Dean Foods’ Tale of Disruption: Plenty of Signs that Things Were Beginning to Curdle
On Tuesday, Dean Foods, the US’s largest milk processor, filed for bankruptcy, blaming the unrelenting drop in milk demand in the US market. “There were plenty of warning signs that things were beginning to curdle,” quipped food technology investor Rob LeClerc. US dairies have blamed the decline in milk sales on the explosive growth of milk substitutes like almond, soy and oat milk. But like many industry experts, LeClerc sees the demise of milk as a milestone of a permanent shift in consumer packaged goods. “[Dean Foods] powered through the Great Depression and the Second World War, cementing itself as a case study in how to outpace rivals in a dairy industry churning with technological change,” LeClerc notes, “now it’s become a cautionary tale about disruption.”
At the MILK Business Conference this week, dairy expert Phil Plourd told the attendees that the drop in milk consumption reflects changes in American eating habits. Plourd sees the decline in demand for milk as the result of an even steeper drop in the sales for one of the icons of American food innovation– ready-to-serve cold cereal. “Milk’s best friend got in trouble,” said Plourd. “We eat much less cereal today, and if you were to plot a graph of cereal sales and milk sales, it’s the same picture. “Cereal sales are down 20 percent since 2009 by volume, while milk sales are down by 18 percent.”
A Legacy of Bold Claims and Innovative Marketing: The Perfect Food
Milk became a staple in American kitchens in the 20th century by riding the wave of demand for consumer packaged goods like cereal and cookies. Cold, ready-to-serve breakfast cereal emerged as the centerpiece for many of the early American brands when food science first identified vitamins and minerals and their endemic health effects in the early 20th century. As US researchers sought to treat these deficiencies, they collaborated with food companies to fortify everyday staples in the American diet. Milk was fortified with vitamin D, salt was fortified with iodine, and in the 1930s, cereals and breads became fortified with B vitamins and iron.
Early consumer product pioneers like Post, General Mills, and Kellog built their leadership by marketing a breakfast of fortified cereal and milk as an affordable, quick way to protect against common health ailments. In 1921, a box of Washburn’s Whole Wheat Flakes (later known as General Mills’ Wheaties) proclaimed that its contents were “a perfect food; ready to eat.” Rival Post dubbed Post Toasties a “4 Star Breakfast Treat,” that combined flavor, nourishment, vitamins, and “economy” in one box. More than anything, these cereals promised ease for the American housewife. She could make her life more convenient while still nurturing and providing for her family. Cereal consumption peaked in the mid-1990s. Although 90 percent of Americans still purchase breakfast cereal, the average person only eats breakfast three times a week, while 13% rarely, if ever, eat it.
New Stakes for 21st Century Food Innovation: Nutrition and Planetary Health
Today’s nutrition science considers a universe of new health considerations, and also the demands of the rapidly growing world population. Many recent research projects have concluded that only radical diet changes will allow humans to survive as the population grows to ten billion and natural resources become scarcer. According to a 2018 study in Nature, the production of animal products generates the majority of food-related greenhouse gas (GHG) emissions, 72–78% of total agricultural emissions, due to low feed-conversion efficiencies, enteric fermentation in ruminants, and manure-related emissions. The feed-related impacts of animal products also contribute to bluewater use (around 10%) and pressures on cropland, as well as nitrogen and phosphorus application (20–25% each). Other studies estimate that the average US meal travels 4,200 miles en route to the store, and this journey is powered almost entirely by fossil fuels. Last year, a high profile study on our food system advised that prosperous countries such as Britain and the US cut their milk consumption by 60% and beef intake by 90%. This year, the EAT-Lancet planetary health commission developed a diet to help individuals reduce their consumption of red meat and sugar by 50 percent along while doubling consumption of nuts, fruits, vegetables, and legumes for the 2050 planetary target.
Two Chicken McNuggets a Week?
The EAT-Lancet diet recommends one ounce of chicken and poultry, and a half-ounce of beef, lamb, or pork. “If that sounds like barely any meat at all, you’re right,” wrote journalist Sam Block after trying the diet for a single week. “One McDonald’s Chicken McNugget is around a half an ounce of chicken, and a McDonald’s hamburger patty is about an ounce of beef.” On average, Americans eat about ten ounces of meat daily.
Health- and planet-conscious consumers like Block are driving the latest wave of food innovation, asking for great tasting, plant-based foods as well as dramatic efficiencies in the resources required to make them.
Next Generation Brands Aim to Fix Our Food Systems
In the tradition of cereal giants like Kellogg and a General Mills, Swedish plant-based alternative milk pioneer Oatly has entered a crowded world market for plant-based milks by making bold claims that go beyond nutrition to address planetary health. “Today’s food system is broken,” explains Oatly CEO Toni Petersson, “as a food company, we have a responsibility to change it for the better.” Oatly’s corporate strategy is to build a sustainable brand and serve as a global thought leader in the dairy-free movement.
