- Dean Foods doesn't believe a planned Wal-Mart dairy processing plant in Indiana will significantly impact financials, especially having more than a year's advanced notice, CEO Gregg Tanner told The Wall Street Journal. Dean Foods' stock fell 12% after Wal-Mart's announcement.
- The company anticipates a loss of about 100 million gallons of low-margin, private-label fluid milk volume as a result of the plant beginning next year, according to a regulatory filing.
- Dean Foods said it doesn't expect the plant to hinder national brand sales, including DairyPure, TruMoo, and nonfluid milk products.
Part of the reason Dean Foods isn't as concerned is that the new Wal-Mart plant will only be supplying milk to about 600 stores in the U.S., primarily in the Midwest. Dean Foods will continue providing milk for Wal-Mart's Great Value and Member's Mark private label brands to all of the other Walmart and Sam's Club stores out of the retailer's more than 5,000 total locations in the U.S., according to Reuters.
The loss of volume for private-label milk products that are so low margin won't be nearly as damaging as if Wal-Mart were to launch a competing, low-cost national brand on the level of DairyPure or TruMoo.
Looking to more profitable brands and segments is crucial for Dean Foods at a time when its conventional milk products are threatened by the fast growth of alternative dairy products like almond and soy milk. In 2014, alternative dairy's sales growth of 14.5% far outpaced that of conventional dairy at 2.2%, according to a Packaged Facts report.
The implications of this new dairy venture for Wal-Mart aren't significant for the larger dairy industry — yet. This is only Wal-Mart's first foray into food and beverage processing. As the largest U.S. grocer, if Wal-Mart were to become more self-sufficient in terms of dairy processing, the company may be able to drop milk prices further, which could cut into sales of other dairy producers.
And that possibility could be spooking Wall Street. Investors may believe Dean Foods depends on its private-label milk production more than it is letting on, and if Wal-Mart's foray into dairy processing is successful, that could spell trouble for Dean Foods' private-label business.