Photos by Vito Palmisano

Bottling milk is not for the faint of heart. It can be a low-margin business that requires attention to every detail. Fluid milk processors know the trends and challenges better than anyone: steady, annual declines in the sales of gallon jugs; a tendency to eat breakfast on the run rather than at the kitchen table; a lack of advertising dollars to promote the health benefits of milk; consumers’ preference for other beverages; and federal regulations that inhibit innovation.

Yet there are other movements in play that work in milk’s favor. For instance, consumers have a growing interest in nutrition, health and fitness. They are getting the message that protein is an important nutrient in the diet. Consumers like to buy new foods and in new formats (especially those that are portable). Finally, the public is demanding that businesses (including food companies) be transparent and act ethically.

One dairy processor that is trying to change how, when and where Americans drink milk is Chicago-based fairlife LLC. The company is focused on delivering health and wellness to consumers through dairy foods. One cup of its high-protein refrigerated milk (called fairlife) has 50% more protein than conventional milk. Core Power is a shelf-stable exercise-recovery milkshake made with milk. Newly introduced YUP! is a reduced-sugar flavored milk for teens and young adults. The company’s high-protein Greek yogurt is sold by national restaurant chains, including Chick-fil-A.

To make the fluid milk products, fairlife developed propriety filtration processes and invested hundreds of millions of dollars in a processing plant in Michigan, where its efforts in sustainable manufacturing yield less than a Dumpster’s worth of trash after a production run.

For these reasons, Dairy Foods selected fairlife LLC as the 2015 Processor of the Year.

fairlife began as a subsidiary of Select Milk Producers and in 2012 entered into a joint venture between the dairy cooperative and The Coca-Cola Co. Select Milk Producers is the sixth largest co-op in the United States, according to Hoard’s Dairyman, an industry journal. The co-op markets over 6 billion pounds of milk annually from its 99 member farms in the Southwest and Midwest. The co-op owns plants for drying and condensing milk and cheese processing in New Mexico and the Midwest. Select Milk Producers sells its raw milk to major milk and cheese processors, including Dean Foods, Kroger, H-E-B and Meijer.

Not a dairy but an innovation company

fairlife CEO Steve Jones doesn’t call fairlife a dairy. It’s “an innovative health & wellness company,” he said. Although fairlife has developed a new premium-priced milk for grocers’ dairy cases, Jones said the company’s mission is not to fix the decline in traditional gallon jug milk sales or bring consumers back to the gallon milk category. Instead, he talks about making milk relevant for people seeking better nutrition. The company’s slogan is “believe in better.”

The origins of the company can be traced to a New Mexico dairy farm that Mike and Sue McCloskey were partners in back in the 1990s. (McCloskey is the CEO of Select Milk Producers.) The cows had decreased their water consumption because there was too much sediment in the water drawn from an aquifer on the farm, due to a collapsed well. McCloskey fixed the problem with a filtration system that yielded pure, clean water.

In the 1990s, the Atkins diet and others like it popularized the notion that protein was an important nutrient. The McCloskeys thought about using filtration to improve milk.

“I was convinced that we really had something from a health-and-wellness platform,” he said. “Protein in milk is the best protein from an amino acid profile. I knew we could separate it. I knew that we could get rid of the sugar. Obviously, we’ve been able to set the level of fat. I knew we could take the lactose that was left and convert it to get back to the sweetness of milk without increasing the calories.”

The McCloskeys separated milk and recombined the components in different ratios. Their children and neighborhood kids served as taste testers. A friend of the McCloskeys had a daughter on the U.S. Olympic crew team. The coach was having his athletes drink milk laced with honey after workouts. McCloskey worked with the coach on a formula of high-protein milk sweetened with honey. The result was Athletes Honey Milk (later renamed Core Power).

About the same time, Select Milk Producers developed another new product. MooTopia was a high-protein milk made expressly for the Texas grocery chain H-E-B, which continues to sell it today.

Twenty years later, Sue McCloskey still marvels at having all the members of the co-op agree to back Athletes Honey Milk.

