Jim Dickrell is the editor of Dairy Herd Management and is based in Monticello, Minn.
Retail Milk Wars
Apr 13, 2009
By Jim Dickrell
When milk supplies are tight, retailers don’t worry a whole lot about what the Wal-Marts and Costcos of the world do.
But when milk supplies start gushing into surplus, things can get interesting. Two weeks ago, in fact, Dean Foods starting advertising run-of-press coupons in local newspapers here in Minnesota. The coupons, two per paper, offer 50¢/gallon off of Land O’Lakes Original, the BST-free version of LOL milk.
Dean’s now has exclusive rights to marketing the LOL fluid milk brand. And, as such, it is also responsible for the couponing effort. “The coupons on LOL Original is a reaction to some of the competitive activity we’re seeing in the market,” says Dave Haley, Dean Foods spokesman based in the Twin Cities.
“We’re doing it in select markets across the Midwest, and we plan to run the coupons in April, May and June,” he says.
If price is a driver, the coupons should be a winner—at least here in Monticello, MN, a town of 10,000.
I did some price comparisons at our three “big box” grocers here in town. (Our local independent grocer succumbed to the big guys several years ago.)
At Cub Foods, the only true grocer in town, LOL branded milk was selling for $3.29/gallon last week. Store brand conventional milk, i.e. not labeled as BST-free, was 50¢/gal cheaper, if you bought the milk in twin-gallon packs. The Dean’s coupons would then put the LOL original on par with the store brand—without having to buy two gallons at once.
At our Wal-Mart, LOL Original was running 33¢/gal more than the conventional store brand milk, with no twin-pack purchases required.
At our Target Superstore (which means it has a grocery store along with clothes, house wares and electronics), store brand milk (all of which is now BST-free) was running from $3.19/gal for whole milk to $2.49/gal for 1%. Target does not carry LOL-branded milk.
Before couponing, Cub Foods had the cheapest whole milk at $2.79. Target had the cheapest 2% at $2.59 and 1% at $2.49. And Wal•Mart, the so-called price leader, only had the lowest price in the skim milk category, at $2.42/gal.
But once consumers bring their coupons to the checkout aisle, Wal-Mart won hands down in all categories: $2.67 for whole milk, $2.50 for 2%, $2.35 for 1%, and $2.22 for skim for the LOL Original..
What will be interesting to watch as this plays out is whether Cub and Target respond.
What’s also interesting is that Dean’s has felt compelled to start couponing, and doing so on its BST-free product. Recall that Dean’s started the push to BST-free in New England a couple of years ago, hoping to offer an organic-lite niche product to compete with a shortage of $6/gal organic milk.
Now, with the economy in tatters, consumers are backing off organic--organic whole milk sales dropped 2.6% in January and reduced-fat organic was down 4.7%. And, anecdotally, consumers are looking for even greater value and bargains by putting the cheaper store-brand milk into their shopping carts. When you’re out of work, whether milk is produced with BST and/or has a fancier name brand on the jug no longer matters.
We’re already seeing retail milk prices decline as Class I Federal Order minimum prices drop and work themselves through the marketing chain. In December, USDA says the average national price for a gallon of 2% was $3.27. In February, it had declined to $2.95.
And don’t get me wrong. Any further price competition in the dairy case has to be good for sales. But even at Wal•Mart’s $2.67 for LOL Original whole milk, there’s still got to be a bit of margin left for Dean’s and Wal•Mart. With 11.6 gallons per 100 lb. of milk, that suggests a gross revenue of $31/cwt for that $2.67/gal. (The Upper Midwest April Class I price is $12.16/cwt for 3.5% milk in the base zone, up from $11.23 in March. /files/AdvancePrice--04-09.pdf. )
So the margin should be enough to cover the coupon and maybe even the paltry 35¢/cwt premium LOL producers get for shipping BST-free.
—Jim Dickrell is editor of Dairy Today. You can reach him via e-mail at firstname.lastname@example.org.
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