Dairy Industry Accelerates Growth

There is a phenomenon happening in the dairy sector. For the first time since pre-pandemic days, dollar and volume sales could both be up for dairy milk even though prices are on the downswing. And those increases are happening without much grocery promotion. According to Circana, a Chicago-based marketing research firm, about 30% of dairy sales are due to promotion, and for dairy milk that number sits at just 9%.

“So no price decreases, no deals, no TPRs, no displays, no features, no nothing,” said John Crawford, SVP, Client Insight-Dairy, at Circana. “Dairy milk saw some increases for the first time in a long time.”

The charge is being led by private label milk, which makes up some 50% of dairy sales over the first half of 2024. In fact, in Circana’s “Dairy 15,” which tracks that number of categories within dair, excluding eggs which tend to skew the data, private label through the month of May was outpacing brands in nine of those categories. Whipped toppings, yogurt, refrigerated desserts, frozen novelties, and margarine have been big winners for private label in the dairy section lately.

The recent growth shown by whipped toppings is especially impressive, according to Crawford.

“Three years ago, whipped toppings was a very small private label category,” he said. “Whipped toppings started to grow, private label got in there, and now it’s well over 50% private label within whipped toppings. It’s all because of the growth that private label has driven.”

Total dairy sales through May 19, 2024, were up 1.9% year over year at over $38.6 billion while volume sales increased 1.3%. Due to inflation easing, milk was down slightly in dollar sales — 0.6% vs. the first half of 2023 — but volume sales ticked up 0.1%. When you look at just dairy milk, dollar sales are flat year over year while volume sales are up 0.6% … and both are trending upward.

Cottage cheese (up 16.0% in dollar sales year over year and 13.5% in volume), whipped toppings (up 10.2% in dollar sales year over year and 10.8% in volume), ice cream/sherbert (up 11.8% in dollars, 7.3% in volume), deli/dairy specialty cheese (up 8.8% in dollars, 10.1% in volume), dairy butter (up 6.4% in dollars, 3.7% in volume), and yogurt (up 6.1% in dollars, 5.5% in volume) have been the main drivers in dairy over the first five and a half months of the year. Cottage cheese is still getting a boost from TikTok, where influencers are showcasing various ways users can use it.

Natural cheese chunks (up 6.9% in dollars year over year, 7.6% in volume), dairy yogurt drinks (up 6.4% in dollars, 5.4% in volume), and dairy pre-sliced alternative cheese (up 5.5% in dollars, 5.6% in volume) have also been strong movers.

Whole milk dollar sales and volume sales are also on the rise, and it’s a trend former IDDBA President and CEO Michael Eardley first started following a few years ago in Europe.

“People want food that tastes good,” said Eardley in a recent video interview with Supermarket News. “They are eating less, but they are eating better. I would much rather have a small glass of whole milk than a half a gallon of low-fat milk and I think that is what people go for.

“It’s really total calories and when you feel better about your food you are going to be more active and you are going to work those calories off.”

Non-dairy, or plant-based dairy has been a hot item, leading to grocery retailers dedicating more shelf space to the products, but sales in both dollars and volume categories have cooled significantly. Through May 19, 2024, non-dairy milk dollar sales were down 28.3% year over year and volume was down 18.1%. Similarly, dairy alternative whipped toppings dropped 23.2% in dollar sales and 24.3% in volume.

“Plant-based has been really struggling, but within the dairy category it is certainly struggling,” said Crawford. “Part of that is they took price increases a little bit later than dairy did, and so when dairy milk started to go down, plant-based milks really had to increase their prices to cover their costs.

“It’s a lot more expensive to buy plant-based milk … that price premium becomes a little bit harder for [shoppers].”

Make sure to order enough

Even though retailers are using promotions less for dairy these days, they are still up from last year, according to Crawford. He said promotion dollars are now on the way back. And if a grocer is starting to lean on promotions more, they should make sure there is enough stock on the shelf. Grocers are still experiencing challenges with labor, so keeping inventory levels at the right levels can be tricky.

“I think there are a lot of losses out there from out of stocks and particularly out of stocks when it comes to promotions,” said Crawford.

Temporary price reductions are producing the best results when it comes to promotions, while display promotions are not as effective. Cheese, ice cream, and novelties are the hot button categories for promos, according to Crawford. Offering assortments in categories like yogurt, milk, ice cream, and novelties where shelf space comes at a premium would be another smart move by retailers.

Crawford said when it comes to the dairy section grocers have always been on the lookout for the product that offers the most growth. For a time that was non-dairy and plant-based products, but with the demand declining retailers might want to dedicate less shelf space to the dairy alternatives and offer more displays of traditional favorites like dairy milk.

“You have to have enough inventory on the shelf for 2% half gallon white milk,” said Crawford. “And low fat and skim milk are still the biggest subcategories”

“I think within yogurt and ice cream, and some of those categories where you’ve got a long tail of SKUs, you want to have a variety of flavors, but you better have strawberry single-serve Greek yogurt, and you better have enough of it.”

2024 could be the year of volume

As for the coming months, Crawford sees volume sales continuing to be on the upswing and prices remaining low. Dollar sales should remain flat, perhaps up a little, but the dairy section will be driven by volume as opposed to being driven by pricing.

Crawford, however, warns that commodity markets could put a wrench into sales projections. Brands are going to be fighting it out for volume. Private labels are going to be fighting it out for volume growth. It’s going to be a volume game.