Milk
July/August 2003
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Make more out of milk
A t first glance, the numbers aren't good for white milk. However, look a little closer to find the opportunities and find out how to make more out of milk through marketing.
Over the past 12 years, total milk consumption has grown by just over 0.5% per annum, and last year it fell slightly. As population growth slows, the outlook for volume growth is grim, with per capita consumption falling from 105 litres in the mid 1990s to 96 litres - nearly 10% lower. When we exclude flavoured milk, which is growing at nearly 5% per year, white milk consumption has fallen by just over 0.5% per annum. At first glance the outlook is even worse in the route and convenience channel, with supermarkets increasing their share of white milk volume from less than 52% to nearly 57% in the past 2 years. This is partly as a result of deregulation in the dairy industry and partly due to the reduction in the number of corner stores and traditional milk bars.
But, milk is still found in 99% of households - that's 99% of your customers.
Source: Australian Dairy Corporation
TOTAL SALES IN MEGALITRES BY TYPE OF WHITE MILK Reduced Fat,
Low Fat & Skim
UHT
1989-90 1999-00 2000-01 Growth (last year) Growth (12 years, pa) The bright spot in the white milk story is the strong growth in milks with modified fat content and special additives. Regular milk has a standardized milk fat content of around 3.8%. Reduced, low fat and skim milks are standardized to lower milk specifications ranging from less than 2% to near zero.
Competition between the milk processors and the application of new technologies has led to the development of innovative specialty milks that contain additional vitamins and minerals (in particular, calcium) and ingredients that support consumer health such as Omega 3.Supermarkets have done well out of this, while convenience and route has focussed on the lucrative flavoured milk category. Now its time to seize the opportunities in specialty white milk as well.
Source: Australian Dairy Corporation
Source: Australian Dairy Corporation
Source: Dairy Farmers
Tier 1 & 2 C-Stores, Sales of Milk, MAT 13 April 2003 Modified (All Types)
Flavoured
'000 LITRES % CHANGE $'000 % CHANGE Average $/litre Increase in one year These modified and specialty milks enjoy a price premium over regular milk: 10% for reduced fat, 20% for low fat, and from 70% to 100% for specialty functional milks such as 'Heart Plus' from PB Foods. These milks also give you a better margin, around 30% compared to the 20% for whole milk. "The rapid stock turns of milk also offer a considerable benefit to the retailer in terms of cash flow and return on investment," says Adam McEvoy, Senior Product Manager, Parmalat Australia. "The range of milk stocked by the convenience channel needs to reflect demographic change and the trends in milk consumption. The modified milk segment offers the greatest opportunity for growth in the convenience channel."
"Consumers' tastes are changing," says Jane Cassidy-Norrish, Marketing Manager Dairy Division, PB Foods Limited. "People used to drink a glass of milk, and the whole milk drinkers (kids and male teenagers) still do. But adults have shifted to lower fat milk and tend to drink less volume. They have milk with coffee and tea and on cereals, but rarely drink a glass of milk. This is partly due to the less creamy taste (although, as technology develops, lower fat milks are getting better in 'mouth feel' and taste). We now need to give consumers a reason to drink milk - provide some benefit, for example Calcium Plus with 70% more calcium has been in the Western Australian market for 14 years.
Brownes Heart Plus (with Omega 3) won the Australian Dairy Corporation award for best innovation last year, and it is distributed nationally. These functional products are suited to the convenience channel where shoppers are less concerned with price. Innovation is the key - substantial growth will not come from sales of whole milk - it will come from an expanded product range."
Adam McEvoy agrees: "The convenience and route channel is uniquely positioned to take advantage of trends in shopping behaviours and consumer health needs. Parmalat is investing considerable resources into new product development. The launch of Parmalat Pure Organic milk is positioned to take advantage of the growing consumer movement towards organic farming practices."
Although these innovative products are the key to growth, consumers are getting confused. "There are lots of specialty milks on the shelf," says Catherine Cannings-Bushell, Senior Brand Manager, Dairy Farmers. "Consumers are looking for clearer guidelines on the nutritional and health benefits of products such as Shape (low fat, high calcium) and Farmers Best (Omega 3, no cholesterol). They need your help to buy higher-priced, higher-margin milks, and that's where marketing and in-store communication comes in."
