Can This Ad Flavor Dean Foods' Results?


They say you should play to your strengths, and dairy producers such as Dean Foods that are struggling with steadily falling milk volumes could get a boost from an industry marketing campaign to promote chocolate milk.


Per-capita consumption of milk is down 23% since 1975, carried lower almost solely by a 58% drop in whole-milk sales. And though the Agriculture Department says total conventional fluid milk sales are down 2.6% this year through September, with fat-free milk falling the furthest in 2013, at 8.6%, flavored milk sales -- which by and large is chocolate milk -- are soaring, up 10.2% year to date and up 18.6% in September from last year. Unfortunately, because it represents just a small percentage of total milk sales, it's not really moving the needle.

So to capitalize on flavored milk's popularity, America's Milk Processors, the industry group that developed the memorable "Got milk?" mustache ad campaign, is developing one in time for the 2014 Winter Olympics that partners athletes with chocolate milk in a mustache-free promo declaring, "Built With Chocolate Milk." As part of the broader campaign, low-fat chocolate milk will become an official beverage of the U.S. hockey and women's ski-jumping teams.

I wouldn't expect any producers to really be able to milk the situation. As popular as the "Got milk?" campaign was, and as much a part of pop culture as the milk mustaches have become, as the Agriculture Department's data shows, the marketing hasn't done much to stem the decline in milk consumption, let alone reverse it. It's hard to imagine a chocolate milk-flavored ad campaign will be any more successful, particularly because it has some Olympic-size hurdles to cross.

One of the hallmarks of the original campaign was the functional health benefits of milk, its wholesomeness, contributions to strong bones, and so on. Chocolate milk is going to have a harder sell to make the same claims, laden as it is with sugar or artificial sweeteners such as aspartame and sucralose, better known as Splenda.

Several years ago, the International Dairy Foods Association and the National Milk Producers Federation petitioned the FDA to drop the requirement that labels identify flavored milk containing artificial sweeteners, but when the regulatory agency took up the issue earlier this year, it created a firestorm of protest.

Dean Foods shot back that whereas about half the sugar in flavored milk is added (the other half comes from naturally occurring lactose), all the sugar in soda is added sugar. And Coca-Cola and PepsiCo are suffering from it. Because diet sodas largely contain aspartame to create the sweet taste of the sparkling beverages, sales are down 6.8% at Coke, mid-single digits at Pepsi, and 8% at Dr Pepper Snapple Group. So for milk producers to say they're less worse than soda makers is hardly a campaign-worthy motto.

The dairy industry is willing to try anything to increase sales, and you can't blame them. Even with all the troubles they're facing, they've only perhaps just averted a "dairy cliff," with the recent budget negotiations in Washington that could have seen the price of milk double to around $8 a gallon.

Still, it's led to some odd developments, such as when WhiteWave Foods filed a patent for "diet milk," which would really give new meaning to the belief that fat-free milk was little more than milk-flavored water (some 50% to 80% of the new beverage would be water!). But the biggest organic milk producer can at least be comforted by the knowledge that total organic milk product sales are up 5.3% in 2013, with 2% milk up more than 13% and whole milk more than 15% higher.

That's not stopping it from hedging its bets, though, as it just acquired organic salad and packaged fruits and vegetables seller Earthbound Farm for $600 million. While milk and produce are the two main pillars by which consumers enter the organic foods market, accounting for 58% of total organic sales in 2012, dairy at just 15% is the much smaller portal. And with sales of flavored organic milk products down 4% year to date and more than 22% in September alone, the chocolate milk campaign might not do much to reverse the situation.

Dean Foods might fare better. Its TruMoo chocolate milk is one of the largest milk brands in the country by sales and volume, and was ranked the fourth most successful new consumer product in 2012 by Information Resources. And though it's the industry's premier dairy producer having one of its top products promoted by an industry campaign, there's no guarantee that results will flow straight to the bottom line.

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Fool contributor Rich Duprey owns shares of Dean Foods and WhiteWave Foods. The Motley Fool recommends Coca-Cola and PepsiCo and owns shares of Coca-Cola, Dean Foods, PepsiCo, and WhiteWave Foods. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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