Dallas-Based Dean Foods Aims To Survive In A Dwindling Milk Market
The country's biggest milk-maker is based in Dallas, and business at Dean Foods has, well, soured. First-quarter sales were down, and milk consumption in general is declining. Meanwhile, Dean faces more competition for milk production.
On the state of Dean's milk business:
The milk that you're buying in a gallon at the grocery store, that has been declining for many, many years now. That's a result of more competition, there are more types of beverages these days, like plant-based beverages such as soy and almond and oat.
And there's a shift away from milk more generally. The broader population is not drinking milk with dinner at night, for example.
Dean really has made milk their specialty over the years. Dean was formed through merging many different regional milk plants all over the country into one company that was really a specialty in fluid milk. So when times were better for fluid milk, that was good. When times got tougher, that really made it difficult for them.
They do have some other kinds of dairy products, such as Friendly's Ice Cream. They don't own the stores, but they own the ice cream business. But otherwise, the majority of their business is milk, and that is a declining category.
"For some of these farmers, they don't have a lot of alternatives these days. It's not like there's some other big national milk buyer who's going to step in."
Dean Foods also faces more retail competition these days, so more and more retailers like Walmart, Kroger and others are producing their own milk. Walmart just recently opened a very big modern dairy plant in Indiana and shifted millions of gallons of business away from Dean to their own plants.
It really is coming into a crunch for Dean, and what's happening at Dean also appears to be affecting dairy farmers.
On Dean buying less milk from American farms:
When Wal-Mart opened that big plant, that really was a huge loss for Dean. It's going to be something like 125 million gallons of milk a year that Dean will not be supplying to Walmart because of that. They just didn't need to buy as much milk from some of these farmers.
Several dozen farmers last year got letters from Dean saying that they would not be continuing to do business with them and would be reducing business for them. So, for some of these farmers, they don't have a lot of alternatives these days. It's not like there's some other big national milk buyer who's going to step in.
It's caused some some tough decisions for farmers. I talked to some who have decided to move on to other kinds of crops, or just close their farms. It was a record farm-closure year for dairy farms last year.
On how Dean plans to turn things around:
Part of it is they're becoming a smaller operation. Last year they say they closed seven milk plants in very quick succession. Particularly when they lost that Walmart contract, they just didn't need to produce as much milk. So, they closed those plants.
They are trying to become a leaner, more efficient operation. They're also trying to focus a bit more on value-added products, like ice cream and cottage cheese, and they are moving into some plant based products. But again, they have a lot of work to do.
They are exploring strategic alternatives that could mean a total sale or a partial sale. There is a lot of potential here for doing some kind of outside deal that could get them more flexibility, and they are having these conversations.
But the question is, who really wants to buy a milk producer these days?
These interview answers were edited lightly for clarity.