In a follow-up from our previous episode, Ted, T3 and Anna discuss the state of dairy product marketing.

Plant-based milk alternatives are on the rise. Fluid milk sales have been in decline for decades. Is dairy falling behind? Does the way the industry markets its products need a makeover? And if it does, what would it look like?

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Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. In our last episode, we talked about changing consumer expectations and how those have impacted the dairy industry. But that discussion is incomplete without also talking about the ways dairy products are marketed.

Before we ended the previous episode, T3 alluded to the difficulty the industry has had in marketing to consumers whose expectations have changed. We’ll pick up where we left off.

T3: Where are the greatest growth opportunities for the dairy industry today? Every single one of them is small and I don’t mean that in a negative way. It’s more specialty cheese, more unique products, more local products. I think that’s where the opportunities are for the dairy industry. Smaller farms, smaller plants, smaller demand for products and things like that. That’s where all the growth opportunities are.

I think there’s a ton of opportunities there, but I think our industry, for a couple of reasons, is really struggling with how to access that market, how to successfully meet the consumers’ request there, and I think it’s because we’re so overwhelmed by, you know, we need to clear more milk. We need to clear a lot more milk. Let’s build a big plant and that we’re focusing on move the big things to solve this problem we’ve had about dairy demand and oversupply that we’re not focusing on where the true opportunity is which is in the smaller opportunities.

Anna: I would imagine that’s harder to do too because with all the government regulation on food safety and everything, that’s pretty cost-prohibitive for some of the small plants as well.

T3: Yes.

Ted: And if you look at the fact, switching to the demographics, you know, the population is not growing that fast anymore and our consumption has flattened out a little bit. Certainly, we’re negative in Class I milk, which is probably a marketing issue more than anything else, but we’re negative in Class I milk, but we’re still growing in cheese, specialty cheeses and fractionated products and pizza cheese and so on. Yogurt has flattened out. So, the question, then, is building a 10-million-pound plant to produce a small piece of cheese where the industry needs to go? And my answer would be no.

We need to adopt a different strategy, a strategy where you set up an environment where small producers who produce a highly specialized product can take advantage of the infrastructure that a group might develop, and I think that’s where we’re probably going to go because we certainly have a limited ability to continue to build 10-million-pound plants that produce one product and chew up that much milk in one product. It isn’t going to work. You’re going to hit the wall eventually with that approach and that, to some extent, might be where a little bit where we are right now.

If we look at the cheese market and the way that cheese market is developed and so on, we’re continuing to crank out barrels and blocks and mozz. Unless the population is going to continue to grow, our market isn’t going to grow to accommodate all the production that these plants can throw out. So, the increase then comes from the smaller specialized, which is more difficult and certainly marketing is more of an issue.

T3: And the cost per pound is much higher.

Ted: It’s higher, but on the other hand, you look at the variations of parmesan now that we see in the dairy case, in the cheese case with horrible marketing, it’s just in there, it looks almost like somebody dumped a basket in there and didn’t bother to even put it on the shelf. I mean it’s horrible.

T3: Dad, that’s—that’s the marketing approach.

Ted: Yeah, well.

T3: They actually have spent a lot of money and decided that that’s the way to do it.

Ted: But how many producers are like me? How many customers are like me who goes in there and knows who these people are to sort through this pile of cheese in order to find just the cheese that I want?

T3: I actually think that’s part of what the buying experience they’re trying to create is.

Ted: Well they’ve done a good job of creating it. I mean you could take a backhoe and stock their shelves the way they’re looking at it. I mean, it really is very poorly handled and I’m thinking that there has to be a better way to do it. I go down Whole Foods, for example, and they have a cheese section which is very good for me because I know what I’m looking at, but think of the poor customer who is not in the business. I mean, how is she supposed to sort out…if I’m looking for aged edam in this pile of cheese and maybe occasionally, they have a mast that says “edam” or “gouda” or whatever. How is she supposed to sort out what she’s looking for or what she might enjoy?

Anna: I love that our grocery shopper is female, just— …I think that is part of the experience though, because you’re discovering other stuff, especially, in Whole Foods there are samples out and everything else, and—

T3: Well, then you go to the Schnucks in Des Peres is the same way. The Schnucks in Des Peres, you’ve got the deli case where you’ve got your piles, you know, which is actually if you, you know, it’s a lot more organized than maybe it appears.

Ted: Marketing is not a treasure hunt. That’s what it’s turning into in the cheese case. If you’re looking, for example, just to pick one, if you’re looking for SarVecchio, okay, the packaging for the SarVecchio is very similar to two or three other variations of the same type of cheese. BellaVitano I think is the name of it and a couple of other award-winning cheeses of the same variation. It’s a great product, fabulous product, both of them are. Can you find them? It’s hard. You know, I find them because I know what I’m looking for and I know how to dig through and shovel to the bottom of the barrel to find the cheese that I want.

Anna: I would say that your average shopper who’s looking for a specialty cheese at Whole Foods is not in as big a rush as the person who’s running to Aldi and just needs to grab some cheddar to make dinner, and they’re willing to go through the experience of sorting through those things.

