Challenges in Fluid Milk Consumption October 25, 2017 Increased Competition at Store

Challenges in Fluid Milk Consumption October 25, 2017 Increased Competition At Store

1970’s 1980’s 1990’s 2000’s Today • Milk • Milk • Milk • Milk • Milk • Soft Drinks • Soft Drinks • Soft Drinks • Soft Drinks • Soft Drinks • Coffee • Coffee • Coffee • Juice • Coffee • Juice • Juice • Juice • Coffee • Juice • Bottled water • Bottled water • Bottled water • Bottled water • RTD juice • RTD juice • RTD juice • RTD juice • Teas • Teas • Teas • Teas • Wellness • Wellness • Wellness • Sports drinks • Sports drinks • Sports drinks • Flavored tea • Flavored tea • Flavored tea • Functional • Functional beverages beverages • Energy drinks • Energy drinks • Enhanced water • Enhanced water • RTD coffee • RTD coffee • Almond drink • Almond drink • Coconut beverages • Coconut beverages • Veg/Fruit blend drinks • Sparkling juice • Fusion drinks • Fermented tea • Coconut water • Craft sodas Overview

The past decade has seen increased ad spending by big beverage companies, myriad new product innovations, and shifting consumer preferences. All of these have had an impact on milk consumption, which has fallen in the last 25 years.

Big Brands’ Advertising Budgets Continue To Grow Coca-Cola announced a plan to increase spending on media and brand building to $1 billion this year

Increased Competition From sports drinks to coconut water, more products than ever are competing for finite space in consumers’ stomachs

Innovation The milk aisle has not kept pace with other beverages in terms of new product development The Rise of Value/Combo Meals 8 billion value meals are sold annually; other than in kids’ meals, they rarely include milk as a component

Cold Cereal Is Disappearing From Breakfast As cold cereal consumption declines, so does milk consumption $1.3 Billion Spent on Drink Ads in 2013

Advertising Spending by Category (2013) (in millions of dollars)

Regular Soda $384

Diet Soda $210

Energy Drinks $175

100% Juice $140 Sports Drinks $127 FUN FACT: Fruit Drinks $74 From 2013 to 2015, Coca-Cola increased its ad spend by 21%, Plain Bottled Water $53 spending $565 million in the US. Light Juice $41 Coca-Cola CEO Muhtar Kent Soda Brands $33 pledged to increase media spending and brand-building initiatives by up Iced Tea $32 to $1 billion in 2016. Flavored Bottled Water $22

Other Diet Drinks $20

Other Sugary Drink Brands $19

Source: Rudd Center analysis of Nielsen data (2014); Ad Age Datacenter Advertising Beyond Television

In addition to the $1.3 billion beverage companies spent on traditional media formats (i.e., television, magazines, billboards, etc.), they also maintain large budgets to reach consumers in other ways.

Sponsorships PepsiCo spent more than $350 million on sponsorships in 2014, including $90 million on its sponsorship with the NFL. Coca-Cola spent $295 million on sponsorships in 2014 (and is estimated to spend $100 million on Olympic sponsorship alone).

Social Media Energy drinks and soda brands are very popular on social media. Not only do they have many followers, but Coca Cola averaged 25,000 display ads viewed on Facebook every month in 2013.

Smartphone Apps Apps such as Coca-Cola’s Freestyle and Red Bull’s Racers provide games, entertainment and music while promoting the brand. Estimates range from $250,000-$750,000 per app and many brands have more than one (Red Bull alone has 15 apps).

Dairy Alternatives Are Proliferating

Dairy-based milks have fallen from 74% of new milk/milk beverage products introduced in 2005 to 57% in 2015.

