“The early bird may get the worm, but it’s the second mouse that gets the cheese.” – Jeremy Paxman
I don’t know about you, but if given the choice between a worm and cheese, I would definitely prefer to get the cheese.
But to be honest, if given the choice between cheese and… well, most any other food type, I would choose cheese.
In this vein, for this industry report, I decided to focus on one of my favorite industries: dairy food production in the U.S.
Dairy food production, per the market research firm IBISWorld, manufactures all non-frozen dairy products (so, alas for fellow ice cream fans out there, no ice cream or frozen yogurt).
This includes butter, cream, yogurt, cheese, and different kinds of milk (pasteurized, evaporated, and condensed). Producers of these goods supply their products to different entities, with the main buying industries including food-service industries, supermarkets, grocery stores, dairy wholesalers, and B2C consumers like your humble, cheese-loving writer.
In different parts of the country, but the Midwest especially, dairy production has traditionally been a major industry. However, the past few years have not been kind to dairy production, with the annual growth actually falling to a -3.4% rate from 2014-2019 due to factors including a decline in input prices.
Thankfully, the anticipated trends for the next five years to 2024 look a little brighter. Three include:
Trend #1: The dairy production industry will grow at an annualized rate of 0.1% from 2019-2024, reaching a profit of $3.3 billion.
IBISWorld explains that the fate of the dairy production industry directly correlates to the price of raw milk. If the price of raw milk goes up, the industry experiences growth. Conversely, if the price of milk goes down, the industry growth goes into a decline.
That is essentially what happened from 2014-2019: the price of milk was down, and since consumers expect the same price of milk regardless of the state of the industry, different markets like dairy wholesalers, grocery stores, and supermarkets charged the same prices.
They – and correspondingly, the dairy production industry – suffered as a result, though the profit margins were still strong.
Fortunately, milk prices have increased recently, so the industry revenue is predicted to experience an upswing, growing at a rate of 0.1% from now until 2024:
Trend #2: Industry competition will remain medium and steady of the next five years, with Dairy Farms of America, Saputo Inc., and Dean Foods Co. sharing 28.5% of the market share.
Overall, the dairy production industry has a low market share concentration. Three major players stand out in the competitive marketspace, but only make up 28.5% of the total industry revenue, with the other 76.0% consisting of myriad other industry operators.
As you see in the above chart, two American corporations are major industry players: Dairy Farmers of America (DFA), the largest dairy co-op in the U.S., and Dean Foods Co., a Texas-based food and beverage company. Both DFA and Dean Foods Co. have production facilities all throughout the U.S.
The third major player is Canadian: Saputo Inc., headquartered in Montreal. Saputo owns several processing facilities in the U.S. through acquisitions of companies like Morningstar Foods LLC.
IBISWorld predicts the industry market share concentration will remain low, with a steady, medium level of concentration.
Trend #3: To remain successful, dairy production operators will need to differentiate their products.
IBISWorld identifies 250 Key Success Factors for every business, and one of the top five they identify as the most important for the dairy production industry is the marketing of differentiated products.
This can consist of differentiating the type of products they manufacture, modifying the packaging, and revitalizing their brands.
Here’s a noteworthy example of one such rebranding initiative that the yogurt company Chobani underwent in recent years which was lauded by the graphic design firm UnderConsideration:
Source: UnderConsideration/Brand New
Source: UnderConsideration/Brand New
But sleek, unique, and charmingly retro packaging and branding aren’t just limited to household names like Chobani.
“It’s a Dairy brand that doesn’t look so corporate,” Ryan explained. “The old-school art style stands out in a sea of sameness and homogeny.”
Another form of differentiation that reporter Cathy Siegner mentions in an Industry Drive article is for dairy production companies to invest in plant-based alternatives. For instance, companies like Danone and the aforementioned Dean Foods Co. have purchased non-dairy production companies to offer products made from alternative ingredients like almonds, flax seeds, and oats.
In summary, the dairy production industry is anticipated to reverse its negative growth pattern and experience a slight increase in its revenue. The competition will remain stable, with the same three industry players sharing less than 30% of the market share and continuing to dominate that portion.
Milk prices will remain high and stable, helping to improve industry growth. Nevertheless, for companies in this industry to remain successful, pursuing product differentiation from packaging changes to exploring dairy-free alternatives will be a definite key to success.