Dairy Farmers of America bid to add Dean Foods to portfolio

February 19, 2020
4 min read

In the latest of a series of mergers and acquisitions made by Dairy Farmers of America (DFA), Dean Foods is to be acquired by the co-op for $425 million. The agreement, which would transfer nearly all of the nation’s largest dairy producer assets and liabilities to DFA, comes just three months after Dean Foods filed for Chapter 11 bankruptcy. The sale is currently pending approval from both the bankruptcy court and the Department of Justice.

The dairy industry has been struggling to stay afloat in the wake of spiraling prices, decreased consumption and rising competition from non-dairy alternatives. According to Mintel research on milk and non-dairy milk, dairy milk sales have fallen 22% since 2014 with no real signs that the ship is righting any time soon. Ultimately, Dean Foods’ closure, much like the subsequent bankruptcy filing from Borden Dairy, is a symptom of a much larger issue in the market: consumers’ preferences are changing.

Dairy Farmers of America advocate for milk, but is that enough?

As one of the leading dairy co-ops in the United States, DFA is uniquely positioned to shake up dairy production – for better or worse.

In recent months, DFA has committed to aligning its practices with broader consumer trends. It has developed sustainable farming processes, spoken out in favor of animal welfare, and worked with its brands to leverage the plant-based craze with lactose-free, digestion-friendly hybrid dairy/non-dairy offerings. By taking steps to assuage some of consumers’ top concerns about dairy consumption, DFA is playing an active role in bolstering its brands and members in hopes of keeping milk in refrigerators across the country.

However, the organization’s size and potential influence on pricing may open the industry up to internal competition and cannibalization, which could lessen the impact of its repositioning efforts. DFA’s recent investments in large-scale production facilities while it continues to represent independent farmers has raised concerns about its interests. Current low milk prices lead to low profit margins and potential closures for the small dairies that sell raw milk to producers, though they keep costs down for larger operators. A faceoff between industry members could ultimately hinder the market growth DFA is working to achieve, particularly as local ingredients continue to be a draw for consumers.
Remaining competitive in an increasingly saturated marketplace begins with a “new year, new you” approach to positioning – something DFA and other dairy groups have taken steps to achieve.
As it stands, DFA’s efforts to keep dairy milk relevant hope to prove that there’s power in numbers by leveling the sales trajectory through acquisitions, mergers and widespread rebranding. Given the consistency of dairy’s declines, particularly in juxtaposition to the rapid growth in the non-dairy segment, the market’s issues may run deeper. Nine in 10 households are still buying dairy milk, but as taste and nutrition trends change, dairy may struggle to pivot with the changes taking place in the broader milk market.

What we think

While the industry is struggling, dairy milk is still a prominent household essential and brands will need to remind shoppers how and why it earned a spot in their refrigerators in the first place. Remaining competitive in an increasingly saturated marketplace begins with a “new year, new you” approach to positioning – something DFA and other dairy groups have taken steps to achieve. Updating packaging to be more vibrant and unique catches shoppers’ eyes, while focusing on and promoting sustainable and ethical values are what will resonate most with consumers.

Mintel’s 2030 Global Consumer Trends highlight how nutrition and wellbeing shape consumer purchasing behaviors. This desire to lead a healthy lifestyle prompts consumers to look for key nutrition trends (eg low-sugar, high-protein) as one of their primary influences, particularly when making food and drink purchases. Focusing on the functional benefits of drinking milk, addressing concerns about digestion issues, and emphasizing the healthfulness of dairy milk will help in correcting some of the misperceptions about dairy milk and how it stacks up against plant-based alternatives – and may even bring some consumers back to Team Dairy.

Madelyn Franz
Madelyn Franz

Madelyn Franz is a Research Analyst for Mintel Reports where she delivers cross-category insights to connect the dots between what consumers want and why.

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