MOOVE OVER SODA

PAMELA BLAMEY

Give it two years. The ubiquitous Coke can clutched in the average American teenager's hand may be replaced by none udder than milk.

At least, it will if the dairy industry and its partners have their way.

Dairy companies and the consumer press have lately been spreading the story that new milk-based flavored drinks are giving the Coca-Colas and Snapples of the world a run for their money, particularly in the race for the youth market.

SN interviewed retailers and market observers for their opinions. Their answer was: "Not yet, but keep watching."

While many retailers said they are not stocking these products yet -- and several hadn't even heard of them -- the majority were at least aware of the product trend, or had been visited recently by a sales representative of a flavored milk product.

"I've got one [item], Smilk. It's only been about six months, but it's not setting the world on fire yet," said dairy buyer Jeff Lombardo of Farmer Jack's, Detroit. Lombardo added that he was scheduled to have a dairy drink product presented to him on the afternoon SN spoke with him.

"I definitely see a market for this kind of product. I think it's going to be okay in the future, but the cost is kind of high. I think it'll take off once the costs get in line and they figure out who their target market is," Lombardo said.

Children and teen-agers will be targeted two-fold, he said: not only will milk drinks attempt to appeal to the kids' sense of "hipness", but the healthy aspects of the drinks will mean that parents will also become advocates for the segment.

"I've seen a few of them around and I've heard that the dairy industry is going to be bringing these out," said Pat Redmond, buyer of dairy and fresh prepared foods for Rosauers Supermarkets in Spokane, Wash.

"We've got two or three new mixed dairy drinks, but they must not be doing too well because we haven't offered any deals on them," Redmond said.

Retailers cited several reasons milk drinks have not made a bigger splash, ranging from lackluster marketing efforts, to space requirements, to taste.

Dairy buyer Jack Demoulas of Demoulas SuperMarkets, Tewksbury, Mass., has never heard of milk drinks such as Smilk or Smooth Moos. However, his company has considered stocking their precursors, the recent crop of yogurt drinks, a product concept borrowed from Europe.

Demoulas said he has generally been surprised at the lack of evidence for activity in the dairy drink business. "I think this is a much more high-consumption area for yogurt, so you would think that yogurt shakes would be big," he mused.

National consumer buying trends do support that logic.

According to Information Resources Inc., Chicago, for the 52 weeks ended December 1996, sales of refrigerated yogurt drinks in U.S. supermarkets were up 91.3%, to $15.9 million, admittedly a low volume compared to beverage businesses such as soda. IRI does not track milk drinks or dairy drinks.

While there has been an increase in sales and consumer demand for regular fluid milk, new chocolate and strawberry flavored milk drinks have not made much of an impression at Big Y Foods, Springfield, Mass., according to Val Vivenzio, director of frozen foods and dairy.

"I have not heard of our consumers knocking the doors down to get this product," added Big Y spokeswoman Claire D'Amour.

Increased marketing efforts on the part of the drinks' manufacturers are absolutely vital for the product to succeed, according to D'Amour. "I think what they really need to do an awful lot of is demos in our stores."

But before the manufacturers tackle such marketing tasks, there are some quality issues that need work as well -- and more products will need to be made available to the retail community, said Russ Kates, co-owner of Steele's Markets, Fort Collins, Colo.

"I haven't seen much besides the Pepsi Smooth Moos, and a few other products, but nothing that really tastes good," Kates told SN.

"We have brought one product in and out a couple of times -- it really hasn't moved, and we really haven't had anybody asking for it. There was one French drink that was a good product, and it sells fairly well, but it's hard to get and you have a lot of out of stocks, mainly because it's a volume-driven business."

If the health-conscious consumer population is one segment of the target market, more needs to be done to reach them, Kates said. "People who eat yogurt are the market you'd go after for a product like this. But the products I've seen like that don't say anything about health on them -- there's no reference to it.

But taste is still far and away the most important factor. "We've had ups and downs with the whole health kick, and it seems like in the end the consumer always goes for what tastes good -- the stuff I've tasted so far was kind of like a melted milkshake."

"Retailers don't think it's a big deal because they're somewhat reactionary as a group," said Ken Harris, a consultant with Cannondale Associates in Chicago. "But it is a big deal, and in the next 12 to 18 months, you're going to see a whole host of new items being introduced that are milk based."

At least a portion of these product introductions will be due to a new effort spearheaded by the International Dairy Foods Association, based in Washington. IDFA plans to revolutionize the dairy industry and give the category of dairy drinks a much-needed boost through a cooperative production and marketing effort.

"I think our industry is very conservative, very distribution-oriented and manufacturing-oriented, and as a result, marketing -- and the consumer in general -- are not high on the list," said Jeff Tripician, IDFA's vice president of sales and marketing. "It has created a situation where people -- both the processors and the retailers -- just do what they've done for quite a long time."

"If you look at emerging beverages, most of those companies were either upstarts or small companies supported by larger ones, like Coke getting into fruit juices with Fruitopia. Nondairies and other beverage companies are exploring [dairy drinks] to a greater degree than the dairies are."

To alter this pattern, IDFA is going to broker the production and marketing of new products between dairies, which will provide manufacturing expertise, and nationally recognized companies, which will provide brand equity. "So we're attempting to provide the dairies with a menu of tools that basically act as a new products unit would within an established classical package, only we're that new product unit. We're saying, 'What do we have to do to grow sales beyond what's currently being done?' " Tripician said.

