D.C.-based International Dairy Foods Association (IDFA). “A lot of private label and store brands are really looking at that as a way to differentiate themselves as an account or as the chain, and developing different flavors has set them apart from others. It depends on the chain itself as to the strategic implications of how they’re using their private label versus the national brands.”

Milk and Dairy Performance*
	Dollar Sales (in millions)	% Change vs. Yr. Ago	Dollar Share	Unit Sales (in millions)	% Change vs. Yr. Ago	Avg. Price Per Unit
Milk
Total private label	$6,617.7	6.8%	58.7%	2,674.5	-2.9%	$2.47
Total category	$11,279.6	7.3%	100.0%	4,573.5	-2.8%	$2.47
Flavored Milk/Eggnog/Buttermilk
Total private label	$203.7	5.9%	28.1%	111.6	-0.2%	$1.82
Total subcategory	$724.6	0.1%	100.0%	395.4	-7.0%	$1.82
Skim/Lowfat Milk
Private label	$4,264.6	8.0%	62.8%	1,749.8	-1.2%	$2.44
Total subcategory	$6,785.8	7.8%	100.0%	2,742.2	-1.7%	$2.47
Whole Milk
Private label	$2,133.4	4.2%	64.4%	805.5	-7.1%	$2.65
Total subcategory	$3,315.1	5.6%	100.0%	1,257.9	-6.0%	$2.64
Yogurt
Private label	$335.2	0.8%	11.8%	593.1	2.7%	$0.57
Total category	$2,838.1	7.7%	100.0%	3,220.7	4.5%	$0.88
Butter
Private label	$598.2	23.9%	45.8%	219.0	-11.1%	$2.73
Total category	$1,306.0	20.4%	100.0%	437.6	-10.0%	$2.98
Ice Cream/Sherbet
Private label	$929.0	-2.4%	21.2%	326.4	-8.4%	$2.85
Total category	$4,385.5	1.6%	100.0%	1,348.5	-1.4%	$3.25
Frozen Yogurt/Tofu
Private label	$34.8	-10.6%	19.7%	12.4	-13.2%	$2.80
Total subcategory	$177.0	-11.9%	100.0%	53.1	-13.1%	$3.33
Ice Cream
Private label	$832.5	-2.3%	20.7%	286.8	-8.9%	$2.90
Total subcategory	$4,013.8	2.6%	100.0%	1,221.9	-0.6%	$3.28
*Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the52-week period ending February 20, 2005. Totals include subcategories not listed on this chart. Source: Information Resources Inc.

Buric points to San Antonio-based H-E-B’s MooTopia, a reduced-carbohydrate, lactose-free milk, as a strong example of retailers using their store brands as an opportunity to grow the category. “It’s an enhanced product, it’s new packaging and it’s very progressive,” Buric says. “[H-E-B] looks at their store brand as a brand, and a lot of private label marketers are looking at that [as an example].”

Experts agree that retailers are doing a lot of the hard driving of the category, innovating and focusing on private label, tapping into and responding to consumers’ requests.

“Retailers are becoming more in tune with what the consumers want, and they all want convenience,” says Kikke Riedel, director of market research for IDFA, pointing to new products such as single-serve milk as filling a need with consumers. Also, she notes retailers are revamping stores to include a convenience store-type format with essential products, such as bread or milk, at the front of the store for easy in-and-out shopping.

“People want convenience and they want things easily accessible and it’s a way for some of these retailers to set themselves apart,” Riedel says. “They’re experiencing a lot of pressure from Wal-Mart and the like, so this is a way for them to carve out a niche for themselves, as being a nice, clean, light convenience store, in a way. If they can do it with their own products, so much the better.”

Also, consumers continue to ask for higher-quality products under private label brands, something that categories like ice cream — though down 2.3 percent for 52 weeks ending February 20, 2005 but still taking 20.7 percent of dollar share — have been happy give. “Retailers are starting to incorporate several tiers of offerings within category segments, including novelties that are similar to the best-selling super-premium brands,” says Tammy Shaw, vice president of sales and marketing for Mister Cookie Face, Lakewood, N.J.

Additionally, not only are new formats and sizes helping to grow the category, but new formulas as well. “We’ve noticed that products like flavored creamers and flavored milk pints are taking off,” says Annette Jim, director of marketing for Byrne Dairy, Syracuse, N.Y. “And those will continue to grow, as well as fat-free products like fat-free half and half.”

