Dairy processors must watch trends in farming, retailing
Dairy processors deal with all three of these constituencies as buyers, sellers and brand marketers. Your success depends upon the quality of your relationships with each.
There is a lot more to successful processing of dairy foods than heating raw milk and putting it into bottles or turning it into cheese, yogurt or ice cream. There are factors in play far beyond pasteurization times and temperatures.
Processors have to keep an eye on dairy farmers, retailers and consumers. Everyone has a vote in what raw milk turns into, but some votes count more than others. Consumers carry the most important vote in their wallets.
Keep your eye on farmers
Some dairy producers are converting their farms to become certified organic. It’s a three-year process and not inexpensive. They are doing so because consumers are demanding it or they want foods without genetically modified organisms. Organic milk, by its definition, is GMO-free.
According to the U.S. Department of Agriculture’s “Organic Dairy Market Overview” of April 21, total organic whole milk products sales were up 7.2% in January and February compared to the two months of 2016. Sales of reduced-fat organic milk products decreased in the period.
The interest in whole milk is also seen in our Ingredients Study. Buyers of ingredients used in dairy foods and beverages said full-fat dairy products are a “must have” (33%) or “the latest trend” (15%).
Keep your eye on retailing
Retailers continue to consolidate, and that will mean fewer customers for dairy processors and their brands. Some processors are going to lose business. Dairy buyers will do business with only so many suppliers. As national brands compete with each other for limited shelf space, they also are competing with store brands. Branded fluid milk products especially will have a tough go of it.
In April, Albertsons Cos. was rumored to be interested in the Whole Foods and Sprouts Farmers Market chains. If that happens, there will be fewer buyers. Albertsons already owns 19 well-known supermarket banners including Jewel-Osco, Safeway, Vons, Shaw’s and Star Market.
Where and how consumers shop also will change. Don’t assume brick-and-mortar supermarkets will be around forever. Consumers can buy groceries from Amazon.com and have them delivered the same day. Peapod, the subsidiary of grocery giant Ahold Delhaize, also delivers food to one’s doorstep.
Don’t forget that dollars spent on dining out continue to grow. Yes, we all have to eat, but we don’t have to eat food purchased in a grocery store. Make sure your dairy is creating products for foodservice customers. Milk shakes, yogurt parfaits and cheese sauces are three categories to consider.
Keep your eye on the consumer
In our survey of dairy processors, we asked them to identify food characteristics important to consumers. The top are: healthy, natural, convenient and high-protein. Dairy processors will spend more on non-GMO (56%), natural/organic (53%) and organic-certified (52%) ingredients.
Consumers obviously want these types of foods and beverages. And they have proven they will pay more for them. Last year, consumers paid $2 more for a half-gallon organic milk than for conventional milk, reports CoBank, which studied the organic dairy market. There is room to grow, CoBank writes.
Should your dairy be playing in the organic space? What are the costs of getting into it and staying out of it? Are your customers asking you for organic dairy products? Will consumers in your trading area buy organic? These are all questions that you need to consider.
Fluid milk processors have an even bigger question to ask themselves: How do we compete with plant-based and other nondairy beverages?