Marketing to make more
"Dairy Farmers is implementing a Back to Basics strategy for the convenience channel," says Craig Cannon, National Account Manager Convenience, Dairy Farmers, "Using the five basic building blocks of range, space, location, promotions and display."Range can increase volume per visit to your store. For example, 3 litres is a fast growing pack size in supermarkets, and consumers are used to buying 3 litre packs of whole milk. Similarly 2 litres is the most popular pack size in specialty milk. Convenience stores need to carry more 3 litre whole milk and 2 litre specialty milk packs. Retailers are used to ordering just enough for one day, leading to stock-outs and lost sales. But now technology has increased shelf life to two weeks and there are more specialty variants. You can and must stock more for longer.
"The layout of the fridge is where gains can be made. Currently other beverages are over-faced compared to white milk. White milk accounts for 4% of sales compared to carbonated soft drinks with 7%. Milk may have a lower gross profit but it has a higher stock turn. This is rarely reflected in store layout. A simple change of layout in a major franchised C-Store trial increased sales of whole milk by 3% and specialty milk by 14%. This trial is now being extended to other stores in the network."
"Milk can be an impulse purchase," Craig Cannon continues, "but customers need to be prompted to purchase, and need to be able to find their usual pack and brand. Some 32% of consumers keep a stock of UHT milk in case they run out. Convenience stores can fill this opportunity with fresh milk. Dairy Farmers supply small 'impulse' fridges that can be placed in key locations that have space on top for bread and newspapers. You can increase the frequency of purchase by simple POS signage such as 'Got Milk?' signs in key locations around the store such as at the bread shelf. Promotions and combos can make the product more exciting and increase size of purchase - for example, giving away sachets of pancake mix or muffin mix with larger pack sizes of milk. These promotions suit C-Stores because they tend to be more flexible and open to ideas."
Identifying the need to assist consumers, PB Foods' strategy is to make the white milk choice easier. "Our advertising slogan is, 'Pick the milk that's right for you'," says Jane Cassidy-Norrish. "We use a colour strip for the core milk range - blue for full cream, green for reduced fat, purple for low fat, and red for skim milk. Our market research shows that this is effective. For the specialty functional milks, we use different packaging altogether to clearly distinguish them from the core milk range."
"The challenge for convenience retailers is to consider your geographic location, and target your market with a range of milks that suit," adds Jane Cassidy-Norrish. "Convenience stores can also take advantage of regional brands to appeal to local customers. People grow up with brands and ask for these while shopping. For example, WA customers are quite parochial and our research shows that about 50% will search for the local brand. Route and smaller stores can use regional brands, appeal to the demographics, stimulate the impulse purchase and combine milk with other products to sell more milk."
The A1/A2 debate
You may have heard rumblings in the press about A1 and A2 milk, with the former meaning anything but first-class. Not only has the scare had no impact on Australian milk consumption, but according to the Australian Dairy Corporation (ADC), there is no such thing as 'A1' milk in Australia. Regular milk contains a ratio of A2 to A1 beta-casein (a milk protein) of around 60:40.The ADC advises that the research findings promoted in the Australian media by the New Zealand A2 Corporation implicating 'A1 milk' in heart disease remain unpublished and as yet not available for independent scientific scrutiny. Australian consumers are protected by the Australia-New Zealand food safety and food standards system. 'Keep drinking milk' remains the advice of Australian nutrition scientists and regulators, including Food Standards Australia New Zealand.
Dairy potential
A new study by international growth consulting company, Frost & Sullivan has found that immense potential exists for expanding the consumption of probiotic and prebiotic dairy foods in Australia and New Zealand. However, inadequate consumer understanding of these concepts presents a critical challenge to market growth.Probiotic products that contain live microbial cultures, prebiotic products that selectively stimulate the growth of probiotics, and synbiotic products that combine probiotics and prebiotics-all exert a positive effect on digestive health and overall well being.
Whilst lack of understanding by consumers is a challenge for the dairy industry, there are signs that growing consumer awareness will boost consumption levels. Across Australia and New Zealand, there has been a general upswing in consumer interest regarding functional foods and this has been bolstered by positive media coverage of probiotic health benefits.
The report 'Probiotic and Prebiotic Dairy Foods: A Strategic Review of the Australia and New Zealand Market' is available to purchase from: Frost & Sullivan.
Contact: Troy Kohut,
Phone: (02) 9252 9266;
Email: australia@frost.com
