Dairies' Fix for Souring Milk Sales: Genetics and Bananas

By Mike Cherney and Heather Haddon Features Dow Jones Newswires

Dairy makers are hoping puréed fruit and genetically screened cows can help win back consumers who have soured on milk.

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U.S. milk sales are down 11% by volume since 2000, according to U.S. Department of Agriculture data. Plant-based milk substitutes have taken some of the remaining market share. And a turn away from packaged foods has sapped sales of breakfast cereal, a key milk accompaniment.

Milk companies are fighting back with products they are billing as an improvement on the original.

"Innovation is the only way out," said Blake Waltrip, chief executive for the U.S. at A2 Milk Co., a New Zealand-based company that sells milk that lacks a protein that may cause indigestion for some.

Big food makers are testing new products, too. Danone SA's Sir Bananas product combines milk with puréed fruit, which it hopes will stand out from other flavored-milk drinks and is now available nationwide. Fairlife LLC, a partnership between Coca-Cola Co. and Select Milk Producers Inc., is selling "ultra-filtered" milk it says contains more calcium and protein than regular milk. It is also offering milkshakes containing antioxidants and prebiotic fiber, which is intended to aid digestive health.

A2 uses genetic tests on its cows to make sure they will produce milk that contains only a protein known as A2, not the additional A1 protein that some research suggests could cause indigestion. The company has captured more than 8% of the market in Australia, up from about 3% in 2012, according to Euromonitor International, in one of the few developed markets where milk sales continue to grow.

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In Australia, where agriculture plays a bigger role in the economy than the U.S., "milk is still seen as a staple," said Alice Yu, research analyst at Euromonitor in Sydney. "Everyone has a bottle of milk in their fridge," she said.

A2 Milk hopes to convince U.S. consumers that its milk can help them avoid the indigestion many people associate with lactose intolerance. "Literally within an hour, the consumer knows whether this solves their issue," Mr. Waltrip said. The company, which started selling milk in California in 2015, has struck distribution deals with Whole Foods Market Inc. and Publix Super Markets Inc.

Competitors and some scientists question A2's claim that milk without the A1 protein is easier to digest.

In Australia, A2 Milk sued competitor Lion Dairy & Drinks alleging that the rival's advertising misled customers into thinking Lion's milk didn't contain the A1 protein. Lion filed a countersuit challenging claims that milk without the A1 protein is easier to digest. A2 Milk says scientific studies suggest a benefit.

A2 Milk will also face competition in the U.S. from fast-growing, plant-based milk alternatives. The National Milk Producers Federation and other industry groups are pushing Congress to bar the makers of those products from marketing them as milk.

The dairy companies are fighting over a shrinking pool of milk demand. Milk sales dropped 14% in dollar terms the year through June from that period in 2013, according to Nielsen figures. That is one reason farmers are pouring excess milk into their fields and manure pits. Farmers in parts of the Northeast and Midwest dumped more than 250 million pounds of milk last year, a recent record, USDA data shows. They are on pace to dump even more milk this year.

Dean Foods Co. lowered profit guidance and saw its shares tumble Tuesday as executives with the U.S.'s largest milk producer acknowledged their struggles with declining fluid milk sales, and no end in sight.

"At some point you will see a bottoming in this category, and I'm not sure when you will predict that," Dean Chief Executive Ralph Scozzafava told investors. The company earlier this year launched versions of its TruMoo flavored-milk drinks that it says are free from genetically modified material.

Nate Donnay, director of Dairy Market Insight at INTL FCStone, questioned whether A2 and other companies charging a premium for their enhanced milks can reverse the broader turn away from the beverage.

"The target market is fairly narrow," he said.

--Jacob Bunge contributed to this article.

Write to Mike Cherney at mike.cherney@wsj.com and Heather Haddon at heather.haddon@wsj.com

(END) Dow Jones Newswires

August 09, 2017 09:25 ET (13:25 GMT)