These new products are answering consumer demands, and new technology in the milk industry is helping to answer retailer demands of products with longer shelf lives. “With new technology, you can now get 90 days of shelf life on ultra-pasteurized milk,” Jim says. “That’s going to be a change in the market. Eventually you’re not going to see a lot of fresh milk with small codes of 18 days; you’re going to see the ultra-high-temperature (UHT) technology, which gives a longer shelf life. And the more you do that, the more you’ll have milk out there.” Jim also points out that national fast food chains are already using the UHT technology in their milk pints, which she says “is a big coup for the milk industry, getting it back in the hands of kids again.”

Shaking Things Up

In summer 2004, things weren’t looking so hot for milk and many other dairy foods. On top of products like yogurt and milk getting a bad rap for being high in carbohydrates, milk prices soared to new highs, dramatically decreasing sales.

“As the economy goes up and down, the price of milk goes up and down,” Buric explains. “This past summer there was a terrible price war for milk. It was at record-high levels and we did see consumption drop. That definitely plays a large role in [the category]. People will still buy milk, but maybe not as much, and they don’t drink as much as they would otherwise when [the price] is at al level they expect it to be.”

Now that milk prices have come down, the dairy industry is stepping up efforts to combat the idea that dieters should stay away from milk and dairy products. IDFA, for one, launched the “24/24 Milk Your Diet. Lose Weight!” campaign, encouraging consumption of 24 ounces of lowfat or fat-free milk daily to help control weight. Clinical studies show that adding milk and calcium to your diet actually helps metabolize fat and can help people lose weight more than simply cutting calories alone. This campaign, while educating consumers on the importance of dairy in everyday life, is a huge opportunity for manufacturers and retailers to set themselves apart from national brands.

“Some of the message has been put on packaging, and that’s a great opportunity for private label marketers, to get that message on their milk package,” Buric says. “It’s a reason for consumers to look at milk in a new way, buy more of it, drink three glasses of it a day.”

Buric also notes that since the campaign started, there has been significant growth in awareness among moms and other family gatekeepers. “With that awareness, we’re seeing sales of fat-free and 1 percent milk climb,” she says. “We’re starting to see that it has an impact on people’s choices on when to drink milk. Flavored milk is a part of that, too. We’re hoping to bring consumers back in to drinking three glasses of milk a day, and maybe a little bit more.”

With such tremendous innovation and focus, private label milk and dairy products are definitely doing things right and setting themselves up for continued growth, milking the dairy categories for all they’re worth.

Cheese, Please

There have been several new developments in the industry over the past year that have impacted the cheese category. And private label products in this sector are holding their own against national brands.

“Having spent my career in cheese and dairy products I had most of my paradigms set decades back. I never anticipated the level of penetration on the part of some dairy category store brands that have actually occurred,” says Steve Fay, vice president of Roscoe, Ill.-based Berner Foods. “To the point, a major retailer recently shared with me that their goal for category penetration is 50 percent in store-brand natural cheese.”

Fay says an issue that must haunt category managers is the need for outside dollars to fill the advertising “buckets” while trying to draw as much of the enhanced store brand margin as possible. “Where is the tipping point? How long will the large brand players be committed to categories that are imploding for them both from a margin and a volume perspective? It may be that some store brand categories in dairy are already at the breaking point,” he says. “Most retailers have been good reactively and tactically but do not do as well strategically beyond a very short horizon. They might just push it until it breaks. Then what?

“It is not unprecedented for very large consumer products companies to reassign assets, dump a category of products — even a very large one — and move on to more profit productive endeavors. It occurs to me that some highly commoditized cheese categories are not the natural playing field for large consumer products companies whose margins are dependent upon brand aura.”

