State of the industry: Dairy products

November 30th, 2015


Category: Dairy

milk jugs450x299(Food Business News) – While retail white milk sales continue to decline year after year, in general, the dairy products industry is thriving at both retail and food service. It’s a good time for dairy foods as the local, simple and inherently healthful characteristics of milk and products made from milk are right on target with what many of today’s consumers are seeking from the food supply.

The two largest U.S. dairy foods manufacturers — Nestle USA, Glendale, Calif., and Dean Foods Co., Dallas, with 2014 dairy sales of $9,700 million and $9,503 million, respectively — both introduced brands designed to appeal to today’s consumer who wants to better understand the origins of their food.

Nestle’s Häagen-Dazs Artisan Collection sets out to connect with the highly influential millennial demographic that is all about foods with a local connection and experimenting with new concepts. To produce the collection, the Häagen-Dazs team collaborated with notable culinary artisans from around the country to create unique flavors never before experienced in ice cream.

One example is Chocolate Caramelized Oat, which was developed with Claire Keane of Clairesquares, San Francisco. Ms. Keane has been crafting flapjacks — a traditional Irish treat of caramelized, buttery oat bars drizzled in chocolate — from her own recipe since she was 12 years old. Inspired by her Irish treats, the Häagen-Dazs brand took chocolate caramelized oat clusters and blended them in a rich caramel ice cream.

Dean Foods, on the other hand, is emphasizing locally sourced milk through a new national brand designed to entrust consumers wherever their travels might take them in the country. Used in conjunction with Dean Food’s regional brands such as Alta Dena, Dean’s, Meadow Gold, Mayfield and Oak Farms, the new national brand — DairyPure — is backed by an exclusive Five-Point Purity Promise that the milk contains no artificial growth hormones, is tested for antibiotics, is continually quality tested to ensure purity, only comes from cows fed a healthy diet and is cold shipped fresh from the local dairy.
The two new brands are in the only two dairy product categories struggling at retail: fluid milk and frozen dairy desserts. Butter, cheese, yogurt and other dairy-based products continue to boom.

Artisanal frozen desserts
Retail sales of frozen dairy desserts have been relatively flat for many years, with growth for one brand — usually from a smaller, artisan, local company — happening at the expense of another, often from a national player. In recent years, volume sales for the category have been down while dollar sales grew as a result of consumers preferring quality over quantity. According to Chicago-based Mintel, 6 in 10 U.S. consumers claim to be willing to spend more on better-quality frozen treats, while 60% of daily eaters believe that local brands are better quality than national brands.

It’s no wonder the world’s largest ice cream manufacturer, London-based Unilever L.L.C., with approximately $1,700 million in U.S. dairy sales, acquired Talenti Gelato & Sorbetto at the end of 2014. Founded in 2003, Minneapolis-based Talenti is the best-selling packaged gelato in the United States. This is attributed to use of the finest ingredients and an artisanal production method, as well as the unique, clear and reusable plastic jar containing the gelato.

Again, it’s quality over quantity, a mantra that significantly has changed the frozen novelty landscape in the past decade. Previously, the retail frozen novelty business — multi-packs of single-serve units — was all about fun for children. Today, the novelty business is more about portion controlled indulgence for adults, sometimes in a better-for-you formulation, but not always.

“Consumers today look to ice cream for enjoyment and indulgence,” said Heather Draper, director, The Ice Cream Club Inc., Boynton Beach, Fla. “They want quality, not quantity. And they will pay for it. We recently had a consumer in San Diego order six pints of our premium ice cream shipped as a gift to her family in Alaska. She paid extra for overnight delivery.”

The quality-over-quantity mantra might be just what the fluid milk category needs. This is especially true in the nation’s schools where research shows a lot of milk gets tossed because children just don’t like the way it tastes.

“Most children are drinking 2% or whole milk at home,” said Ed Mullins, chief executive officer and executive vice-president, Prairie Farms Dairy Inc., Carlinville, Ill., the fourth largest dairy cooperative in the United States with annual sales of about $3,000 million. “Then they go to school and are given either fat-free chocolate or white milk, or maybe 1% white milk. They don’t want to drink it.

“We make our school chocolate milk with premium cocoa so it’s a little more delicious for them,” he said. “We also use premium ingredients in our limited-edition flavored milks, which are created with culinary professionals.”