“We’re just a bunch of farmers who are incredibly progressive and want to think out of the box. There wasn’t one person that was out of step with the whole thought process,” she said. “They were out there on weekends pushing Athletes Honey Milk to their friends. They would just buy cases and cases and just go give it to friends.”

But such grassroots efforts could only go so far. The co-op was not going to see big sales without better distribution. Mike McCloskey said the co-op sought agreements with various companies, but discussions stalled out in meetings with middle-management executives. It could not reach the top decision makers.

“We had great R&D but we sucked at marketing,” McCloskey said. “We just couldn’t put the story together properly.”

Enter Steve Jones who brought a fresh set of eyes to the product and to the company.

“[Jones] shows up at our board and puts a whole picture in front of us. And we go, ‘We’re with this,’” McCloskey said.

Jones convinced the board to build a $120 million plant in Michigan and then brought on The Coca-Cola Co. as a partner. Coke and the co-op would later turn fairlife into a joint venture.

“There are other companies that wanted to do what Coke did with us. We chose Coke together because we think they’re the best partner. We’re very happy about the decision,” McCloskey said. “There we were, basically a startup company trying to compete in the beverage world and then Coca-Cola takes an interest in us. fairlife brought the most iconic and successful beverage and marketing company in the world into dairy and it will never be the same. And that’s a good thing.”

Dairy Management Inc. CEO Tom Gallagher said Coke’s entrance into the milk business is the most significant event he has seen in the dairy industry in the last 20 years. DMI promotes milk and research into milk, and receives funding through the dairy checkoff program. Coca-Cola’s expertise in brand building and distribution will help the dairy category, he said.

In 2014, the company test-marketed its new high-protein fairlife milk in Minneapolis and Denver. In 2015, the brand became available nationwide and immediately garnered national publicity.

Coke’s involvement with fairlife drew fire from cynics who decided any beverage from a maker of sugary carbonated soft drinks could not be healthy. Because the manufacturing process filters and recombines components, some critics called the product “Franken-milk.” That showed a lack of understanding; the sole ingredient in fairlife is milk. When it came to a blind taste test, though, even the hipsters at the snarky website Buzzfeed had to admit they preferred 2% fairlife to an organic milk brand.

Jones is no stranger to building national brands. An early foray into consumer-packaged goods marketing was as brand manager of Huggies diapers. After that product became competitive with market leader Pampers, The Coca-Cola Co. recruited him and put him in charge of Diet Coke which was experiencing a meteoric rise in the 1980s. Jones then spent 10 years abroad in the UK and Japan before returning to the United States as president of The Minute Maid Co.

It was then that Jones and his marketing team designed the original Simply Orange brand strategy with the objective of developing a value-added, natural premium brand. Jones said that it is poetic that Mike Saint John, the future Minute Maid president who turned Simply Orange into a billion-dollar brand, was the one who recognized the potential of value-added milk within the Minute Maid system. Saint John now sits on the fairlife board of directors.

After leaving Coca-Cola, Jones was a consultant to early stage and emerging beverage companies. Then he met the McCloskeys and eventually agreed to lead their efforts into commercialization of their value-added dairy business.

Connecting with consumers

Jones is definitely not following the Dairy 101 marketing manual used by family-owned regional dairy processors. These dairies are bottling both branded milk and commodity store-brand milks and packaging them in similar plastic jugs or paper gable-top cartons.

Jones is heading fairlife in a different direction by manufacturing a value-added premium-priced product. Instead of jugs or cartons, the company uses distinctive tapered plastic recyclable bottles in 11.5-, 32- and 52-ounce volumes.

To make fairlife successful, Jones said he has to be provocative.

“You have to provoke [consumers] to think differently. There’s no question that milk is good. Everybody knows it’s Nature’s perfect food. fairlife is not challenging that. But is being good good enough? That’s kind of a provocation.”

Jones said he has to reframe consumers’ perceptions by telling them that all milk is not the same.

