Disruption! Consumer trends are impacting the dairy supply chain. Here’s what you need to know at the farm.

Ryan Toney, Cargill Dairy

The author is the lead for Cargill Dairy Enterprise Group and was previously an executive at the Coca-Cola Company. This article is based on his presentation at the 2019 Western Dairy Management Conference.

For many people the word disruption can have a negative connotation. However, when you think about how new innovations disrupt the status quo, disruption can really be a catalyst for positive change.

Alan Jope, the CEO of Unilever recently said, “Developing new models involves unlearning the old ways,” and that can be a big challenge. You’re probably asking yourself, what is Unilever? Unilever is one of the largest consumer packaged goods (CPG) companies in the world, owning 400 brands. On any given day, as you shop your local stores, you come across many of their products.  In fact, nearly 2.5 million people use a Unilever product each day. Some of their dairy brands you might be familiar with can be found in the ice cream section of your local grocery store: Ben & Jerry’s®, Magnum®, Breyers® and Klondike®.  Unilever like other CPGs strive to grow their brands and business footprint within retailers to ultimately connect with consumers.  Competition is fierce across CPGs and the pursuit of sales often leads to companies striving to discover ways to build the proverbial better mousetrap.  Expectations are high, and optimal performance is the mandate.



The pursuit of growing market share and capturing retail dollars has challenged conventional thinking and even changed supply chains. Think about how 15 -20 years ago supply dictated what was offered to consumers. Dairy farmers managed their operations without much outside influence; you made your milk, the co-op picked it up and you received your check. Overall, there were fewer retailers offering fewer brands made by fewer companies competing for retail dollars.

At some point the paradigm shifted when the previously mentioned pressure to perform drove a change in the way the race was run. As American consumers have become more affluent their purchases are no longer dictated by needs, but rather wants. I need milk, but I want organic. I need bread, but I want gluten free. Today, purchases must align wants and needs. The relevancy of those wants and needs can be analyzed and defined as consumer trends. Retailers and CPG companies compete to capitalize on those trends and capture a greater share of consumer dollars.

Think about the changes you have seen in the retail landscape. More retailers, bigger stores, more shelf space, expanded service offerings, and convenience offerings. How many grocery stores have a Starbucks inside? How many stores now offer delivery or pick-up services? It’s not just happening in urban centers, but even in rural communities like Tulare, California – the number one milk producing county in the country.

With expanded opportunities for branded sales within retailers, we have seen CPG companies change. From new entrants into the market, brand innovation, and category expansions to flavor and line extensions. All of this leads to CPGs placing pressure for performance back on supply chains and industries. They are asking for more transparency into animal welfare, niche production practices and other things that can help them market their products to every imaginable consumer want. And they are often asking suppliers to make it better, make it faster and make it cheaper.

Savvy operators are going to study consumer trends and find their niche and space in which they can thrive. Today there are numerous trends impacting the food & beverage category, including but not limited to a focus on health, desire for transparency and sustainability, and a growing social consciousness.

As you look at dairy category sales in the U.S., they are significant in both size and value, with three categories worth more than $10 billion each and a total value of over $62 billion. Yet there is great opportunity to better align offerings to consumer wants and ignite sales growth. This gives me optimism for the future.

To frame up an example of the potential let’s talk about what innovation did for the yogurt category. In 2009 the yogurt category was stagnant at $5 billion in annual sales. That time frame also coincided with a boom in health and fitness, as an emerging mega consumer trend developed and the want was there. Then category disruption hit, with Chobani bringing to the market innovation to the category with a new style of yogurt known as Greek yogurt. Looking at the boom in Greek yogurt, it followed a typical category cycle: category innovation starting with Chobani leading the way, followed by major category expansion driven by others replicating offerings and building out large scale production capabilities,  culminating with what we see today with category saturation as there are numerous processors, creameries, and private label offerings in the Greek yogurt category. As a result, the yogurt category experienced true category expansion and grew by over $2 billion reaching an apex at $7.4 billion in 2015 thanks to better aligning product offerings to consumer desires/wants/needs.