Cheese Performance*
	Dollar Sales (in millions)	% Change vs. Yr. Ago	Dollar Share	Unit Sales (in millions)	% Change vs. Yr. Ago	Avg. Price Per Unit
Cottage Cheese
Total private label	$309.4	-0.7%	35.8%	159.5	-0.3%	$1.94
Total category	$865.4	0.1%	100.0%	413.5	-0.8%	$2.09
Natural Cheese
Total private label	$2,126.9	7.1%	35.9%	863.6	-3.3%	$2.46
Total category	$5,922.2	11.0%	100.0%	2,156.1	2.0%	$2.75
Natural Chunks
Private label	$836.7	4.1%	38.0%	291.4	-6.2%	$2.87
Total subcategory	$2,203.9	8.0%	100.0%	714.8	-1.5%	$3.08
Natural Crumbled
Private label	$10.5	32.8%	7.7%	4.6	12.6%	$2.27
Total subcategory	$135.8	12.1%	100.0%	48.6	5.8%	$2.80
Natural Cube
Private label	$13.1	-9.8%	15.0%	5.8	-18.1%	$2.25
Total subcategory	$87.3	17.1%	100.0%	31.9	4.8%	$2.74
Natural Shredded
Private label	$856.6	7.8%	42.5%	351.3	-1.5%	$2.44
Total subcategory	$2,014.7	10.0%	100.0%	797.0	1.5%	$2.53
Natural Slices
Private label	$163.0	20.0%	27.9%	65.2	8.0%	$2.50
Total subcategory	$583.4	25.6%	100.0%	196.4	16.5%	$2.97
Natural String Cheese
Private label	$100.8	17.5%	24.3%	88.4	-9.7%	$1.14
Total subcategory	$414.1	23.4%	100.0%	207.4	4.0%	$2.00
Processed Cheese
Private label	$455.8	-1.5%	19.5%	198.5	-9.1%	$2.30
Total category	$2,335.8	3.4%	100.0%	838.5	-1.5%	$2.79
Aerosol/Squeezable Cheese Spreads
Private label	$4.5	-7.9%	5.7%	1.7	-5.9%	$2.63
Total subcategory	$79.2	-1.7%	100.0%	24.4	-2.0%	$3.24
Cheese Spreads/Balls
Private label	$26.6	-13.0%	8.5%	10.3	-17.2%	$2.58
Total subcategory	$314.0	11.4%	100.0%	96.5	4.9%	$3.25
Processed Loaf
Private label	$11.2	-24.9%	4.0%	2.9	-28.2%	$3.86
Total subcategory	$278.2	3.3%	100.0%	68.6	3.3%	$4.06
Processed Shredded Cheese
Private label	$7.2	57.6%	64.4%	2.7	33.9%	$2.67
Total subcategory	$11.2	37.0%	100.0%	4.3	23.4%	$2.58
Processed Slices
Private label	$353.1	-2.2%	24.8%	156.3	-10.6%	$2.26
Total subcategory	$1,422.1	2.0%	100.0%	560.5	-3.2%	$2.54
*Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the52-week period ending March 20, 2005. Totals include subcategories not listed on this chart. Source: Information Resources Inc.

Fay says he has seen the introduction this year of more peripheral items, such as cheese spreads. “There is, of course, the bulk product repacked in the deli cup and thrown on the gondola that has occurred for years,” he says. “But I was particularly impressed with the introduction last fall of some wonderful products that tasted great and had great packaging that were packed off site.”

Fay says there is a continuing progression of more and more varieties of cheeses being candidates for store brands. “For example, I recently saw a relatively minor product — blue cheese crumbles — in a store brand,” he says. “It is apparent that the retailers, having addressed the major product groups, are testing the waters farther and farther out on the scale.

“I have also been impressed with the new generation of packaging with environmental controls, such as nitrogen-flushed, ready-to-eat pre-chunked cheese in full-view containers. I realize that the technology has existed for years but its applications have only been used in party trays and pre-chunked products recently. For me personally, it is appetizing and says ‘buy me and eat me.’”

Overall, Fay says retailers are addressing the cheese category very well. “I even question if it is not being too well addressed,” he says. “If retailers do not step up to actually advertise the category and drive it when they become the dominant shareholder, sales might flatten or decline.”

Fay comments on the category having some of the greatest run-ups in pricing in recent history. “I believe that so long as people are employed and reasonably confident about their futures that the pricing envelope is more expandable than we imagine,” he says. “It is somewhere just beyond the seller’s cowardice and somewhere just short of the point that buyer walks away. Having said that, pricing is always important.”

Regarding private label pricing of commoditized cheese products, Fay says the gap may be less than the standard gaps for national brands and store brands. “If consumers have confidence that store brands are national-brand equivalents, I believe the price gap may be reduced dramatically,” he says. “If $2.79 was the price for national-brand shredded cheese, the standard 15 to 20 percent gap would equate to a $2.19 to $2.39 store brand. That is 40 to 60 cents. I believe 20 cents might accomplish the same thing. Brand aura in cheese is not that great, in my opinion.”

Nonetheless, Fay believes the cheese category will continue to grow. “We are on a 20-plus-year continuum,” he says. “People love cheese. It delights the palate. It satisfies like few other products do. Store brands will continue to grow so long as retailers emphasize it, merchandize it well and show value to their consumers.”

Source: PL Buyer

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