1. Fluid Milk Strategic Thinking Initiative
Quantifying the Importance and Opportunity of
Branding a Nationally Distributed Milk Brand
Developed by
April 27, 2000
2. Situation
Milk per capita consumption is declining. For such a large
contributing category this has significant impact on total store
sales, and therefore profitability of the retailers.
Although the dairy industry continues to undertake significant
above-the-line advertising and promotion, there remains a
fundamental gap in the sales and promotion of milk at store
level.
3. Per Capita Fluid Milk Sales
on Gradual Long-term Slide
Source: USDA
15
20
25
30
35
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Current per cap consumption is 22.0 gallons
4. Mission
To turn milk from being a commodity (or low profiled category)
into a high profile beverage and white milk category which is a
consistently valued range of products.
5. Objectives
• Increase per capita consumption of milk.
• Position “milk” as a high profile beverage and fluid milk category.
• Manage milk ordering/handling utilizing a fresh approach.
7. Milk Vending Volumetric Opportunity
Based on fairly conservative assumptions, BMC believes that the opportunity
for milk vending can approach 100 million gallons per year
Milk Vending Opportunity
Preliminary Estimated Vended Milk Opportunity
All Channels
B&I
Blue Collar(1) 45,500 6,536 271.3 33.9
White Collar(2) 23,500 6,536 153.6 19.2
Colleges/Universities 16,000 3,762 60.2 7.5
Public(4) 45,000 6,063 272.8 34.1
Secondary Schools(5) 16,500 7,920 130.7 16.3
Total 142,500 888.6 111.0
Channel # of Venders
Annual
Sales/Vender
(units)
Incremental
Sales/Year
(1) 25% of plant/factory vending locations; (2) 5% of offices with venders; (3) 36 weeks – assume no operation during summer months/holidays; (4) 10% of public locations with
vending; (5) From School Milk Vending Test analysis; 2001
Source: Beverage Marketing Corp.
(3)
(mil units) (mil gallons)
8. Industry Opportunity
Based on these preliminary estimates, vending alone could generate
incremental sales to grow the total milk category volume by 1.7%
Milk Vending Opportunity
Preliminary Estimate of the Impact of Milk Vending
Total Milk Category
6,305
111 6,416
Current Volume Incremental from
Milk Vending
Total
MillionsofGallons
Source: Beverage Marketing Corp.
9. Key Considerations for Implementation
Milk Vending Opportunity
Implementation Issues
Capital Cost
Requirements
Key Considerations
Purchasing 142,000 milk venders will cost $400-$500
million
− Could take the industry 10+ years to realize full potential
− Vender prices will likely come down due to technology
advances and increasing competition
Vend Operator
Capabilities
Implementation will also be dependent on vend
operators ability to secure and service significant
number of accounts for milk, and place many new
venders
− Servicing accounts should not be a problem since
operators already have significant fresh food business
in these channels
− A key focus should be educating vend operators as to
the milk vending opportunity
10. Key Considerations for Implementation (cont’d)
Milk Vending Opportunity
Implementation Issues Key Considerations
National Brand
Owner Activities
The milk vending effort will likely be spurred by
significant vending initiatives of key national brand
owners (e.g. Nestlé)
− These programs could speed milk vending to market,
but may effect the opportunity for local/processor-
owned brands to get best locations
− Coke/Pepsi/Cadbury might enter the segment and
commit significant resources to vending
Adoption of Aseptic/
ESL Milk
As aseptic plastic (shelf-stable) milk gains ground,
could mean significantly lowered capital costs (less
expensive venders) and lower operation costs (less
frequent servicing, etc.)
− If brand owners are waiting for broad scale aseptic
adoption, may slow momentum behind vending in
the short-term
11. Summary – The Bottom Line
The Milk Vending
Opportunity
for Processors
The Multi-Channel milk vending test reinforces
that milk vending is a profitable and attractive
opportunity for processors
− Increases single-serve milk sales
− Puts milk in the hands of consumers away from
home
− Builds consumer brand awareness
A full complement of locations will maximize
the milk vending opportunity
− Schools are a very important channel
− But processors and vend operators should
consider a total milk vending program, including
schools, B&I, C/U and public locations, to
optimize value
Milk Vending Opportunity
12. Supermarket Opportunity
There is an opportunity for supermarkets to increase market
share of fresh milk products by increasing customer loyalty and
encouraging consumers to buy larger sizes while in the store.
Observations:
•Category household penetration is very high at 98%.
•Fluid milk represents approximately 3% of total store sales in
supermarkets, making it a very important category to total store
performance.
•Out-of-stock conditions on milk results in 18% of shoppers not
making a purchase.
13. Supermarket Opportunity
Conclusions:
• This is a category that is very important to nearly all households.
• The milk category is an important sales, profit, and image contributor to
supermarkets.
• Preventing out-of-stocks is critical to dairy category and total store
performance.
• Space to sales needs to be better allocated to increase sales and
prevent out-of-stocks.
• We need to develop a best practice for our milk sections to be competitive in
the market.
