MILKING THE DAIRY

NANCY GRIFFIN

Today's dairy aisle is home to increasingly crowded refrigerated displays of milk, yogurt, butter and related items, as consumer demand for convenience and healthful options reinvigorates a department that's been in a deep freeze for years, say retailers and industry observers interviewed by SN. And, they add, these cool cases are only going to get hotter in 2000.

Consumers may be the driving force behind category growth in the dairy case, but it's the retailers who've had to respond by making sure they keep up on trends and stock the in-demand items. To do that, processors have been pushing retailers to adopt category management practices that they say are the best opportunity to manage the growth.

However, a recent survey by Dairy Management Inc., Rosemont, Ill., showed that 53% of processors polled indicated dairy-aisle category management is practiced by less than half their customers. They further stated that they'd like to see retailers start organizing dairy around consumer-oriented planograms that take into account menuing or meal occasion; allocate more space for "true" dairy items; and set up secondary locations for select, high-volume products.

For years, milk has been the anchor of the dairy department, comprising more than 32% of total department sales, according to recent statistics cited in the 1999 "What's in Store?" report by the International Dairy-Deli-Bakery Association, Madison, Wis. Nevertheless, it's been an uneven battle: per-capita consumption has steadily dropped over the years. New packaging in the form of single-serve "chugs" and sleek pitcher-like multigallon family containers, the introduction of consumer-specific formulations and related improvements have helped to reverse the trend in the past year. Still, milk sales lag far behind water, fruit juice and carbonated beverages.

"Our milk sales remain very strong, as do milk byproducts," said J.B. Pratt Jr., chief executive officer of Pratt Foods Supermarkets, based in Shawnee, Okla. "It's probably the part of the country we're in. Animal products are a big part of the diet here."

While milk is a must-purchase staple for consumers, the nine-store chain still promotes milk in its ads "and our customers respond, maybe because they are already inclined," said Pratt. "We haven't seen any decline in milk sales, although soda sales are very strong, too."

Despite less-than-fabulous milk statistics, the future does not look altogether bleak for milk products, say IDDBA experts. Supermarket operators who have a strong dairy image to maintain have taken extra steps to build sales.

"We're seeing an upswing in milk sales," said Stew Leonard Jr. of Stew Leonard's, Norwalk, Conn., a three-store independent that started out as a dairy farm and still processes its own milk from company-owned dairy farms. "We've put a testimonial on the sides of our milk cartons from a local, well-known pediatrician saying how important milk is for kids" for brain and bone development.

Leonard admitted he "may have stepped over the line a bit" on the chocolate milk cartons, however. He's added his own little blurb urging parents to use chocolate milk to "nudge" kids into drinking milk. That's what he does with his four daughters.

"It's white milk on weekdays and chocolate on weekends," he said.

Another selling point for Leonard's: "Having our own farms means we can assure customers our milk has no hormones or antibiotics. Moms and dads are nervous about giving kids additives and genetically altered foods."

Boston-area retailers, including Demoulas Supermarkets, Tewksbury, Mass.; Stop & Shop, Quincy, Mass.; and Shaw's Supermarkets, East Bridgewater, Mass., are testing out a line of new milk products tailored to three distinct consumer groups -- children, older people and health-conscious adults. Kidsmilk is a reduced-fat milk with added calcium, zinc and iron, while Fitmilk is a fat-free milk that retains the properties of 2% milk, and Lifemilk is a low-fat milk fortified with extra calcium and nutrients to promote calcium absorption.

Besides the formulations, the milks are also stressing convenience and sport new packaging called the "Smart Jug" with a form-fitting handle for holding and pouring.

While some consumer groups like the idea of nutrition-added milk, others object to it, and this segment of the population is boosting sales of organic milk and dairy products. Though such items can be twice as expensive as regular milk, some retailers report organic milk products -- free of bovine-growth hormones, antibiotics and other feed additives -- are flying off their shelves.

"Organic dairy products are the fastest-growing category in four of our stores," said Pratt. "We've carried organic food for about 10 years, but it has just taken off recently. We made the commitment to double the shelf space and we [subsequently] doubled the sales."

Pratt said education levels, more than income, define the organic-milk consumer. "Some of our customers say they can't afford to buy organic all the time, but they buy it whenever they can."

The organic milk his stores carry comes from Wisconsin and is UHT pasteurized for a longer shelf life "so dating is not as big a problem" as it is with regular pasteurized milk.

His organic experience is mirrored by that of Jim Lee, president of Wild Oats Markets, Boulder, Colo. He said "anything organic is the fastest-growing segment of our business."

The natural-food supermarket chain, with 110 stores in 22 states, mostly sells organics. "We offer both kinds of milk, but the organic is growing in popularity. The majority of our business now is organic."

In Seattle, Rick Smith, dairy manager for Queen Anne Thriftway, said, "Organic milk is huge, probably the No. 1 rising product in the dairy."

Pratt noted that sales of organic butter -- at nearly three times the price of regular butter -- are not keeping pace in his stores with regular butter sales. "But we've been keeping it with the other butter. Maybe we'll try displaying it in the 10% of the dairy case devoted to organics."

Although sales of organic yogurt are rising, both retailers told SN they are not increasing with the same intensity as organic milk, despite a much smaller price difference. But sales of pricey organic eggs are "doubling every six months," said Pratt.

Another pricey egg, "the naturally nested Omega-3 egg," is selling like hotcakes in Seattle, said Smith. "They give the chickens feed that is high in Omega-3s, the oil found in fish [reportedly good for helping prevent heart disease]."

If milk sales are declining, sales of products called milks but containing no dairy products are increasing. Soy, rice and oat milk sales are on the upswing, especially those flavored varieties.

"We stock them on the regular gondola," said Lee. "But we also keep them in the cooler with other cold beverages. We sell lots of them that way."

Non-dairy milks are "making a surge" in Seattle sales also, reported Thriftway's Smith.