Much has been written about the bankruptcies of Dean Foods and Borden due to declining milk sales. These articles point to recent consumer shifts to plant-based beverages as the disruptors. But is the US, often a bellwether of global trends really in what Oatly is campaigning as “the post-milk generation?” What is really causing a decline in milk consumption and what could be done to reverse that trend? The answers might surprise you.
The Dairy industry is a victim of self-disruption
First and foremost, while technology innovation has changed the way milk is produced, it came with unintended consequences. The Digital Age offered smart technologies to help keep cows happy and healthy, such that each cow can increase the amount of milk it produces. Agricultural technological advancements raised the bar in milk production efficiency.
This increase in productivity flooded the market with milk. Intense competition between dairy companies and even retailers put extreme pressure on price. So, despite the many dairy agricultural innovations, the result has heavily impacted the dairy farmers’ ability to thrive – especially those who were slow to adopt new tech.
Americans are drinking a lot less milk
Generations of Americans drank 2-3 glasses of milk every day. Today, though, they drink a lot less. Consumption has been in free fall since the 1970s, dropping 41% from 1975 to 2018. Even the unmatched ad world success of the Got Milk? campaign failed to arrest this decline during its two-decade run. Confusing changes in fat dietary guidelines, concerns about growth hormones in cows, and changes as simple as – not starting the day with cereal and milk – contributed to this decline. Yet, despite the drop, milk is still a very sizeable USD 12B category with 94% of American households continuing to purchase milk.
New beverages can cater better to ever-changing tastes
While milk stayed the same, Americans enjoy a variety of hundreds of beverages introduced to the market every year – soft drinks, energy drinks, fancy coffees, plant-based drinks – which have and continue to provide consumers plenty of choice.
The non-dairy milk alternative category in the US has a market size of USD1.8B enjoying explosive growth of ca. 23%. These have become more popular due to ethical concerns, health reasons, intolerance to dairy, and as trendy establishments and cafés offer more options that consumers can try. Surprisingly, while there appears to be a correlation between the rise of “fake milk” and the decline of milk, it is not the cause. The answer lies outside the “milk” category.
Disrupted by a liquid that flows freely
Water is more likely the disruptor that milk didn’t pay attention to and should learn from. Who could have imagined that today, Americans would spend USD71B to drink water?
The watershed moment came in the late ‘70s when the team at Perrier, even when McKinsey said it couldn’t be done, set out to persuade Americans to pay for fancy water. They targeted well-to-do baby boomers with a natural refreshment that was classy, sophisticated, aspirational, and yet accessible. It worked! Perrier became synonymous with sparkling water and set the stage for many brands and innovation on water as a legitimate refreshment beverage.
In the early ‘90s, PepsiCo learned that once they finish off a bottle of Perrier, consumers would refill it from the tap. Realising that single-serve portability was also a benefit, companies like PepsiCo and Coca-Cola began purifying and selling tap water.
Today, water is America’s favourite drink. Milk is #5.
Looking to a future beyond plain old milk
Water has continuously tapped into the shifts in consumer needs. Penetration was gained by delivering benefits of refreshment, hydration, portability and affordability. It continues to stay relevant and aspirational by creating value through new usage occasions, aligning with healthy habit and nutrition choices, as well as addressing issues with its environmental impact.
If something as plain and free as water can become a lifestyle choice worth paying for, then milk can give “turn plain old milk to something exciting” a go.
Those who’ve tried are reaping the rewards.
There are pockets of growth in dairy milk, especially when value-adding claims are offered to consumers such as:
- Flavoured whole milk = 8.9%
- Organic whole milk = 4.4%
- Lactose reduced/free = 11%
- Grass-fed milk = 51%
Fresh investments in milk are also being made, with Coca-Cola’s recent acquisition of the remaining stake in Fairlife, a brand they began to invest in in 2012. This signals confidence in more exciting milks.
“Disrupt or die” has been staring the US milk category in the face… for the last 40 years. It’s not a new thing and certainly not just because of a generational preference for fake milk. It’s taken the industry too long to let go of its category norms and adapt to the changing needs of the consumer. It is not dead yet. If it can adapt now the industry can still turn Got Milk into Get Milk.
 Nielsen, last 4 years CAGR
 Nielsen, 52 weeks ending Oct 26 2019
 Nielsen, last 4 years CAGR
 USDA, Jan-Oct 2019
 Nielsen, Nov 2018-2019