The solution according to Tripician: new packaging, new channels of distribution, and new products. Called the "Product Variety Initiative", the new program is part of IDFA's and Arlington, Va.-based Dairy Management Inc.'s Fluid Milk Strategic Thinking project, and was launched with the idea of using co-branding to access new flavors and create totally new beverages.

"We're talking about dividing the consumers into five groups by age, and designing products that would make them drink more milk.

"For example, for kids you have to walk the line between what Moms want and what kids will drink. What we're going to do is go out and identify a national equity in existence and borrow it.

"We'll say to teen-agers, 'What is a meaningful item to you?' And they might say a specific brand of fruit, if we're going for a fruit-flavored line, or a coffee brand if we're going for a coffee drink. We'll do the same thing for an adult product. We're simply borrowing those equities and delivering them back to the dairy companies, and we'll show them a menu and say, 'Here's what's available, here's how you can make the product. What do you want to do?' "

At the end of all the negotiating will be a national product, such as a fruit-flavored, milk-based drink that has, for example, Chiquita's name on it, along with the name of the local dairy or retail dairy operation that produced it. So far, the idea has been well-received by a broad cross section of dairies, he said, including the dairy operations of two major retailers.

The two major chains, one in the Midwest and one in the Southeast, were represented by their respective retail dairy executives, at a recent meeting in Chicago to discuss the program, according to Gary Slack, marketing director of Slack, Meyers, Barshinger, a food consultancy based there.

"They were extremely positive about it," said Slack, reading from his notes from the meeting. "One of them said 'Greater product variety would give us a tool to add excitement to the dairy case where no excitement exists today,' and the other agreed, 'We need to increase the profile of milk in the retail environment so it can compete against other beverages.' "

Slack said these sentiments are supported by consumer research performed by his company. "We've done a lot of focus groups, which have told us consumers really like milk, but they sort of see it as a Volvo -- boxy and safe, nothing jazzy or snazzy about it. Kids and adults are going for the Porches and Corvettes, in other words the Snapples; the new-age, tremendously diversified beverages coming out of the rest of the industry."

But there are signs that milk beverages could gain a foothold in this market, he added. Consumer reactions have been "overwhelmingly positive to introductions of fruit-flavored milk beverages, especially when brand equity is associated with them," said Slack.

Based on the response so far, Tripician expects that new products will hit the market by this time next year. But how will the issues of space on retail shelves, refrigeration, and quality control be addressed?

"There are probably a dozen or more good reasons to not do this from [the retailer's] standpoint, but at the end of the day most of those reasons are not 'real,' " Tripician said. "Most other sections of the store have had line extension activity and new product activity. We've demonstrated that [the dairy aisle] has got more customers at a greater rate of return. So it's strictly going to be a question of a better rearranging of the shelf to better reflect what consumers want.

"And we're going to help them determine which products are worth it, and back it up with real numbers.

On refrigeration issues, particularly with national distribution as IDFA has outlined, Tripician said it's a question of changing attitudes, and points to another area of fresh foods that has made the transition successfully.

"There are clearly shelf-life issues and it's a little bit more acute here, but probably no more acute than in produce. There are probably more returns in dairy, but you test it, you know the rate of purchase, and you stock effectively.

Marketing and advertising efforts will be supported in part by the manufacturing arm of the project. "We'll have a royalty that processors pay that will fund that ongoing activity. And the first year is funded by the farmers, who have agreed to give us a considerable amount," Tripician said.

On the issue of quality control, Tripician responds that the system will work like any franchise. "What I'm really looking for is a network of many dairies that each delivers locally, but when you roll it up we have [one cohesive effort]. We will have standards not unlike any other licensing or franchising standards, where when you sign up, you agree to make the product a certain way.

As far as retailer concerns that consumers will think the milk drinks are too expensive, he says it's all in changing the mind-set.

"Anybody who adds value in a product usually charges for that -- the ingredients will cost more, packaging will cost more. The point of reference for a lot of people is a half-gallon of white milk. Once we've been able to quantify the opportunity, then we'll be able to change their point of reference."

Are consumers ready for this kind of product? Analyst Tom Pirko of BevMark in New York thinks they are.

"I think everyone's waiting for the consumer trends to catch up. Consumers don't seem to be turning in this direction yet, but there are great things brewing with coffee drinks, a lot of young people are drinking things like iced cappucino, so a lot of them might be interested in new dairy-based drinks that have coffee flavors or other flavors.

"It's very attractive to kids who grew up drinking McDonald's milkshakes, but the new products are lighter."

The possibility of big brands supporting the new products is crucial for their success, he said.

"The first thing you have to realize is that no matter how much the consumer may like them, the business is driven by how quickly big companies come in and how much they're willing to spend to push the category.

"Look what happened with coffee: it has turned around dramatically, it's become extremely popular with people between the ages of 16-23, to the point where coffee drinks are now in beverage aisles as well. The same thing potentially can happen with the kind of drinks we're talking about.

Pirko's advice on flavor profiles is to keep it simple. "If you get too cute and try to be esoteric -- if you try to go for the 'double boysenberry passionfruit' -- you're going to lose people. People are not trying them for the strange categories. They need to start with basics -- you don't want to confuse the issues. Go into any McDonald's, and you'll find the same three flavors they've always had."

Cannondale's Harris thinks it's only a matter of time.

"This is still very much a niche product, and that's the kind of thing where retailers say, 'Hey, this is not going to get us excited." That's understandable -- but when you have resources of a Nestle or Dole behind [the product], that's different."