“I’m going to give them a reason to reframe. fairlife tastes great and has much more protein, calcium and less sugar, which is the nutrition profile people consider relevant these days. Today’s shopper knows that protein builds lean muscle and provides strength. Now I have their attention, but I don’t have their heart and soul yet. I only get to their soul when I connect on values.”

The next step is “to connect on the values set for them to make a commitment to the brand. The brand has got to stand for something more than the functional. That’s why you got to have this ideal, this bigger idea, and get them to buy into that. So you advocate for their values by telling them what your values are. We value family farms. We value family farms who work harder to treat animals better. We value people who take care of the land so that it’s healthier than before. We value farmers who strive for a zero-carbon footprint. That’s what we value.”

At this point, hopefully, Jones said consumers will say: “Wow, I have those values too. Now they’re buying you. They are going out of their way to look for you now.”

He continued, “Our mission is to provide health and wellness on a big scale to a lot of people so it’s all affordable and the planet is in better shape for it. That’s our mission. Do you want to join that mission?”

“It’s not so much about bringing people back to something they used to drink. It’s about reshaping the milk proposition in a way that meets their current needs and attitudes,” Jones said.

“Getting people to come back to something is the hardest thing in business. Traditional gallon jugs will always have their place, but it’s not where the future growth of the market is going to be,” he said.

The public is reassessing its food and diet needs, and shoppers are seeking more functional nutrition, he said.

“We have to engage with them within that new attitude of health and wellness,” Jones said.

For example, Jones gave the example of a woman who has just been advised to increase calcium to prevent osteoporosis. She might not consider conventional milk as her solution. But, Jones said, if you “sneak up on her and say, ‘Psst, hey lady, want a great tasting, creamy- smooth smoothie with fruit, and oh, by the way, is made with real milk which includes calcium?’ she probably replies, ‘Oh that sounds great. It sounds appetizing and it [has] calcium.’

“That’s how you get her back into milk,” Jones said. “Milk is the carrier of what she needs, but you’ve positioned it and you’ve actually formulated that milk into a form and a shape that meets her needs and matches her value set. She didn’t come back to milk. We proposed a new beverage with the nutrition she needs to live a healthy, active life.”

A roadblock to innovation

What will get in the way of fairlife as it develops new products? It’s not milk supply (“I think we have the best quality milk in America,” Jones said.) Nor is it technology. The barrier to innovation is regulation, starting with the federal standard of identity for milk, he said. And Jones is not alone with this view. It is a common complaint of other dairy processors and their trade group, the International Dairy Foods Association.

“The regulations  are more [about maintaining] status quo, maintain the existing order,” Jones said. “We’re trying to be rebels and break through. Don’t get me wrong, I think that standard of identity is important, because you’ve got to have a baseline. You can’t be allowed to sell something inferior and get away with it. But we think it is too restrictive to say that must be the only formula for milk. If we can’t innovate with different levels of solids then we can’t be relevant to changing consumer needs nor can we be competitive on a global basis.”

Other beverage categories are allowed to use names and make claims that the dairy industry cannot. To understand the frustration of milk processors, look at the plant-based beverages category. Manufacturers of almond, soy or rice beverages are allowed to call their nondairy products “milk.”

“To me, it’s an inhibitor, allowing these alternatives that aren’t even milk to call themselves milk,” Jones said, adding that manufacturers of these nondairy drinks are allowed “to declare that they are better than milk. [Regulators] are allowing them to do that.”

Yet fairlife, which is made of only milk, has to be described as “ultra-filtered milk.” The absurdity is that the regulation singles out a process, not an ingredient. Filtration is widely used in the dairy industry. Yet other processors of dairy foods do not have to label their products as filtered yogurt or filtered cheese.

Jones did say he is appreciative that the FDA has been open to listening to fairlife’s position. But the company wants to see action, and the sooner the better.

“Some may feel that we are impatient. We don’t see it that way,” Jones said. “The dairy industry competes against all beverages and we are losing, in part, because our regulations do not encourage good innovation. The change must be now. It is not only our national market but also our international market that is at risk. It is not easy to change something that is imbedded into our industry for so long, but as technology has advanced, our regulators are listening. We thank them for that.”

