Skip navigation
DAIRY DEMAND

DAIRY DEMAND

After years of being the predictable cash cow of many supermarkets' private-label programs, house-brand dairy products are demonstrating new potential for growth, as retailers fulfill demand for organic, all-natural and functional foods, as well as premium products at a value price. I think in general, we are all getting smarter about what it is that consumers are looking for, said Marilyn Wilkinson,

After years of being the predictable cash cow of many supermarkets' private-label programs, house-brand dairy products are demonstrating new potential for growth, as retailers fulfill demand for organic, all-natural and functional foods, as well as premium products at a value price.

“I think in general, we are all getting smarter about what it is that consumers are looking for,” said Marilyn Wilkinson, director of national product communications for the Wisconsin Milk Marketing Board. “[We're] trying to provide that information and that look and confidence in that product. From what we read, consumers are responding to this.”

Indeed, recent data indicates consumer perception of store-brand dairy has improved dramatically during the past few years. Five years ago, about half of shoppers thought private-label products were as good or better than branded products. Now, that number is up to 70%, according to “What's in Store 2008,” the annual state of the industry report produced by the International Dairy-Deli-Bakery Association, Madison, Wis.

Those views are reflected in growing sales. According to ACNielsen, private-label dairy sales rose 7.9% from $13.4 billion a year ago to $14.5 billion in the latest 52 weeks ending Sept. 29. By comparison, total dairy grew 4.5% during that time, with sales up from $36 billion to $37.7 billion.

More specifically, private-label milk sales grew 7.7%, outpacing total milk sales growth of 5.6%, during the same period. And private-label cheese grew 4%, while total cheese sales were up 2.2%.

Although price inflation has played a role in the dairy category's sales growth this year, these numbers do indicate a shift toward more private-label purchases — a move that major grocers have helped spur by responding quickly to emerging consumer demands.

RAISING THE BAR

Notably, in response to consumer concerns, Kroger, Safeway and Publix this year announced they would stop using artificial bovine growth hormones in their dairy facilities.

During the mid-1990s, artificial growth hormones — alternately called recombinant bovine growth hormones or recombinant bovine somatotropin — were approved by the U.S. Food and Drug Administration for use in dairy herds, where they help boost milk output. Proponents of these veterinary drugs argue that there's no scientifically discernible difference between milk taken from a cow treated with rBGH or rBST and an untreated cow. However, many consumers have been skeptical of those claims, and concern about artificial hormones is one of the most common reasons that many shoppers cite for buying organic dairy products.

“Even though the Food and Drug Administration has said that synthetic bovine growth hormone is safe, there are others who don't want those kinds of products in their foods,” Wilkinson said.

Lakeland, Fla.-based Publix started shipping its rBST-free milk on April 30, 2007. “We made this change to respond to our customers' demand for products not treated with anything artificial,” said spokeswoman Maria Brous.

Alan Hiebert, education information specialist for IDDBA, agreed.

“The science is not conclusive, but the growth in the organic and natural dairy categories is definite,” he said.

Similarly, health concerns are driving interest in new functional foods as well.

“We have seen an interest in the functional health foods arena, such as probiotics or prebiotics to aid in everything from digestive tract [health] to reducing cholesterol,” Brous told SN. The company has responded to the trend by launching PublixActive six-pack yogurts — a yogurt infused with probiotics for digestive health — in January of this year.


Emphasizing these new product traits while working to cultivate an image of quality has led many private-label programs to reinvest in their brand's packaging, Hiebert noted.

“Years ago, it was easy to spot the store-brand products on the shelves because of their monochromatic designs. Private-label products now look similar to their national-brand counterparts — a boost for their image.”

Wilkinson agreed, saying she believes that it is one of the biggest evolutions in private-label dairy.

“What I think is the biggest evolution is the fact that retailers are recognizing how a private-label package looks, what a brand looks like, what unique selling premise it has — the origin, the small batch and so on,” Wilkinson said.

“Does it have other qualities that consumers perceive as beneficial, such as vitamins or health benefits or organic [certification] or all of those things? Retailers are really looking into that and bringing private label — marketing-wise, packaging-wise, point-of-purchase-wise — up to branded products. I think that evolution is bound to continue.”

NARRATIVE BUILDING

For many private-label programs, that brand-building process is still in its earliest stages. For example, Michelle Barry, president of research consultancy Tinderbox in Bellevue, Wash., believes that retailers could be doing a better job at communicating a compelling story about their private-label products to the consumer.

“If you look at some of the success behind the branded products and being able to convey quality, a lot of it's through building a narrative about where it's from, who produced it, something that's connecting the consumers beyond basic product attributes like low fat, no hormones or organic. Anyone can do those attributes, but not everyone can develop a meaningful story about what that process or technique as a brand is all about,” Barry said.

“So it kind of depends on the retailer. If you've got a retailer that has built their brand — it has a really compelling story and maybe they're able to connect down to the level of the manufacturer or buyer — then you have some more momentum where the brand actually plays a role. For example, if you're looking at some retailers who have a really great brand image from a consumer perspective, then whatever their private-label products are — whether it's in dairy or in other categories — it will automatically be assumed to be of higher quality, regardless.”

Wilkinson cited Safeway's O Organics brand as a house brand that had succeeded in communicating both quality and special product attributes through a combination of better-looking labels and attractive packaging — similar to a well-executed national brand. And, she noted, some supermarkets are developing their own lines of specialty products by working more closely with premium suppliers.

“Lowes Foods is adopting a program with Wisconsin [cheesemakers] where they are going to carry their own line of Wisconsin cheeses with the Lowes identification,” she noted.

Retailers may have an opportunity to build their private-label brand with cheeses and cross-merchandising it with other private-label products, she said. In recent years, for example, many retailers have been developing artisanal cheese stations or cheese counters staffed with knowledgeable store associates.

“They're creating their own little special places in the store, or boutiques of fresh-cut cheeses. [They're using] more beautiful packaging, some of it with breathable paper and things like that. So, to the extent that the cheese area offers retailers the opportunity to further build their private-label brand, I think that's very exciting for them, and they shouldn't miss out on that opportunity,” Wilkinson told SN.

“I think that it's gotten so much more competitive in the grocery retailing world that everybody is trying to carve out their own unique products, their own unique identity, and private label is just one very strong tool that grocery retailers have to make themselves unique.”