As milk sales drop, manufacturers and farmers alike are scrambling for solutions to a souring industry. Beverage options continue to expand, and other health concerns have arisen that have blunted milk’s dominance in the U.S. beverage market.
But this is hardly the end for the milk industry. Manufacturers stand to benefit from much-needed federal financial assistance, a better understanding of how to apply innovations to lure consumers back to the category, and enhanced operations to maintain profitability while prices are low.
Where the milk industry stands now
Demand for milk has been declining while farmers have faced a massive surplus, leading to the dumping of millions of pounds of milk. This has caused milk prices to drop, and in August, the USDA offered dairy producers about $11.2 million in financial assistance to help deal with the industry’s current challenges.
According to a 2016 Canadean report, the market for white milk will decline across much of the globe, except certain developing nations. The drop will be especially stark in North America. Canadean anticipates the region will consume two billion fewer liters of white milk by 2021, at a negative CAGR of nearly 2%. The report attributes this decline to less occasions for drinking white milk, a trend toward health and wellness, concerns about fat content and the disassociation of milk from on-the-go breakfast foods.
Despite the domestic milk market getting smaller, experts remain positive about the segment’s prospects —especially as more consumers shift their drinking habits away from sugary drinks like soda and toward beverages that offer more functionality.
"It's an exciting time for the dairy industry, and milk particularly, because [manufacturers are] creating products to meet different consumer needs," Chris Gretchko, vice president of marketing at Tetra Pak, told Food Dive. "It's recognizing that milk is a beloved and enjoyable product, and it's sort of tailoring itself for different tastes or different health or functional benefits."
Traditional cow’s milk remains king of the industry, but manufacturers are exploring diversification of milk products, ranging from functional benefits and other value-added dairy to new flavors and plant-based ingredients.
"People's tastes are expanding," said Gretchko. "People desire a repertoire of products, and if it's something they already like, like milk, people might want to have a broader range of milk options."
Where innovation comes into play for milk producers
Functionality, flavors and value-added dairy are key trends milk producers are embracing to lure consumers back.
"There is a lot of innovation in dairy that I see people in the industry who we work with really embracing," said Gretchko. "And that innovation can be flavors, texture, added functional benefits, hybrids. This is kind of a new dawn of where dairy is going to."
Functionality and adding value to milk — with protein and probiotics, for example — enables manufacturers to better align these products with health trends. With the right positioning and packaging options, milk can be more of a go-to beverage for active, on-the-go and health-conscious consumers.
"It's one of those very positive things that milk already has nutrients," said Gretchko. "Value-added is a big bucket right now for things that will continue to develop."
Milk could be an especially critical tool for delivering protein and other nutrients to older consumers, whose diets often lack what they need to stave off related health complications.
"There's opportunity at my parents' level to provide them with some of the things they need to stay healthy — bone health, joint health, etc.," said Gretchko. "I think of milk as something that my parents and their generation already accept, and it is a great way to enhance what they need in their diet."
Manufacturers can also focus on younger consumers, particularly children. Milk producers can offer flavored varieties that attract kids to the better-for-them beverage. The trick is balancing the chemistry of flavor ingredients with the milk during processing, and not adding too much sugar.
A fact sheet from the National Dairy Council said that children who drink milk can consume three of the five “nutrients of concern,” of which they may do not get enough: calcium, potassium and magnesium, in addition to vitamin D. The council also concluded that children who drink flavored milk tend to meet more of their nutritional needs.
Why plant-based and animal-based milk can coexist
Canadean proposed that the popularity of the plant-based milk alternatives trend stemmed from health-related concerns, particularly the rising popularity of veganism and the increased incidences of lactose intolerance in the U.S. population.
But Gretchko believes that plant-based milk may not necessarily replace cow’s milk in all households. Instead, it can act as a complement.
"Some households have a blue cap, light blue cap and a red cap," said Gretchko. "There are always people who had skim, whole and 2%... Now you open a person's refrigerator door, and they're going to have different tastes for different things. I see plant-based and dairy products coexisting."
Consumers may choose to use different types of milk for different purposes, such as cow’s milk for a breakfast beverage, almond milk for smoothies and coconut milk for cooking.
Instead of seeing plant-based milk as a competing category, conventional milk manufacturers can embrace plant-based milk within their own portfolios. Or they can find ways to partner with plant-based milk producers to implement campaigns that demonstrate the health benefits of milk in general, whether from plants or animals.
"You have people who are drinking certain types of beverages, and there's a repertoire," said Gretchko. "It doesn't mean that they don't like one or the other. It's just that maybe there is an occasion, time or a taste or they mix it up. But there is certainly room for both of them to grow."
How milk manufacturers can optimize operations to deal with a demand downturn
In a recent dairy industry report, Boston Consulting Group offered manufacturers four core value-creating strategies for enhancing a dairy manufacturer’s operations:
- Seek opportunities in emerging markets
- Pursue M&A and strategic partnerships
- Shift to higher-margin products
- Innovate products and formats
In addition to creating value, manufacturers can also optimize their operations for efficiency and cost-effectiveness to solidify their bottom-line performance. Here are ways to do that:
- Enhance upstream supply management, from the feed given to cows and supply variability, to cold-chain management and shelf life
- Zero in on operational effectiveness to maintain or improve already slim dairy margins, by making tactical improvements to plant operations through layout or material flow
- Reduce business complexity by removing less profitable SKUs and standardizing similar ones
- Employ digital technologies, such as robotics or warehouse automation systems
- Create an efficient go-to-market strategy to prevent loss due to perishability of milk products
By deriving value from both products and operations, milk manufacturers can improve upon shaky top-line growth and substantiate bottom-line growth with new distribution and partnership opportunities. They can also achieve this by embracing innovation and higher-margin categories, such as ice cream and premium or organic milk.
Milk demand may be in decline. But if manufacturers can get ahead of innovation trends and find ways to work alongside their plant-based milk counterparts, everyone could benefit in the long term by offering consumers still another better-for-you beverage option.