August 3, 2020
US grocers sell own milk brand
US grocers such as Kroger Co., Walmart Inc. and Albertsons Cos., have moved into the milk bottling business, which is threatening some of the biggest operators in the US$40-billion milk sector, FOX Business reported.
When supermarket shoppers reach for white gallon jugs these days, most of the time they grab a low-priced store brand. To expand those offerings, major grocery retailers, including Kroger Co., Walmart Inc. and Albertsons Cos., have built their own milk-bottling plants.
Dean Foods Co., which until last year was the largest US milk processor by sales, and Borden Dairy Co., another big producer, were sold this year after filing for bankruptcy in November and January. Executives of both had blamed some of their struggles on grocers' focus on cheap milk, often used as a loss leader.
"There are retailers who prefer to have really aggressively low prices on milk because it's a great way to get people in the stores," said Tony Sarsam, Borden's former chief executive. Private-equity firm KKR & Co. and Capitol Peak Partners LLC, an investment firm headed by former dairy executives, bought Borden out of bankruptcy this month.
Adding to the industry's pressures, milk's lustre has been slowly fading for years in an increasingly crowded beverage market. Many consumers have switched to bottled water and juice, or dairy alternatives made from almonds or oats; breakfast cereal has fallen out of favour.
At the farmer level, about 3,300 dairy-cow herds disappeared in 2019, according to the US Department of Agriculture, following low milk prices, tensions with export customers and processing-plant closures across the country. Wisconsin alone lost about 600 herds over the 12 months up to June 1, the cows typically either sold to another farmer or sent to slaughter. The state led the nation in farm bankruptcies last year.
Although overall dairy demand, factoring in products such as yoghurt, butter and cheese, continues to grow, annual per capita US milk consumption has dropped about 40% over four decades.
Faced with the COVID-19 and stay-at-home orders, pantry-stocking consumers this spring pushed up milk sales at retail for the first time in a decade. Overall demand dropped as restaurants and hotels closed, according to agricultural lender Rabobank.
For the supermarket chains, milk still has much appeal. They know that shoppers who come for a jug of milk tend to stay and buy a few other items.
Milk still regularly ranks among the top 10 purchases at Walmart's stores, according to people familiar with operations of the biggest US food retailer.
Walmart announced in March 2016 it would build a milk-processing plant of its own in Fort Wayne, Indiana, to supply more than 600 Walmart and Sam's Club stores in the eastern Midwest.
In 2018, Walmart opened its bottling plant in Fort Wayne, adding hundreds of jobs and boosting Indiana dairy farmers who secured supply deals with it.
"This work is an example of how we are always finding efficiencies within the supply chain to deliver on our commitments to everyday low prices and high quality groceries," said a Walmart spokeswoman, Delia Garcia.
By operating its own plant, Walmart is reducing costs and passing down lower prices to customers, Garcia said. She added that the retailer's technology and logistics system cuts delivery time to stores and extends milk's shelf life.