The Michigan dairy plant

The filtration occurs in fairlife’s facility in Coopersville, Mich. Reverse-osmosis and ultra-filtration processes separate protein, fat, lactose, water, and vitamins and minerals. These are later recombined in specific ratios, according to the recipe for each beverage. Arrays of stainless steel tubes holding filters glimmer in the plant’s well-lit processing room. The arrangement of the filters and the way in which milk flows through them is central to fairlife’s operation.

fairlife selected the site because it is next to a Select Milk Producers drying plant.

“It was natural for us to partner up with the existing facility here,” said Tim Doelman, who oversees the plant as fairlife’s senior vice president of operations and product development.

Select Milk Producers receives more than 100 loads of milk every day from dairy farmers in western Michigan and Indiana. The milk is tested and the tankers are unloaded, cleaned and sent back out. fairlife sells excess cream back to the co-op, which markets it to other dairies.

“I think it’s probably the most traceable milk in the country,” Jones said. “It’s not mixed within other farmers’ milk.”

About 30 of those truckloads of milk are piped to the fairlife side of the plant to be processed and packaged into dairy beverages. The plant, which runs around the clock seven days a week, also makes single-serve coffee drinks for illy issimo, a Coca-Cola brand.

“That’s one reason why Coke is so interested in us,” Doelman said. “Not only do we have the ability to make these kind of products but we have the milk supply.”

The milk is kept cold from the day it arrives to when it leaves in a bottle (except for pasteurization, of course). Some milk is filled at ambient temperature for aseptic shelf-stable packages.

“We keep everything chilled the whole way through,” Doelman said, enumerating the steps: cold separation, cold filtration, cold storage and cold batching. “Cold is for us anywhere between 36 to 38 degrees.”

After bottles are filled and case-packed, they are picked up by trucks and taken to warehouses and distribution centers.

The plant buys preforms to blow-mold its own bottles. The next step is transitioning fairlife products to a plant-based material that is now used for illy bottles. The so-called PlantBottle is made from up to 30% plants and is what Coke uses for its Dasani product.

The transition to the plant-based material is one example of sustainable processing practices in Coopersville. Another is water use. Because of the filtration process, fairlife ends up with excess water, Doelman explained. It’s used for rinsing, cleaning and sanitation.

“We pull it back in, clean it up and reuse it. I don’t want to buy water and send my good water down the drain. We make a point to recapture it and reuse it throughout, which diminishes both the sewer side as well as the demand side.”

Other sustainable practices include processing more efficiently and requiring business partners to deliver supplies with less packaging.

“We just produce less waste,” Doelman said. “We try to minimize ourselves to a Dumpster and that’s it. A bin should be all you see for a full production run. For a big facility making millions of cases, we just really work on the execution of the filling process to minimize that waste associated with everything.”

The plant operates with about 130 employees working two 12-hour shifts, three days one week, four days the next.

Doelman called the workforce “very talented” and “bright.” Few had dairy industry experience and Doelman said he wasn’t necessarily looking for it. The most important employee attributes, he said were “the work-hard ethic” and “the ability to think and be logical and solve problems. We really looked for the ability to kind of be mechanical and logical;  to be able to solve things. Those are the most important attributes. We felt we could teach food safety to our employees.”

New hires have to pass aptitude tests and endure “a pretty tough interview process,” he said. Once hired, they progress through a sequence of jobs and responsibilities.

“We’ve had a tremendous amount of movement through the plant of personnel and always moving up the levels of sophistication. They’re all cross-trained. We really expect them to manage the facility and they really do. They really own their space,” Doelman said.

Greek yogurt for foodservice

A pilot plant at Fair Oaks Farms in Indiana makes high-protein, nonfat, lactose-free yogurt sold to restaurants in bulk containers.

“I’m a big believer in yogurt. I think the health and wellness platform in yogurt for our company would be huge,” McCloskey said.

