Fluid milk sales dropped 1.7% in 2011. Even worse, because population grew, per capita sales of milk fell 2.8% to just 20.6 gallons per person.
"When price increases peaked in November 2011 at a national average of $4.11 per gallon (a 12.6% increase over the previous year), volume declined 5%, or about 11 million gallons at retail that month," says Tom Gallagher, CEO of Dairy Management, Inc. "The problem is that each time this cycle occurs, we see more and more consumers leave the category or buy less milk than they did previously due to price pressures.
"But some consumers don’t resume purchasing when the price drops back down," says Gallagher. "Over time, we essentially teach consumers that they can live without milk. In recent months as the prices of milk has gone down slightly, and retail prices have also decreased (+2% in March versus prior year to $3.89 per gallon), volume sales have not yet responded. Sales are still down more than 13 million gallons for the month versus last year."
Grocery stores seem to be taking the biggest hit in sales losses, with a decrease in sales of nearly 200 million gallons. The tepid economy and slow recovery is also partly to blame, says Doug Adams, with Prime Consulting.
Food Banks, food assistance and WIC-only stores now distribute some 28 million gallons of milk annually to needy families. Analysts believe this is milk that would normally be purchased in grocery stores could families in need afford it.
Dairy Management, Inc., through its Innovation Center for U.S. Dairy, launched a $14 million effort earlier this year to get its arms around the problem. The key is that everyone in the industry—producers and processors—are involved in the effort. "We all need to own this problem," says Barb O’Brien, president of the Innovation Center.
The Center is looking for both short- and moderate-term answers. "It’s not a simple solution; it’s not a quick fix," says Steve Maddox, National Dairy Board chairman and a Riverdale, Calif. dairy producer. The decline in fluid sales is 40 years in the making, and if the solution were easy, the industry would have already implemented it, he says.
Simply increasing generic milk advertising won’t help. When the National Dairy Board moved away from generic advertising 10 years ago, fluid sale remained flat. And even though the widely acclaimed and popular ‘got milk?’ ads continued in California, fluid milk sales actually declined.
What is the solution? In the short term, the Innovation Center is looking to shore-up school milk, work with quick-serve restaurants such as McDonald’s and Domino’s Pizza and ramp up efforts on lactose-free milk (25% of the population has or perceives it is lactose intolerant).
Longer-term, the whole concept of fluid milk needs to be rethought. Package innovation and less reliance on the gallon jug is just a start. New types of products—such as drinkable yogurts, different flavoring, different delivery methods—all need to be on the table. Some of this will require changes to Federal Orders because many of these new products are a cross-over between Class I and Class II. Some would violate current standards of identity for dairy products.
But these sacred cows must be scrutinized. In fact, many believe they can be sacred no more.
You can view my video clip on the fluid crisis here.