“The key for us is to keep our eyes right on the consumer and where they’re going and what they want, because we have never delivered what consumers want and lost. Ever.” ~ Jeffrey L. Harmening, CEO General Mills

So exactly how do you identify consumer desires and trends? Well one way is to survey them. Cargill conducted propriety research on dairy purchases to identify micro level trends and help improve dairy product sales. We surveyed a selection of  grocery shoppers in the U.S. to better understand what’s important to them when choosing dairy products and why they avoid dairy products. Some of the results were as follows:

  • Consumers have high nutrition expectation for dairy
    • 45% expect dairy to be healthier than other foods
    • 56% believe real dairy is necessary for a balanced diet
    • 60% see dairy for bone health, 38% seek for digestive health
  • Real dairy consumption is high
    • 87% consume dairy, 67% consume on a regular basis
    • 10% limit consumption, only 3% don’t consume at all
    • The main reason for limiting/avoiding is a stated lactose intolerance or dairy sensitivity

We have now seen companies aggressively go after the lactose intolerant market in a way that aligns that need (lactose free milk) with other consumer desires, such as high protein and low carb. Fairlife LLC’s Fa!rLife® milk is another dairy innovation that is disrupting the fluid milk market in a big way. This ultra-filtered, lactose free milk is tapping into several hot consumer trends. From the health side it touts 50% more protein and 30% more calcium, with 50% less sugar than typical fluid milk. It’s also marketed with specific commitments related to ethical practices, the planet, farming, people and innovation. And consumers are saying yes to fairlife® products in a big way. Since 2015 annual sales of fairlife milk have grown by $223 million, a 258% increase in a subsegment of the fluid milk category that overall declined by 12.8% during the same time period. This milk averages $3.61 per unit, compared to the average unit price of  $2.68. This highlights the fact that consumers are willing to pay a premium for products that align with their needs and wants.*

Ultra-filtered milk is also sparking innovation in other categories, such as yogurt and ice cream, as CPG companies are utilizing this raw ingredient to create new products with more appealing labels and product attributes for their consumers. In 2018 General Mills launched its YQ® by Yoplait brand. This yogurt is made with ultra-filtered milk and is 99% lactose free, with 40% less sugar than the leading Greek low-fat yogurt. Initial results are positive as the YQ® line achieved $9.5 million in sales in the first 6 months after the launch with limited distribution.

As you can see, disrupting categories with innovation and/or a new approach can bring consumers back into a category by giving them something new and exciting to try. Better aligning dairy offerings with consumer values (needs and wants) can and will grow sales and margin.

So how can dairy farmers manage, or better yet, prepare for disruptive trends? I encourage you to have an open mind and be ready and able to adapt to changing times, while continuing to be an ambassador and advocate for our industry. Feed4Thought™ is a regular consumer survey effort from Cargill Animal Nutrition that explores key perceptions and opinions about important topics in the animal protein supply chain. In the latest survey, over 80 percent of respondents said the way an animal is raised is important, and almost half of them were willing to pay more as a result. When was the last time you analyzed your dairy operation through the lens of the consumer? Would your dairy appear to someone who may not know exactly what they are looking at?  Do you consider your operations sustainable and transparent? How often do you challenge best management practices to find a better way? As an industry we seem to want to fight change rather than embrace it.

“Without change there is no innovation, creativity, or incentive for improvement. Those who initiate change will have a better opportunity to manage the change that is inevitable.”  ~ William Pollard

Greater connectivity and collaboration across all aspects of the dairy supply chain will help bring innovative solutions, and better align dairy producers to CPG companies and ultimately consumers. Stay current on consumer trends at https://www.cargill.com/animal-nutrition/feed-4-thought

*This article was written before the recent animal welfare incident at a fairlife supplier.


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