Editorial Comment Publisher/Editor

 

 

The Rise And Fall Of Dean Foods

Dick Groves
Publisher/Editor
Cheese Reporter

November 22, 2019


Last week’s announcement by Dean Foods Company that it had filed for voluntary Chapter 11 bankruptcy may not have been all that surprising, but it’s still kind of shocking when one of the largest dairy companies in the world has such enormous financial problems.

This development provides an opportunity to look back at the recent history of Dean Foods and its main business, and how the company has evolved, and its fortunes have declined, since roughly the turn of the century.

While Dean Foods has a history dating back to 1925, the current version of the company actually dates back just to late 2001, when Suiza Foods and Dean Foods combined into a new company that was named Dean Foods.

Prior to that merger, both Suiza Foods and Dean Foods had been growing primarily by acquiring various other dairy companies. For example, in its 2000 annual report (which turned out to be its last annual report, at least under the Suiza Foods name), Suiza Foods noted that it had completed 43 dairy acquisitions since 1993.

Looking over some of the early annual reports of the merged Dean Foods is kind of like taking a trip back in time. For example, in its 2002 annual report, Dean Foods noted that it had, in May of 2002, purchased White Wave, maker of Silk soymilk and other soy products. Dean Foods spun off WhiteWave Foods in 2013, and WhiteWave Foods and its Silk brand were acquired in 2017 by Danone, to become Danone North America. And the company not only produces Silk soymilk products, but it also makes other alternative milk products made from such things as almonds and coconuts.

In its 2018 annual report, Dean Foods noted that it not only competes with numerous brands and products for shelf space and sales, but that its products “also face increased competition from plant-based milk alternatives. We compete with such alternatives for shelf-space and sales as well.” Also in its 2018 annual report, Dean Foods noted that it had increased its ownership interest in Good Karma Foods, a producer of flax-based milk and yogurt products, to 67 percent.

Another indication of how things changed over the years for Dean Foods concerns risk factors facing the company. For example, in its 2003 annual report, the section on “Risk Factors” ran about one page, including two paragraphs about consolidation in the retail and foodservice industries.

In its 2014 annual report, the section on “Risk Factors” ran almost five pages, and mentioned such factors as the loss of, or a material reduction in, volumes purchased by any of its largest customers; price concessions to large-format retailers; the outcome of competitive bidding; and the continuing industry shift from branded to private label products, all of which could negatively impact sales, margins and/or profits.

Beyond competitive issues, Dean Foods is primarily involved in a business that not only isn’t growing, it’s actually shrinking at a pretty rapid rate. Some statistics help illustrate this point.

Back in 2000, the last full year in which Suiza Foods and Dean Foods were still separate companies, US beverage milk sales totaled 55.5 billion pounds. And in 2010, beverage milk sales still topped 55 billion pounds.

But beverage milk sales have fallen every year since, reaching 47.7 billion pounds last year, down about 7.9 billion pounds from 2000 and down 7.3 billion pounds just since 2010.

In its 2010 annual report, Dean Foods offered the following observation:
“The dairy industry is a mature industry that has traditionally been characterized by slow to flat growth, low profit margins, fragmentation and lack of network optimization.” But since 2010, the beverage milk industry hasn’t even seen flat growth; it’s been shrinking, at least sales-wise.

Related to that point, consumers are drinking less milk then they once did. Back in 2000, per capita fluid milk consumption stood at 197 pounds, which was actually down 50 pounds from 1975.

Clearly, per capita milk consumption had been flat to declining for years when Suiza Foods and Dean Foods merged, but the declines accelerated after they merged, including a drop of 32 pounds just from 2010 (178 pounds) to 2018 (146 pounds).

It’s also notable that the number of fluid milk plants in the US has been on the decline for many, many years, while the average volume processed per plant has been increasing. Specifically, there were 5,328 fluid milk plants in the US back in 1960, with an average volume of 8.8 million pounds. By 2000, there were just 405 fluid milk plants in the US, but their average volume had jumped to 143.2 million pounds.

But an interesting thing has happened since then: the number of fluid milk plants has actually started to increase, while the average volume per plant has started to decline. USDA actually has two different sets of numbers here, the latter covering 2008-18 using FDA’s Interstate Milk Shippers List. That list shows that the number of fluid milk plants has increased from 400 to 459 from 2008 to 2018, while average volume per plant has fallen from 136.4 million pounds to 103.9 million pounds during that period.

This would seem to indicate that the fluid milk business has become, at least to some extent, a local or regional “niche” business, sort of like it was before Dean Foods and Suiza Foods began buying local and regional milk bottlers.

The bottom line is that it’s been tough to have a healthy bottom line as the largest player in a shrinking industry. That’s Dean Foods in the fluid milk business.

 

Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 35 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com
https://twitter.com/cheesereporter.


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