Gallagher: Dismal fluid milk sales need attention

Tom Gallagher, CEO of Dairy Management Inc., addressed dismal U.S. fluid milk sales at the Dairy Farmers of America , Inc., (DFA) annual meeting in Kansas City, Mo. last week.

“We've been beating a horse for a decade that things have to change regarding fluid sales at retail,” he said. 

For the week ending Jan. 22, 2012, fluid milk sales were down 3.9% over the previous 12-month period, Gallagher explained. The retail price averaged $3.90/gallon, up 11% from a year earlier. Commercial disappearance of overall fluid milk was down 1.7%, with an increase in consumption of milk in coffee drinks possibly offsetting some of the  fluid milk sales decline.

Gallagher said studies for four decades have revealed the "elasticity” in the relationship of the retail milk price and retail sales. Each 1% change in the price impacts sales by 0.35% in either direction: if the price goes up 1%, sales go down 0.35%; if the price goes down 1%, sales increase 0.35%.

Gallagher said the last quarter of price increases and resulting decline in sales had caught the attention of fluid milk processors.

“We're going to try to use that to bring people together to do something about it. These changes have been needed for four decades,” he said.

Using DMI’s “partnering” model with private industry investment, Gallagher outlined several strategies to boost fluid milk consumption. They include:

• working with McDonalds to emphasize milk in children’s "Happy Meaks.”

• a three-year, $7/year million investment in lactose-free milk promotions.

• a $2 million investment in value-added milk (high protein, specialty breakfast) at retail.

• a $5 million investment to promote retail gallon containers of milk. 

The trouble, said Gallagher, is that gallon jugs of milk are traditionally thought of as a commodity. Thus, it's always marketed on price. 

“When we treat it as a commodity at retail, so do the consumers, and they buy milk on price,” Gallagher said. “Margins shrink, leaving little room for innovation.

“Some of the strongest ‘brands’ in the world market something that comes out of your tap – water,” he continued, adding that cereal, soda, toothpaste and laundry detergent are all largely the same, but are not treated as commodities. “They have strong marketing programs by brand.”

A second effort will be "reputation management,” continuing to build on the trust consumers have in dairy farmers. 

“If you think abut consumers, every study we see today shows trust is abysmal,” Gallagher told DFA dairy farmer members. “They don't trust the government, the FDA, business or the media. They kind of trust each other on social websites, but they don't trust any standard structures. That's our opportunity, because we (dairy) have a great story to tell in fighting childhood obesity, innovative products, sustainability and how farmers treat their animals. We have the license to lead in this. Today, your reputation is as important to sales as anything else we do.”