Why Does Coca-Cola Want to Sell You Milk?

The obvious answer to the question about why Coke might want to sell you milk is that soda sales are declining.

There's just one problem with that instant analysis: so are milk sales.

But what the milk industry has, that soda does not, is fragmentation. Meaning no one controls a sizable portion of the milk market and therefore no one is making much money at it.

So just as it has done in soda and, to a lesser extent, in bottled water with its Dasani brand - a strategy quickly copied by arch-rival Pepsi - Coke is now going to try to consolidate the milk industry in the US and, possibly, globally.

The challenges are many. Not only is milk consumption declining, but consumers are extremely price sensitive, as the following article explains. Coke will go after the high end of the market, aka the Apple strategy.  The result is that a successful market entrant has to be efficient and very good at marketing and brand management. All of which are factors Coke knows something about.

Whether customers will balk at a milk product from Coke will never really be tested: the new product will be called Fairlife. JL

Vanessa Wong reports in Business Week:

Unlike soda, the U.S. milk industry remains highly fragmented with few recognizable brand names.
Coca-Cola (KO) has already claimed its place in the soda, water, energy drink, and juice markets. Now the company is going after milk. The beverage giant is preparing a nationwide launch of a high-end milk, called Fairlife, in 2015.
Unlike soda, the U.S. milk industry remains highly fragmented with few recognizable brand names. In fact, store-brand milk accounts for almost one-third of milk sales, according to market research firm Euromonitor International. With Fairlife, Coca-Cola is looking to use its marketing prowess to change that—creating the “Coke” of milks.
Fairlife is the product of a joint venture formed by Coca-Cola and dairy co-op Select Milk Producers in 2012. Coke saw the partnership as an opportunity to develop “higher quality value-added health and wellness beverages,” particularly what it calls value-added dairy. By that, the company means Fairlife isn’t your average milk: It’s got more protein and calcium than standard milk, half the sugar, and is lactose-free. It’s also expensive, with initial prices (in test markets) running 65¢ more per quart than conventional milk.

At a recent conference announcing Fairlife, Sandy Douglas, the president of Coca-Cola North America, said the company expects the premium milk to “rain money” following extensive marketing efforts (which, so far, include a website with pin-up style images of women wearing liquid milk dresses).
That’s a surprising comment to make about a beverage category that’s struggling. Unlike soda, where Coke has about 13.7 percent market share by volume in North America, the dairy industry is fragmented and in decline. Per capita milk consumption in the U.S. has been falling for decades, and Euromonitor expects demand for milk products to continue dropping.

The other challenge for a premium dairy product like Fairlife is that consumers are highly price-sensitive when it comes to milk. Since the perceived differences among milk products is low, many will just reach for the cheaper option, according to research by Nielsen. This has kept sales of store-brand milk (also known as private label) strong as prices rose this year. For instance, Dean Foods (DF), the country’s largest milk processor and the company behind brands like TruMoo and Tuscan, reported in November that consumers traded down as the price gap between its brand-name and private-label milks expanded to 66¢ this year from 62¢, putting its branded milks under pressure.

One bright spot in the name-brand milk industry has been nondairy alternatives like almond milk, and it may well be appropriate to compare what Coca-Cola’s doing with Fairlife to WhiteWave’s (WWAV) marketing of Silk almond milk, whose sales grew 30 percent in the third quarter. WhiteWave’s marketing efforts haven’t paid off only in almond milk—sales of its Horizon Organic brand milk are also rising, showing there is demand for premium dairy products.
Even as U.S. milk consumption declines, Euromonitor expects companies to offer more products fortified with nutrients like calcium or omega-3 fatty acids—like Fairlife. So if Coca-Cola successfully paves the way for brand-name premium milk, copycats are sure to follow.