Editorial Comment Publisher/Editor

 

 

Coca-Cola’s Confidence In Dairy Is Encouraging

Dick Groves
Publisher/Editor
Cheese Reporter

January 17, 2020


Things weren’t looking all that great seven months ago for Fairlife, the joint venture between Select Milk Producers cooperative and The Coca-Cola Company. An animal rights group released graphic video showing animal abuse at Fair Oaks Farms, which supplies milk to Fairlife. That prompted a police investigation and also reportedly prompted some retailers to pull Fairlife products from their shelves.

This wasn’t exactly familiar territory for Coca-Cola, which has been around since 1886 but has only been involved directly with milk (at least in the US) since 2012. In response to the Fairlife incident, The Coca-Cola Company announced several actions, including conducting its own independent investigations of all Fairlife’s dairy suppliers to ensure they uphold the highest standards of animal welfare.

At that time, it would have made sense to wonder if Coca-Cola was rethinking its involvement in the dairy business. But here at the beginning of 2020, as we reported last week, The Coca-Cola Company has actually shown its confidence in dairy by acquiring the remaining stake in Fairlife LLC from Select Milk Producers. Coca-Cola had previously owned a 42.5 percent minority stake in Fairlife.

In announcing the acquisition, Fairlife noted that Fairlife brand ultrafiltered milk debuted in 2014 and surpassed $500 million in retail sales last year. That’s pretty impressive, considering that beverage milk sales during that period fell from about 50.8 billion pounds in 2014 to 47.7 billion pounds in 2018 (and probably dropped some more in 2019).

And dollar sales of beverage milk likely dropped even more dramatically over that period, given that average retail whole milk prices in 2014 were more than 50 cents higher than in 2018, according to the US Bureau of Labor Statistics.

But of course Fairlife doesn’t really sell “milk,” if you define milk in the traditional sense of whole milk, 2 percent, 1 percent, skim, etc. It sells ultrafiltered milk, Core Power protein shakes and other value-added dairy beverages.

And its ultrafiltered milk is different from traditional milk in several important ways. For one thing, Fairlife’s milk package stands out in the dairy case because it’s colorful; for example, Fairlife whole milk comes in a bright red plastic container. It’s pretty hard to miss, even given its limited shelf space.

Further, Fairlife products contain more protein and less sugar than regular milk, and are lactose-free. The products also come in non-traditional sizes, such as 52-ounce bottles and 11.5-ounce bottles.
Fairlife products also have an impressive shelf life (at least until they’re opened), which means consumers can buy more than just what they expect to consume over the next couple of weeks.

While Fairlife’s sales growth and product attributes are pretty exciting in the context of a steadily declining overall beverage milk category, perhaps what’s most exciting is the confidence that The Coca-Cola Company has with the future of the Fairlife business. That confidence was demonstrated, of course, by Coca-Cola buying the remaining stake in Fairlife.

That confidence is also demonstrated by some of the things being said by both Tim Doelman, Fairlife’s CEO, and Jim Dinkins, president of Coca-Cola North America.

For example, Coca-Cola believes the acquisition of Fairlife “helps ensure that we continue to build on Fairlife’s success by combining its entrepreneurial spirit with the resources, reach and expertise of Coca-Cola,” Dinkins said.

Yes, Coca-Cola does have some pretty impressive resources, reach and expertise. As noted earlier, the company’s signature product dates back to 1886, so it has 134 years of expertise in the beverage business. Some 60 years ago, Coca-Cola acquired Minute Maid, extending its expertise beyond soft drinks in what the company describes as its first step toward becoming a total beverage company.

Today, Minute Maid has more than 100 different flavors and varieties from orange juice to apple juice, and lemonades to punches, so imagine what The Coca-Cola Company might be able do for milk, or at least value-added milk-based beverages.

As far as reach is concerned, Coca-Cola’s 500-plus brands are offered in more than 200 countries. Oh, and The Coca-Cola Company reported net operating revenues of almost $32 billion in 2018.

Fairlife “also plays an important part in our strategy to continue growing as a total beverage company as we innovate to bring people more new products that meet their changing lifestyles and needs,” Dinkins said.

The operative words there are “innovate” and “new products.” That’s the key to growing beverage milk sales in the future. As we’ve seen in the recent past, beverage milk sold in gallon plastic jugs isn’t exactly jumping off dairy case shelves, even at the very low retail prices of the last two years.

Finally, Doelman remarked that Fairlife sees “so much opportunity ahead,” and that “we’ve really just crossed the starting line.” Fairlife looked at the declining fluid milk category “as an opportunity to take a superfood like milk, innovate around it, and give people the kind of taste and nutrition they were looking for.”

The recent Chapter 11 bankruptcy filings by Dean Foods Company and Borden Dairy Company show that the commodity fluid milk business isn’t exactly profitable. The Coca-Cola Company’s acquisition of Fairlife shows that there are still niches, potentially very large niches, that can be successfully tapped in the value-added dairy beverage 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.


Recent Editorials written by Dick Groves.

20 Years of Reformed Federal Orders: Time For Another Round
January 10, 2020

UF Milk Rulemaking Seems To Be Taking Forever
January 3, 2020


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