In June, the co-op introduced the Chef Splendor’s line of family-farm-sourced reduced-fat milk. The three flavors are: Dark Chocolate Truffle, Sea Salt Caramel and Vanilla Chai Latte. The new line was only available during the summer season. Such limited-edition formulations in milk, as well as many food products, create an urgency to purchase and help drive sales.

Fluid milk needs all the help it can get and thinking beyond the white gallon jug seems to be the answer. Customized data from I.R.I., Chicago, for Dairy Management Inc. (D.M.I.), Rosemont, Ill., showed total milk volume sales were down 3% in 2014. At retail, milk sales were down 3.8%.

“The fast-casual restaurant segment presents the greatest opportunity for growth for cheese marketers.”
— Lynn Stachura, Dairy Management Inc.’s senior vice-president of insights
The picture is somewhat different in food service. The N.P.D. Group, Port Washington, N.Y., said milk sold as milk in food service also was down in 2014 (-6.7%), but when sold as part of a beverage, namely in specialty coffee and even customized milkshakes, volume milk sales increased 10.6%.

Preference for quality is further demonstrated in the fact that retail whole milk sales were up 3.8% for the 52-weeks ended Aug. 8, 2015, as compared to fat-free milk sales, which were down 12.4%. Fat is no longer the enemy.

Milkfat as friend not foe is the result of concentrated industry efforts to re-examine fat’s role in the diet. Scientists have de-demonized milkfat by communicating its nutritional and physiological benefits, including being a source of essential fatty acids and fat-soluble vitamins, as well as participation in various metabolic roles, including contributing to satiety, which in turn assists with weight loss and weight management.

The preference for milkfat-containing dairy products is shown in volume sales data for refrigerated yogurt. During the 52-weeks ended Aug. 8, 2015, whole milk yogurt sales were up 26.2%. Reduced-fat increased 75.4%, while low-fat, which contains the least amount of fat of the three, was only up 2.6%. On the other hand, fat-free yogurt volume sales were down 5.6%.

The butter sector also is benefiting with consumers’ renewed attraction to milkfat. According to the most current data from the American Butter Institute, per-capita butter consumption grew 25% to a 40-year high of 5.6 lbs in 2014.

Recently, through efforts on behalf of U.S. dairy farmers by D.M.I. and the National Dairy Council, McDonald’s Corp., Oak Brook, Ill., decided to switch from margarine to butter at all of its 14,000-plus U.S. stores. This means 500 to 600 million lbs of new milk equivalent usage each year.

More cheese, please
The Golden Arches long have been a supporter of dairy, offering milk in children’s meals and cheese on sandwiches and salads. Lynn Stachura, D.M.I.’s senior vice-president of insights, said total cheese usage through all channels is up 5%, but what’s impressive is that use in food service and food processing — think prepared meals and frozen foods — has been increasing every year since 2010. Currently, about 39% of all cheese in the United States is consumed through food service and 25% through food processing. The remaining 36% of cheese is consumed through retail purchases of cheeses, but this figure has been declining.

“The fast-casual restaurant segment presents the greatest opportunity for growth for cheese marketers,” Ms. Stachura said.

N.P.D. data for 2014 shows that cheese use in the booming breakfast sandwiches business was up 0.5%, while use on burgers grew an impressive 4.3% and use on pizza 1.6%. Increasingly, this cheese is not the everyday America, cheddar or mozzarella. Bold, ethnic and fiery flavors are making their way into all types of cheese, many following the quality or quantity mantra.

The retail cheese landscape may get shaken up a bit in the future as a result of the No. 1 cheese marketer Kraft Foods Group, Northfield, Ill., merging with H.J. Heinz Co., Pittsburgh, to form the Kraft Heinz Co. Kraft’s cheese and dairy division had 2014 sales of about $4,066 million, mostly from cheese staples such as cream cheese, natural shreds and process slices. In fact, it’s been nearly 20 years since Kraft invested in any natural cheese research and development, instead choosing to procure commodity natural cheese for its Kraft brand and outsourcing production of the premium Cracker Barrel brand. Process cheese manufacturing remains in-house, but again, there’s been minimal innovation with its most popular brands such as Philadelphia and Velveeta.

As the new company positions itself as owning the picnic menu, premium cheese innovation likely will become even a smaller priority. This comes at a time when other cheese leaders, most notably Sargento Foods Inc., Plymouth, Wis., owners of the No. 2 cheese brand, diversify their portfolio with premium offerings such as Sargento Tastings, a line of specialty artisan chunk cheeses, and Sargento Balanced Breaks, a cheese and nut snack format.

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