A Fluid Crisis

March 2, 2011 12:52 AM
A Fluid Crisis

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USDA Report to Congress

USDA Fluid Milk Processor Promotion Program

MilkPEP Long Range Plan Presentation

Americans each drink 1.8 fewer gallons of fluid milk per year than they did a decade ago. That might not sound like much—until you multiply it by 310 million Americans. Then it becomes a very big number.

Specifically, 558 million gallons of lost milk sales per year. Or 6.5 billion pounds of milk production (3.4% of 2010’s U.S. milk production of 193 billion pounds). That represents the combined production of Iowa and Florida—and the blood, sweat and effort of the 2,300 dairy producers in those states.

You get the picture. And it isn’t pretty.

The good news is that MilkPEP (the Milk Processor Education Program) now thinks it knows what has gone wrong with milk sales and what it needs to do to reverse the trend.

MilkPEP is responsible for fluid milk advertising, funded by milk buyers through a 20¢ per cwt. assessment tacked onto Class I prices. The assessment generates some $100 million annually (though about $10 million of that is returned to the California Milk Processor Board).

In 2010, MilkPEP funded a study that asked 4,500 consumers where they drink milk, where they don’t, and what might cause them to change their consumption behavior. Researchers also consulted 50 fluid processors, producers and retailers and 85 sources of milk usage data. Here’s what they found:

  • Annual total beverage consumption in the U.S. is 222 gal. per person. That figure has remained flat for 30 years. "To increase milk consumption requires stealing market share," says Steven Goldbach of Monitor, the company that conducted the study.
  • In 2000, milk captured 10.1% of that total, or 22.5 gal. By 2009, milk’s share had declined to 9.3%, representing a loss of 1.8 gal. per capita.
  • Tap water consumption remains unchanged over the decade, at 14.1%. But bottled water shot from 7.5% in 2000 to 12.4% in 2009.
  • During the same period, energy and sports drinks went from a share of 13.9% to 15.7%.
  • Carbonated soft drinks’ share dropped from 23.8% to 20.4%.
  • Fruit beverages went down as well, from 6.6% to 5.2%.

The biggest surprise is that water—not soft drinks, soy "milk" or sports drinks—is milk’s biggest threat.

"Water is the highest-volume and most ubiquitous milk competitor," Goldbach says. "One-third of the decrease in milk consumption is due to the increase in water consumption."

To turn that around will take new thinking and new marketing. "The industry needs to focus more on branded messaging and innovation," Goldbach says.

Generic advertising and category marketing hasn’t worked very well. USDA reports that for every 1% increase in fluid milk advertising, per capita milk consumption climbs just 0.06%. For every 1% increase in nonadvertising fluid milk marketing, per capita consumption climbs 0.032%.

Those ratios look paltry. But without $100 million pumped into fluid milk advertising and marketing this year, another 6.9 billion pounds in fluid milk sales would likely have been lost.

Even so, generic advertising hasn’t stopped the market share losses to bottled water or sports drinks. And generic marketing has benefited the end retailer only by getting consumers into stores, Goldbach says.

The milk promotion industry needs to focus on where to put its limited promotion dollars because it’s up against stiff competition. Red Bull energy drink, a single brand, spends more on advertising than all generic fluid milk spending. Over the past five years, Red Bull has spent an average of $135 million per year, according to media reports.

"We need to make big, bold bets," Goldbach says. Research shows that occasions—breakfast, lunch, after workouts—are more important than demographics. The place to start is to defend the areas where milk consumption is strongest:

  • Milk grabs a 32% share of beverages that are consumed during breakfast. But that share has eroded by a half gallon per capita over the last decade because of the decline in cereal sales and breakfasts eaten at home. Partnering with cereal makers to defend and bolster this position makes sense.

    "On any given day, there are 140 million alternative beverages chosen by consumers in-home at breakfast," says Donna Armstrong, a MilkPEP communications specialist. In other words, the opportunity to steal market share from other beverages is huge.

    Advertising for milk at breakfast should concentrate on gaining energy, satisfying nutrient requirements and feeling focused for the day ahead. Mothers are key influencers.
  • Extend milk’s dominant share of beverage consumption at breakfast to lunch and dinner, where milk claims only a 12% market share. There are 304 million alternative beverages consumed at home at lunch and dinner—another huge opportunity. The key here is to partner with other food manufacturers to tie milk in with foods consumed during these occasions.

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  • Target new consumption opportunities, such as adults after workouts and teens after sports practice, Goldbach says. Milk can provide hydration and replenishment of energy and protein in these situations.

    Another promising target is after-dinner relaxation. For many adults, nothing is better than a piece of chocolate cake and a glass of cold milk following dinner. Advertising messages should reinforce that desire. Women may experience more guilt over snacking during the evening, so a warm, frothy beverage made with milk might be their indulgence of choice.

Dairy promotion dollars won’t go very far on their own, so branded messaging is key. Major food companies will have to step up to provide this. Marketers know that branded advertising works, even in the dairy case. In fact, branded advertising for yogurt has been so successful that it is partially responsible for the market share decline in fluid milk. Turnabout is fair play!

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