14. Project Objectives
Develop an in-depth understanding of the
beverage environment
Input into future programs
Provide a third party qualitative assessment of
generic milk marketing programs
Assist with competitive measurement system
15. How Milk Fares in Competitive Universe
Milk’s growth lags the category
16. 4.6
3.6
0.6 0.5
-0.6
0.1
-1
0
1
2
3
4
5
B. Water CSD Sports RTD Tea Fruit
Beverages
Milk
ChangeinGallonsperCapita
P=Preliminary
Source: Beverage Marketing Corporation
Competitive Beverage Set Per Capita Consumption Growth
1995 - 1999P
Milk’s Performance Lags the Category
17. New Product Introductions 1998-1999 Change
-6%
22%26%
40%
146%
271%
-50%
0%
50%
100%
150%
200%
250%
300%
Milk is the Only Category Showing a Decline
Bottled
Water
Fruit
Beverages
Sports
Beverages RTD Tea
Soft
Drinks
* Includes non-dairy milk and yogurt drinks
** Projected based on five months data
Source: Beverage Marketing Corporation; Marketing Intelligence Services
Milk
18. 74
79
93
114
0
20
40
60
80
100
120
1996 1997 1998 1999**
#ofNewProducts
* Includes non-dairy milk and yogurt drinks
** Projected based on five months data
Source: Beverage Marketing Corporation; Marketing Intelligence Services
Milk New* Product Introductions Declining
19. $290
$460
1998 1999
Orange Juice with Calcium Sales*
1998-1999
In Millions
* Chilled and frozen concentrate
Source: Beverage Marketing Corporation; A.C. Nielsen
$230
$205
$178
$151
1996 1997 1998 1999
+ 18%
+ 15%
+ 12%
Soy Beverage Sales
1996 - 1999
In Millions
Potentially Competitive Products to Milk Appearing
+ 58%
20. How Milk Fares in Competitive Universe
Milk’s growth lags the category
Milk addresses basic and functional product
benefits
while the competition addresses higher-order consumer
benefits
21. Overall, milk addresses primarily basic/ functional benefits
• However, consumers now expect higher-level emotional benefits from the beverages they drink
• Well-positioned, highly-marketed products tend to address higher-order consumer benefits
Highest-order
Benefits
Emotional
Benefits
Self-esteem Well-being
Functional
Benefits
Basic Product
Attributes
TrustSmart Choice
Social status/
acceptance
Self-indulgence Individuality
High Quality Filling Soothing NutritiousRefreshing
Taste
Dependable/
Consistent
Cold Generic
Confidence
Good Value
• How do I feel about this?
• What does it do for me?
• What is it?
Flavor Variety
Consumer Benefit Hierarchy for Milk
Source: BMC
23. How Milk Fares in Competitive Universe
Milk’s growth lags the category
Milk addresses basic and functional product benefits
while the competition addresses higher-order consumer
benefits
Milk’s packaging is functional/operations-driven
24. Enhance
Market/ Consumer
Promote Convenience* Proprietary Image
CSDs
Bottled Water
Fruit Beverages
Sports Beverages
RTD Tea
Milk
Excellent
Excellent
Excellent
Excellent
Excellent
Poor
Beverages must have the appropriate
packaging formats/array
Beverage Packaging Trends
* Portable, resalable, unbreakable, light-weight
Excellent
Good
Good
Excellent
Good
Poor
Excellent
Excellent
Good
Excellent
Excellent
Fair
Good
Excellent
Good
Excellent
Excellent
Fair
Source: BMC
25. How Milk Fares in Competitive Universe
Competition addresses the issue of product
availability better than milk
although milk is improving
26. Availability is a key element
Immediate Consumption vs. Take Home Distribution
1998
Source: Beverage Marketing Corp.
50.7
45.0
39.5
26.0
18.0 16.0
49.3
55.0
60.5
74.0
82.0 84.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
CSD Sports
Beverages
RTD Tea Fruit
Beverages
Bottled
Water
Milk
ShareofVolume
Immediate Consumption Take Home
27. How Milk Fares in Competitive Universe
Competition addresses the issue of product
availability better than milk
although milk is improving
Milk’s “voice” in the marketplace is soft relative
to its size
28. Milk’s Relative Share of Voice
16%
13%
16%
14%
13%
23% 23% 22% 21% 20%
0%
5%
10%
15%
20%
25%
1995 1996 1997 1998 1999
Share of Voice Share of Market
Milk’s Share of Voice is Less than its Share of Volume
Source: Beverage Marketing Corporation; Competitive Media Reporting
29. Only Bottled Water Spends Less on Advertising
Competitive Set Ad Spending per
Gallon
1999
$0.06
$0.04
$0.03
$0.02
$0.17
$0.07
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$0.14
$0.16
$0.18
$0.20
Sports Drinks Fruit
Beverages
RTD Tea Soft Drinks Milk PET Bottled
Water
DollarsperGallon
Source: Beverage Marketing Corporation; Competitive Media Reporting
30. How Milk Fares in Competitive Universe
Competition addresses the issue of product
availability better than milk
although milk is improving
Milk’s “voice” in the marketplace is soft relative to its
size
In-store, milk’s merchandising falls behind
competition
31. 0%
2%
4%
6%
8%
10%
12%
14%
1996 1997 1998 1999
Juices
CSDs
RTD Tea
Bot. Water
Milk
Milk Lags in % of Dollar Volume Sold on Feature
Percent of Beverages Sold on
Feature
1999
Source: Beverage Marketing Corporation; A.C. Nielsen
32. Assessment of Milk Marketing Programs
Program is notable for unusually high consumer
awareness
Endorsements make product contemporary
Good media mix for messaging
Program’s greatest weakness is low share of voice
Spending is over-indexed to adults
Generic lacks impact of branded advertising
Effective marketing has moderated declines
Even with the marketing program, milk is still vulnerable to
a decline
33. Areas of Improvement
Evolve messaging
From functional/nutritional to higher order need states and
emotional benefits
Adjust ad mix to emphasize key 12-24 age and
ethnic groups
Increase ad/promotional spending
Enhance processor marketing programs
positioning, packaging, pricing, availability,…
Develop field execution expertise comparable to
competition
Innovation is key to future growth