T3: I would even say…

Ted: We’re not marketing people. I didn’t graduate with a degree at marketing. You’re a food science and I’m dairy manufacturing and you’re I don’t know what. But by the same token, the marketing should be more specific as to what people want. They should be able to find it easily and we don’t.

T3: But I think that experience they’re trying to create is, you know, the cheese sommelier needs to come over and they need to talk to the cheese sommelier and probably not the right term for that, the person behind the deli case.

Anna: Yeah, and your wine.

T3: Yes, but, you know, they have this experience of finding this treasure at the bottom…

Ted: I wouldn’t call the guy at Whole Foods down on Brentwood Boulevard a sommelier. No. No way.

T3: But at the end of the day, the truth is, that very deli case that you’re talking about, that maybe needs to be a little bit better organized, is where the highest cheeses are being sold, where the highest margins are and where the fastest-growing category is. That’s what people want. They want to find that diamond in the rough. They want that unique, “Hey, I’m going to have friends over and show them this wonderful gem of a cheese that I found.”

Ted: So, you’re proposing that we continue the treasure hunt approach.

Anna: I think people…

T3: I’m proposing that we leave it to the cheese marketers to decide how they want to handle that.

Anna: Well, I think too though, especially since so many people are finding that they cannot handle drinking milk, but they can still do cheese. It makes sense that that is the place where you’re going to find the most growth.

T3: You know…

Ted: That’s a good point.

T3: Well, it is a very good point. You can take it a step further. What we learned, you know, watching what happened in Japan, you know, for 50 years after World War II is that if you introduced dairy into the diet and kept dairy in the diet, they wouldn’t become lactose-intolerant. And so whereas only 20% of the population was lactose-intolerant in 1945 and today, something like 80% of the population is lactose-tolerant. Just to be clear, the 20% was lactose tolerant and now 80% is lactose tolerant. Are we going backwards in the U.S.?

Cheese, for the most part, all the lactose has been converted to lactic acid. Milk, it’s still lactose. Most Class II products, it’s still lactose and it seems to me, it sounds like it seems to you, more and more people are finding that they’re lactose-intolerant or that their children are lactose-intolerant than it used to be.

Anna: Absolutely.

T3: And it’s probably because people are getting away from consuming dairy and consuming…

Anna: I don’t know. I always kind of assumed it was the opposite. That people realized that it didn’t make them feel good and then they stopped. I think that was the case for me but I’m going to tell you right now, even if I found out that I couldn’t handle eating cheese, there’s no way I’d stop putting it in food.

Ted: Well, you know, the marketers, for example, don’t tell anybody that there’s very little lactose in an aged cheese or even in a yogurt. I mean, there is a little more in yogurt but they don’t tell you that the lactose comes out with the whey and that if you’re so-called lactose-intolerant, if you’re eating an aged cheese, there’s no lactose in it. Where do you see that? You know, I tell people, you know, that are my age, “Well, I like dairy but I just can’t handle dairy products because I’m lactose intolerant.” They have no clue. They’re 70-odd years old. They have no clue that there’s absolutely no lactose in a three-year-old cheddar.

Anna: I would venture a guess that most of those people are still eating cheese anyways though.

Ted: Well, you know, a lot of people are lactose, who think they’re lactose-intolerant, are actually averse to the protein and again, that problem hasn’t been resolved and that really should be a marketing problem too.

T3: How do we do as an industry, how do we do a better job of educating the public? Because there’s so many issues that we need to do a better job of educating the consumer about. Not only is it that issue, because I agree with you. You have these celebrities that go on these talk shows and say, “I’m so much healthier since I gave up dairy.” But the reality is, it was maybe the lactose or it was maybe…

Anna: Or the fact that they also gave up alcohol and sugar and grains at the same time.

T3: Fair enough. But dairy is not—they tend to take dairy as it’s all or nothing, when in reality there’s so much variation in terms of what ends up in various dairy products that if you want to reduce the sugar levels that you consume, which is today’s big consumer diet trend, you can have a lot of cheese, but probably shouldn’t be drinking whole milk or skim milk. But you could have Fairlife, which has most of the lactose removed but you probably shouldn’t be drinking—you shouldn’t have, you know, yogurt with fruit because there’s so much sugar in the fruit part. But you could have plain yogurt because most of that lactose has been converted to lactic acid. You know, there’s so much more to the issue that doesn’t come out, you know, by the celebrity at the talk show. On the other hand…

Anna: Well, then maybe you have to get that celebrity to understand that so that the next time they’re on that talk show…I mean, honestly a lot of this is not going to be an advertisement that you put on TV. It is going to be social media. It’s going to be people engaging that. But how do you get people listening to or reading a blog about dairy or, I mean, blogs aren’t really the thing anymore. They were for awhile there. That that dates me a little bit but…

Ted: You know, the reality is, as you say, we’re not getting our message out.

Anna: We’re not.

