Movement Themes
by James Dudlicek, Editor
and Pamela Accetta Smith, Senior Editor

Strategic acquisitions by major players make the dairy world a little smaller.
The Top 100 is getting smaller.   Well, OK, there are still 100 companies on the list. But some recent acquisitions, mergers and sell-offs have put some historic names under new banners or, in some cases, wiped them entirely off the map.
Such maneuvers seem to have picked up in the past year, but thus far haven’t turned into the frenzy of industry consolidation of a few years back that, among other things, gave birth to today’s Dean Foods.
And as long as we’ve mentioned Dean, let’s look at some of the activity toward the top of the list:
“I’m pleased with our results for the first quarter,” Gregg Engles, chairman and chief executive officer of the No. 1 processor, said last month. “The Dairy Group continued its trend of solid volume and operating income growth, and WhiteWave Foods posted balanced growth across our core branded portfolio while leveraging operational efficiencies to achieve 25 percent growth in operating income for the quarter.”
Dean reported net sales for the first quarter of $2.6 billion, an increase of 5 percent from net sales for the first quarter of 2006, for which the company credits strong volume growth in its Dairy Group coupled with the pass-through of higher overall dairy commodity costs and continued sales growth at WhiteWave Foods.
Dairy Group net sales for the first quarter were $2.3 billion, a 4.5 increase from $2.2 billion in net sales for the first quarter of 2006. Segment operating income in the first quarter was $171.1 million, an increase of 9 percent year-over-year. Dairy Group operating income growth was driven in part by a 2 percent increase in fluid milk volumes and improved operational efficiencies.
“It has become clear that this will be a year of significant challenges for Horizon Organic,” Engles said of the brand that’s part of Dean’s WhiteWave group. “The industry-wide raw organic milk supply appears to be increasing over 40 percentthis year, while category growth has been steadily increasing 20 to 25 percent per year over the recent past. This significant supply-demand imbalance in the organic milk market creates a very challenging and volatile marketplace for Horizon Organic as competitors attempt to stimulate demand through lower retail prices and aggressive distribution expansion.
“As the market leader, we will respond quickly and meaningfully to protect our business through increased investment behind Horizon Organic. We expect this investment to negatively impact short-term profitability during this supply imbalance, but we are willing to make this investment to maximize the sizeable long-term potential of the business.”
Engles said he’s confident in Dean’s market position but is concerned about rising dairy commodity prices. “In the past, our Dairy Group has generally been very effective at passing through changes in the underlying commodities,” he said. “However, with expectations for consistently increasing prices throughout the remainder of 2007, we expect some challenges in the business, making us more cautious as we move forward.”
The No. 2 processor is under great scrutiny now that it has completed its long-awaited spin-off from Altria with Irene Rosenfeld at the helm. New management has been busy cleaning house and strategizing new product launches. The company’s new Breakstone’s/Knudsen LiveActive prebiotic cottage cheese is a promising hint of things to come as Kraft pursues dairy’s inherent wellness niche.
Meanwhile, rumors have been circulating in the financial community that gonzo investor Warren Buffett, who has been increasing his interests in the railroad industry, is building a stake in Kraft Foods.
Three years after stretching halfway across the country with its acquisitions of Kemps and Crowley Foods, the Massachusetts-based No. 6 processor (up a slot from last year) has planted its flag on the opposite coast. Already a national player through co-packing agreements, Hood last month announced its acquisition of Crystal Cream & Butter, a regional processor based in Sacramento, Calif.
Among other movement on the list:
• Kroger has edged past Schreiber Foods for the No. 4 spot, based on our estimate of the grocer’s dairy sales corresponding to an increase in its overall retail sales.
• Midwestern co-op Prairie Farms — bolstered by the acquisitions of Turner Holdings, Southern Belle and Mississippi’s LuVel Dairy — is back in the Top 10.
• Wisconsin butter maker Grassland Dairy Products vaulted to 24th from 38th with key acquisitions that increased its plants from one to four and moved its operating frontier westward.
• ConAgra Foods fell a few spots after dumping its cheese business, selling Swissrose International to Bing Graffunder’s Fairmount Food Group.
• With a new name, Upstate Niagara Cooperative merged its way up to the No. 34 spot from 49th.
• Stonyfield Farm — our 2006 Processor of the Year — continues to grow, rising 10 spots to 43rd.
• Off the list last year after its debut two years ago, Sartori Food Corp. is back at 65th after strategic acquisitions in the specialty cheese arena.
We also welcome two ice cream processors — Yarnell and Dippin’ Dots — back to the ranking, along with a new entry, Missouri’s Mid States Dairy (the dairy manufacturing arm of Schnuck Markets), debuting at 93rd.
Among those gone from the list are CoolBrands International, which has divested its manufacturing operations amid ongoing financial difficulties, and Giant Food, which has completed its exit from dairy manufacturing. Also losing their own spots are Turner Holdings (acquired by Prairie Farms) and O-AT-KA (now listed as a subsidiary of Upstate Niagara); North Dakota’s Cass-Clay Creamery, recently acquired by Associated Milk Producers Inc., enjoys its last independent ranking at No. 75.
In all, it’s been a dynamic 12 months since our last ranking — part of the reason why those in the Top 100 are where they are.
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