Oatly landed in U.S. markets in 2017 with innovative marketing to match its cutting-edge plant-based oat milk “making itself the leaders of the self-styled ‘post-milk generation,'” wrote Charlotte Rogers in MarketingWeek. “Oatly has strived to create the sense of being part of a movement in a bid to encourage people to move away from dairy.” Eye-catching ads drove brand recognition within a few short months as Oatly scaled from 10 locations in New York to more than 1,000 nationwide in a year. This year, the market continued to grow at a breakneck speed, with nearly $1.9 billion in sales of plant-based milks over the past year, making milk the top-selling plant-based category.
Personal Moments of Health Joy While Saving the Planet
Oatly’s website proclaims that “our sole purpose as a company is to make it easy for people to turn what they eat and drink into personal moments of healthy joy without recklessly taxing the planet’s resources in the process.
Like the CPG giants of the 20th Century, Oatly’s marketing focuses beyond its products to society’s most significant concerns. “It’s clear that today’s meat and dairy norm is unsustainable. We need to be able to talk about that in order to create change. Having an Oatly oat drink in the fridge has become a statement of personal beliefs, and we’re seeing a post milk generation taking shape.” According to Oatly’s calculations, swapping 1 liter of whole British cow’s milk for 1 liter of oat milk saves 1.16kg of CO2e. Oatly estimates that these savings are equivalent to the greenhouse gas produced by driving 10km in an average car.
Oatly is labeling each bottle with an estimate of greenhouse gas (GHG) emissions generated to manufacture and deliver it from oat to store in addition to the fat, sugar, and nutritional content. Oatly Sustainability Director Carina Tollmar asserts that Oatly’s labeling program is the first globally-adjusted GHG emissions rating for each bottle sold. As a newcomer to the US, with projected 2019 revenues of only $230 M, her company has designed a standard for the entire US $58.6 B consumer products market to “encourage us all to make more informed choices about our food and drink.”
Future Branding Wars Will Focus on CO2 Footprint
The significant energy, soil, water, and environmental costs of raising domesticated livestock are the primary focus of Oatly’s savings as compared with dairy products. However, as Oatly competes with rival plant-based milks, the cost of transport and the other costs of the “messy middle” of the global food supply chain will emerge as decisive for profitability and market leadership.
As it expands to the US, to China and across the globe, three challenges will determine Oatly’s profitability as well as its success in bringing great taste and nutrition to the “post milk generation..”
Three Challenges for Plant-based Food
The “first-mile” post-harvest from the farm gate to the packer, the shipper, the processor, and the manufacturing plant is one of the areas that are ripe for innovation. Technology solutions offer logistics, sensing, and analytics at the point of harvest through to the processor, providing better integration between on-farm growing activity and post-harvest logistics. Although funding for technologies that reduce post-harvest waste grew 44% to $852 million in 2018, Better Food Ventures’ Seana Day sees plentiful opportunities to improve profitability and quality while developing new added-value products. Day feels that investors have overlooked first mile logistics. “When you consider that food waste is a $1 trillion question… these solutions have received much less attention than the “last-mile” consumer-focused startups where more than $8 billion of funding. Startups like Apeel Sciences are driving the application of new materials to preserve food along conventional supply chains. In August, Apeel announced a coast-to-coast roll-out at Kroger stores.
Preservative-free products with “clean labels” and high nutritional value like Oatly’s will require more rigorous controls at every step from farm to table. Also, the consumers that are driving the success of companies like Oatly want to be able to track a product’s journey. “Data transparency will provide the linking mechanism in the previously mentioned drivers and also address the desire for food companies to tell consumers about the provenance of their products, ” Day notes. CPG incumbent General Mills has been among the first to tap into consumer interest in the story behind premium food, with its limited-edition Annie’s Pastas.
The fall of Dean Foods and the rise of plant-based milk suggests that Americans are ready to pay a premium for innovative processed foods that deliver the nutritional value of fresh food at competitive prices and reduced CO2 footprint. A Deloitte study published this month found that while two-thirds of consumers increased spending on the fresh food category, but that price remains central for 92% of these fresh food purchases. In addition, the study charted 58% of consumers actively consider sustainability aspects, such as local sourcing, recyclable packaging, and water neutrality when purchasing perishables. Powders that lock in nutrition and taste at the beginning of the supply chain and transport it at reduced costs with reduced CO2 footprint offer a way for leaders a critical competitive edge. For premium foodservice markets like airline catering, powders also provide safety and convenience that will drive future food trends.
Companies like Spain’s Blendhub have developed modular pre-fabricated powder blending platforms that can be set up next to the sources of key ingredients and lock in nutrition and taste for packing and distribution in far-flung markets. Innovations like powder blending will be critical for plant-based milk companies with global ambitions. Platforms like Blendhub’s PPB monitor activities in far-flung markets to ensure that consumers around the world enjoy the quality, taste, and texture of leading brands.
Watch for private label offerings that anticipate and lead this trend toward customization and clean labels that reduce the CO2 footprint of plant-based drinks, desserts, and sauces.