With billions of cartons and jugs of milk bought each year, consumers have by no means abandoned milk. But, due in part to high retail prices and increased competition from milk alternatives, it seems shoppers have become less enthusiastic than in the past.
Both whole milk and low fat milk sales slumped in 2011. In the 52 weeks ending Nov. 27, low fat milk unit sales slid by approximately 3.4% and whole milk declined by 3.7%, according a report by SymphonyIRI Group, a Chicago-based market research firm. Due to record high raw milk prices, retail prices rose significantly, 10% for whole milk and 9.9% for low fat milk.
Economists told SN that several factors contributed to the sky-high raw milk prices, including a strong export market and low production.
“We had record high exports in 2011, and as a result, that was putting some pressure on the supply side in terms of what was available for domestic consumption,” said Ed Jesse, emeritus professor of agriculture and applied economics at the University of Wisconsin-Madison.
Robert Cropp, professor emeritus at the University of Wisconsin-Madison and dairy market specialist, said that the U.S. Department of Agriculture determines whole, 1% and 2% milk pricing based on the pricing of the classes of milk for butter, nonfat dry milk and cheese, and those classes also set record high prices this year.
The high raw milk prices left retailers sometimes absorbing some of the burden.
Al Patiño, grocery director at the 19-store Mi Pueblo Food Center, based in San Jose, Calif., said the retailer saw a 12% increase in raw milk prices from start to finish last year, but didn’t pass that completely on to customers.
“Obviously, one of our value propositions is to do everything we can in the buying office to ensure that the customer doesn’t feel the complete impact of the price increase,” he said.
Although rising retail prices likely contributed to last year’s unit sales declines, Jesse sees this movement away from milk as ongoing.
“The long-term trend in fluid milk consumption has been decidedly negative,” said Jesse. “And this is a continuation of that trend exacerbated or accelerated to some extent by the higher retail prices for milk.”
Some customers are also concerned about lactose sensitivity and fearful of the bovine growth hormone rBGH, according to Melissa Abbott, director of culinary insights at the Hartman Group, Bellevue, Wash. These trends are especially prevalent among young parents, and have helped the market for organic milk and rBGH- and antibiotic-free milk to continue to grow.
“Consumers who had no interest in health and wellness before they had kids and then were saying, ‘Oh, I’m really worried about milk. That’s the one thing I make sure I buy organic or hormone free,’” Abbott said.
Despite conventional milk’s sales slump, organic milk experienced a banner sales year. Organic whole milk from Horizon had a 9.7% increase in unit sales, while Organic Valley’s increased 15.3%, and Stonyfield Farm’s increased 7%, according to the SymphonyIRI report.
In addition to health concerns, a report compiled by the Advantage Sales & Marketing’s Boise, Ohio-based SMARTeam said it is likely the improvement in organic milk’s shelf life had an impact on its current success.
Organic is still more expensive than conventional, but the closing gap between organic prices and conventional may have also contributed to organic sales.
“It is getting to be a little bit more easily purchased for the consumer who’s a little bit concerned about the price,” Abbott said.
Unfortunately for recent converts to organic, the price gap with conventional milk is set to widen once again this year, as rising feed costs and organic milk shortages will likely drive up the price of organic dairy in 2012.
Although many retailers saw a decrease in conventional milk sales this year, there were still those who enjoyed healthy milk sales.
“We’ve seen a large gain in the milk category. I mean, overall, right now our milk category in all is up 27% versus last year,” Mi Pueblo’s Patiño said. “And we’re just talking about gallon, half gallon, mainstream milk.”