Why the milk wars are heating up

The conventional dairy milk sector is under attack.

Seeking to attract the large base of health-conscious consumers, suppliers are launching newer selections of milk alternatives, and making greater inroads into refrigerated dairy cases.

While dairy milk had a five-year compound annual growth rate (CAGR) decline of 3.2% from 2017 to 2022, plant-based milk grew 6.9% over that period, reports Circana, a Chicago-based market research firm.

The movement away from conventional milk is perhaps the most dramatic trend in the dairy department, with more shoppers choosing alternatives like soy, hemp, and almond milk, said Russell Zwanka, associate professor-food marketing, and director of the food marketing program at Western Michigan University in Kalamazoo.

Greater consumer interest in milk alternatives is leading many retailers to offer additional SKUs that provide a higher dollar ring and are typically more profitable, he said.

“It’s not the job of the retailer to save the dairy cow industry,” Zwanka said. “It is the job of the retailer to understand the customer and carry what the customer wants to purchase. Retailers offer solutions for families.”

Yet, despite stronger interest in milk alternatives, conventional milk still accounted for 86% of milk sales in the dairy aisle for the 52 weeks ending May 21, though sales were down 0.31% from the year-earlier period, Circana reports. Dairy refrigerated alternative milk had a 13.3% share, up 0.16%.

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Conventional refrigerated milk had an average price of 63 cents per pint, compared to 95 cents for milk alternatives.

“Dairy is finding a better balance between vegan and vegetarian alternatives and real milk and dairy products,” said Anne-Marie Roerink, president of 210 Analytics LLC, a San Antonio-based market research and marketing strategies firm. “There is a market for dairy alternatives, but it is a niche demand that still requires the golden rule: it had better taste good.”

In addition to the substantially higher prices, allocating the necessary case footage is a major challenge for retailers seeking to boost sales and expand their alternative milk selections.

“There is increased risk of stockouts unless merchandising space is increased,” Zwanka said. “Many new trendy items must be kept on and stores are running out of room.”

Yet, because the use of additional cases will also increase refrigeration costs, “an effective assortment is paramount in this category,” he noted. Retailers, Zwanka added, should perform “environmental scanning” in which they consistently monitor dairy trends and keep pace with changing consumer behavior by reducing the weaker selling milk items.

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Supermarkets, meanwhile, can make conventional milk more enticing by offering multi-packs of single-serve selections; carrying a variety of flavored milks; providing lactose-free alternatives; and merchandising milk from local farms while educating customers on the local farmers, Zwanka stated. “Retailers need to understand where the customer wants them to go,” he said.

Boosting activity throughout the dairy sector, which experienced flat sales in most categories over the last year, also will require creative marketing. Strategy here, according to Roerink, includes leaning into one-day sales; mix and match items that involve co-merchandising dairy products with selections from other store departments; price freezes; and publicizing the lower cost of private label products compared to national brands.

“Shoppers who feel the supermarket is trying to help them every step of the way are less likely to divert dollars to other stores by cherry picking deals all over town,” Roerink said.

Among the more energetic dairy merchandisers is Tops Friendly Markets LLC, which is using displays and promotions to highlight newer selections and updating planograms in response to changing consumer interests, said Susan Durfee, director of dairy, frozen, baby, pet, and non-foods. Williamsville, N.Y.-based Tops operates 149 stores in New York, Pennsylvania, and Vermont.

Supermarkets, she said, should be flexible in their product arrays to “meet the needs of families having a tough time in the current economic environment while also offering variety for those wanting to try new products.”

Providing recipes with dairy ingredients that are easy to prepare and spotlighting the savings of preparing meals at home versus eating out also can enhance category activity, Durfee said.

“Time and time again we see dairy consideration come down to value pricing, convenience, and quality,” added Christa Verrier, category manager, dairy, at SpartanNash Co., a Byron Center, Mich.-based grocery wholesaler which also operates 144 stores under 10 banners in nine Midwest states, including Family Fare, Martin's Super Markets, and D&W Fresh Market.

To meet the “appetite for dairy innovation,” SpartanNash is expanding its array of alternative milk products, yogurt drinks, and limited time only (LTO) options, Verrier said. “By getting ahead of these trends, we’re able to allocate more space to these category growth drivers and planogramming in rotational limited time only facings,” Verrier said. 

In addition, SpartanNash is optimizing dairy space by re-aligning adjacencies within stores’ refrigerated departments, while also increasing pack sizes for such items as yogurt and cheese in response to consumers trading up from single serve to multi-serve and multi-pack products.

“The most effective merchandising strategies involve understanding the consumer decision tree and how to present products in line with their decision-making, Zwanka said. “The best bet is to expand refrigeration options so products can be placed more intuitively for the consumer.”