% of new milk beverages by source % of new milk beverages by source 2005 2015 2%

5% 5% 24% 8%

18% 57% 74%

Dairy Nut Soy Dairy Nut Coconut Soy Grain Other

Source: Innova New Product Database Includes Milk/Milk Drinks, Cream/Creamers, Dairy Alternative Drinks, Drinking Yogurt/Fermented Beverages; US only Non Dairy Alternative Beverages Reasons Consumers Choose Non-Dairy Beverages

Like the taste 41.5%

They are healthier to drink 36.3%

They provide better nutrition 30.3%

Like the flavor varieties 24.8%

They have healthier fats 23.3%

Dairy/milk/lactose allergy or intolerance 21.6%

No use of antibiotics/hormones/steroids 20.3%

They are non-GMO 16.7%

They are vegetarian/vegan 13.9%

They have no cholesterol 13.3%

They are better for the environment 13.3%

Price 12.2%

Don’t have to be refrigerated 9.6%

Grew up drinking them 9.6%

Other 4.9%

Source: Packaged Facts January 2015 survey based on national online consumer panel of 2,000 U.S. adults age 18+, balanced to Census on primary demographic measures. Percentages correspond to 468 consumers in the sample who drink non-dairy milk. Published in Packaged Facts’ Dairy and Dairy Alternative Beverage Trends in the U.S., April 2015. Milk Represents Only 4% of New Drinks

Tea, juice and coffee accounted for more than half of all new beverage introductions from 2001-2012. This is particularly bad news for milk, since these beverages all play in the same morning consumption space when milk is most often consumed.

Milk 1,170

All other Flavored water 1,205 Tea 7,998 Iced Tea 1,565

Soft Drinks [VALUE] Drink Concentrate/ Juice Mixes 4,853 Energy 2,474 Coffee Drinks 2,549 2,506

"Today, for all of us in business and government and civil society, the choice is between innovation and irrelevancy. You either innovate or you become irrelevant.”

- Coca-Cola CEO Muhtar Kent Source: Innova New Product Database Milk Not Widely Available Away-From-Home

• 81% of people drink beverages away-from-home, but only 14% drink milk away- from-home. • Though reasons are likely varied (availability, competition, flavor pairing, etc.) it is worth noting that 8 billion value meals were sold in 2011 and virtually none included milk in the offer. Only kids meals tend to include milk as an option.

Source: Kantar World Panel Cereal Consumption Is Down

Cold cereal is leaving the breakfast table which has an impact on milk consumption (only 26% of in- home breakfasts included cold cereal in 2016, down from a high of 35% in the mid 90’s.)  Fruit, sandwiches, yogurt, toaster pastries and bars are all replacing cereal.

% of In-Home Breakfasts that Include Ready-to-Eat Cereal

35 35 34 34 34 34 34 34 34 34 33 33 33 32 32 31 31 31 31 31 30 30 30 30 30 29 30 29 28

27 27 26

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 16 Source: NPD Eating Trends in America Wisconsin Needs More Milk

Milk Production vs. Milk Requirements 35

Milk Produced in Wisconsin 15

Billions Of Pounds of Milk of Pounds Of Billions 10

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* Produced in WI Extra Milk Needed *Preliminary estimate Source: USDA/NASS, Milk Production Demand for Wisconsin Cheese is Strong

Growth Rates (based volume sales)

Past Year Growth, 2015-2016 Five Year Growth, 2011-2016

9.5% Total Category 7.5% Wisconsin-Identified Cheese 6.3% 5.3% 4.3% 3.2%

1.8% 0.6%

Non Specialty Specialty Non Specialty Specialty

Source: IRI Custom WMMB Database MULO+C, Exact weight and random weight combined Opportunity: Whole Milk Opportunity: Milk Segments

White gallon milk is driving decline in sales

Flavored milk and lactose-free milk continue to increase

Organic milk is in a weak position for 2017

Milk Packaging/ School Milk Opportunity: 1% Flavored Milk at School

Offers students another choice and perhaps a better option at school meals.

School Nutrition Directors need to request an exemption from their state agency. (WI- DPI)

School Nutrition Directors currently are not pursuing.

Challenges in Fluid Milk Consumption Discussion & Questions