The front page of the wall street journal this week had a story on Dean Foods. Dean Foods is America’s biggest milk dairy. Milk consumption has been declining for nearly 30 years and the company is starting to feel the pinch. Multiplying the problem, Walmart used to represent 15% of the company’s sales, and Walmart is now building their own captive supply chain for Milk and opening their own milk production plants. For Dean Foods, the revenue from that one customer is about to go to zero. The company has hired bankers to review options including a sale of the company, privatization or divestiture of some assets as milk consumption continues to decline in the U.S.
There could be several factors that contribute to declining sales. Part of the decline in consumption could be easily predicted through demographics. There are fewer young people in our population, and as a result, fewer new milk drinkers.
Second, the health benefits of cows milk for humans is being questioned by many nutrition experts. That too is partly responsible for the decline.
But Dean Food is suffering a far bigger problem than a shrinking customer base. They are suffering from a failure to assess their strengths and to truly leverage their strengths.
As the largest dairy in America, they have a robust channel to market and they have well established relationships with the nations supermarkets. Milk is a commodity. When the value of a product is not clear, then the customers’ buying decision always degenerates to price. When the wife calls the husband at the office and ask the husband to pick some milk on the way home” She doesn’t say “Honey can you please pick up some Dean Foods Milk on the way home?” She is likely to say, can you pick up some 1% milk on the way home, or can you pick up some lactose free milk on the way home.
The husband is going to stop at the wall of glass doors in the supermarket and pick out a carton of 1% milk. If there’s a difference in price, they will probably choose the lease expensive one. If one brand of milk is 25% off this week, chances are good that they will buy the one on sale.
In the absence of value, the decision always comes down to price. But Dean Foods has a channel to market. There are numerous products that they could put down that same channel to market. In an effort to improve revenues they purchased good karma Foods company which makes dairy free products from flax seeds. But this will not be enough. Flax Seed products do not have enough market share to replace dairy. They would need to have a soy offering and almond milk, and cashew milk. The problem is that they are still thinking of themselves as a milk company.
They could put iced coffee drinks through that same channel. The could do a partnership with other companies that are looking to break into the market with specialty products. There is a hot market trend for fermented iced teas like Kombucha that have health benefits. If those companies could gain access to the national supermarket shelf through the Dean Foods channel, there are numerous win-win opportunities.
Dean Foods could bring specialty products that are specifically geared towards people with specific medical conditions like diabetes. They need to think much more aggressively about growth.
So what does this have to do with real estate? Every business on the planet that defines itself as a commodity is likely to suffer the same fate as Dean Foods. If your real estate product is a 2 bedroom one bath apartment with laminate counters in the kitchen, that’s about as unremarkable as Skim Milk, you will forever be treated as a commodity.