Without a doubt, McCloskey will have a hand in its development. He is an inveterate tinkerer and dreamer who won’t let go of an idea. DMI’s Gallagher called him a “big thinker” and one who is willing to take risks.

McCloskey’s search for answers sometimes takes him far away from the dairy industry. He has found answers to problems in the mining, automotive and natural gas industries.

Confronted with managing cow manure on his Indiana dairy farm, McCloskey built a digester to convert it to methane to then generate electricity. There was a problem: sand from the cows’ bedding fouled the machinery. So McCloskey modified equipment used in the mining industry. Problem solved.

He now had enough methane to generate electricity to power all the buildings on the farm, plus a surplus. McCloskey decided to convert the surplus into compressed natural gas to fuel the farm’s fleet of trucks. There was a problem: there were no engines burning CNG that were powerful enough to pull his tankers. So he asked Cummins to build an engine and worked with Kenworth to build a truck body. It wasn’t easy.

McCloskey said he “was sat down a few times by good friends who said, ‘You really ought to reconsider this. It’s not going to happen.’ I said, ‘There will be trucks running down I-65.’ But they didn’t run well. Everything was wrong. There wasn’t one thing right.”

But he stuck with it and eventually the engines and trucks were built and ran properly. Today, the dairy cooperative operates 42 12-liter engines burning CNG and delivering 63 loads of milk daily. The trucks travel 12 million miles a year.

“We’re moving 2 million gallons of diesel off the roads and burning it with a renewable natural gas made out of a biofuel,” McCloskey said.

The farm won’t ever run out of (or need to import) the raw material. Even after fueling the trucks and powering the buildings, the farm still has excess gas. It sells that back to the utility company.

Agri-tourism in Indiana

Fair Oaks Farms is a working dairy farm but it is also a tourist attraction visited by 500,000 people a year. There are restaurants, a gift shop and interactive exhibits. Over 200,000 people take the tour every year. For $27 ($22 for children and seniors) visitors have the run of the farm. They tour the Dairy Adventure building, the Birthing Barn, cow barns and a milking parlor, as well as the state-of-the-art 3,000-sow Pig Adventure and the kid-centric Pork Adventure exhibit. In early 2016, Winfield Solutions (Land O’Lakes’ crop protection and seed company) is opening the Crop Adventure experience to complement the campus.

The cooperative decided to invite the public to see dairy farming up close “because we’re proud of what we do,” McCloskey said. “The company is based on those values of transparency.”

Jones also shares the values of transparency, said Barbara O’Brien, the president of Innovation Center for U.S. Dairy at DMI. She points to his participation in industry meetings where he willingly shares his best practices in marketing.

McCloskey said the public doesn’t necessarily want to get a deep dive into everything.

“They just want to know someone’s taking care of it. They want to see it and feel it and smell it and see that the animals are happy and they’re stress-free. Then they want to know where the ice cream is, because they’re done.”

McCloskey knows the public is interested in issues like organic versus traditional farming, use of genetically modified organisms, and the application of herbicides and pesticides. The guides on the farm tour don’t duck questions about those issues.

“All those things need to be openly talked about and explained to the consumer. And we’re all for consumer choice. We have organic dairies, we have conventional dairies. There’s a variety out there and we believe that choice is great.”

A journey with no end

Jones described the future of fairlife. “Over the next 10 years, you’ll see us not only with fairlife and Core Power and YUP!. There are a lot of opportunities I think to shape milk into the way people want to buy it. Is our approach to fix the conventional dairy door and make it relevant? Not really. Our intent is to provide solutions for people’s needs that happen to be in that dairy door.”

Jones said there is no finish line to what the company is doing.

“You never get to where you want to be. It’s a constant journey. You take it in stages. We want to be a leader in value-added dairy, and the only way you’re going to be a leader is if you stay ahead. You know things before other people know things. You act before other people act. You hustle to make it and get it out to them with the highest functionality and taste before anybody else does. You believe in better. And that’s what fairlife is all about.”