Ted: Now, let me point out that 30 years ago, the dairy industry got their message out through Kraft Foods. Virtually all of the leaders in the dairy industry, particularly in the cheese area, mostly in the cheese, but also Philadelphia cream cheese and cottage cheese and regular cheddar Cracker Barrel type cheeses, aged cheeses and so on, the marketing load was carried almost exclusively by Kraft Foods.

Okay. Now that’s changed. Kraft has basically been split up and sold and absorbed into other companies and so on, and the obligation of marketing, I mean, how many times you see a Kraft advertising anymore? And we’re suffering from that effect. You know, the structure of the industry has changed where most of the milk is not controlled by a retail company who’s going to market the product. The milk is controlled by people who market the milk and the retail is controlled by people who market the product. So, it’s a little bit different. The people who market the product, if they’re going to market it, they’re going to have to spend a lot of money on marketing and then they’re going to need the margin to do it. It’s a little bit of a conundrum as to how this problem is going to be solved.

Anna: Almost every producer has money that comes out of their check every month for state and national promotions and advertising and everything else. If you could use that, not for TV spots, but for something else, to educate, to get people shopping, especially if they can’t have, you know, a liquid drink, something like a cheese that they could have. But you have to choose the right format. It’s not going to be TV. I mean, Facebook’s going away.

Ted: Another milk moustache?

T3: There are some things…You don’t want to put the whole, was it five cents? ten cents? What’s the checkoff these days?

Anna: It’s 15 total. Yeah.

Ted: Fifteen.

T3: Fifteen cents. I’m going to say this. Don’t throw the whole 15 cents under the bus. For example, U.S. Dairy Export Council, who has done a phenomenal job of helping us develop our export markets, has been a very good use of part of that 15, that checkoff.

Anna: Oh, absolutely. Yes.

T3: So, there are places…

Anna: Oh, I’m not throwing it under the bus. I’m just saying I think that we may need to update how we are using it on some things.

Ted: Nobody sees that. The dairyman that needs to be educated is to how much money goes from that checkoff into USDEC, for example, and imagine what 2% or 3% in exports would mean to them, dollar-wise. It’s huge, but they don’t see it because they’re not in that section of the industry. We tell them in our annual meetings, we tell them in our newsletters and so on, but I just often think they don’t read them and they don’t really understand the dynamics of how that affects the total picture. One percent is a huge, huge amount of milk.

T3: So, let’s put it this way.

Ted: In dollars.

T3: One percent is a huge amount of milk. I 100% agree with you. Dairy Exports, USDEC was started in ’95? About 1995. In 1995, we exported approximately 3.5% of our dairy solids. Today we export approximately 17% of our dairy solids. Since USDEC started, over the last 25 years, it hasn’t just been 1%. It’s been 15% of, you know, growth, you know, from where it was to where it is today and a lot of that, you know, is on the backs of the work the USDEC has done to support the U.S. dairy industry. Anyway, just a shameless plug for an organization that I think very highly of.

Ted: Well, our offices have felt highly of them for a long time. I know I certainly have.

Ted: But the checkoff goes to other areas too and I can’t itemize them. I don’t know. But they need to somehow get the message out at the producer end. Producer isn’t going to be able to relate to exports, for example. Producers have to relate to the nutritiousness of the product. Somebody’s going to have to step up and take the place of Kraft Foods and if it isn’t DMI, Dairy Management Inc., who’s going to do it? And that’s sort of where I’m looking is that they need to do it. It’s not that they don’t do a good job in what they’re doing, the subsidies that they give to USDEC and other organizations are invaluable, but we need to get it on the marketing side too.

T3: Let me ask you this question and maybe this is a debate for another day. Should the dairy industry start resorting to negative marketing? I have a hunch that one of the most effective dairy ads that we could put out there is an exposé of what’s really in plant milk.

Anna: I’ve thought of…

T3: What really goes into almond milk? It’s not just almonds. What really goes into soy milk? There’s a lot of stabilizers, a lot of other stuff going into those milks. It may be in the dairy industry’s best interest to go on the attack and I know in my gut is that that’s been discussed and the reason they don’t do it is they don’t want to get it back.

Anna: So much of what was done to promote those products was done, you know, by celebrities but in magazines and on blog posts and everything else. The dairy industry doesn’t even have to do that directly. All you have to do is have those people who are putting that message out there for your typical grocery shopper, who is, you know, looking at Facebook, looking at blogs, looking at Instagram or whatever it is at the time, that’s how that message gets out there. That’s how it got out there kind of anti-dairy in the first place.

T3: But I think, I think you could start it and it would—you’d start a war, let’s face it. But you’d start it by having an ad that says, “This is what’s in almond milk. This is what’s in regular milk. Is this what you really want?” It’s that simple.

Ted: That’s probably a discussion for another day.

Anna: We welcome your participation in The Milk Check. If you have comments to share or questions you want answered, send an email to podcast@jacoby.com. Our theme music is composed and performed by Phil Keaggy. The Milk Check is a production of T.C. Jacoby & Co.

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