The largest milk processor in the U.S. is now taking steps to unify all its white milk brands around the country into a single brand. In an announcement significant to Dean Foods Co.'s (DF, Financial) future growth strategy, the company recently made this declaration that it will integrate all its 31 regional milk brands into a single brand, "DairyPure." Dairy Foods will however retain regional labels like Berkeley Farms, Dean's and Garelick Farms etc. but they would be placed alongside ‘DairyPure’ name on the packaging.
Dean Foods Company is primarily into food and beverages, competing with the likes of Dairy Farmers of America and California Diaries. The company’s product range comprise of white milk, ice cream, cultured dairy products, creamers, juice, tea, ice cream mix, and other dairy products that are distributed through retailers, distributors, foodservice outlets, educational institutions and governmental entities across the country. Hitherto Dean Foods was selling several brands having limited regional presence and was battling competition, struggling to protect its falling market share on one hand and rising cost of goods sold on the other. The company has a 35-36 percent U.S. market share.
Benefit of single brand
While in a competitive scenario, companies choose to grow and protect their markets by launching several brands of a single product and attack at various price segments and geographies, at times having a single brand and focusing on its growth, too, is not a bad idea. Having a unified brand will help the company market the brand better and all its energies will be focused in selling "DairyPure." Besides it can claim to market fresh milk in different markets, processed from its nearest regional diaries. Consolidation will mean more sales, higher production capacity utilization and higher profit margins as a result of decreased promotion & selling costs. This will help the company come out of the red and maybe earn sustainable profits.
For many years Dean Foods’ major challenges have been declining per-capita U.S. milk consumption, fierce competition from other beverages, demographic shifts and other factors. This has resulted in the closure of 13 factories, or 15 percent of its production capacity. The company’s remaining 70 plants too are operational at just over three-fifths or about 60% of their capacities.
Will it spell profits?
Dean Foods slipped into losses for the year ended December 2014. As against a net income of $813.2 million in 2013, the company posted a loss of $20.30 million despite the growth in revenues from $9.0 billion in 2013 to $9.5 billion in 2014. The announcement has so far failed to cheer investors. The stock has seen little upside during the past couple of trading session.
There is skepticism. Though the adoption of one brand will make "DairyPure" a $2.50 billion brand catapulting it to one of the largest consumer packaged goods in the U.S., it also needs to be mentioned that the journey is going to be anything but smooth, given the contemporary consumer behavior and falling average milk consumption in the U.S. The company may have to answer several health and weight control issues. It may need to convince consumers about the suitability of cow’s milk as a good source of protein and Vitamin D, its product being antibiotic free and natural. Besides all these even competition may choose to play spoil sport by adopting counter strategies.
It therefore remains to be seen whether Dean Foods can be profitable soon again and whether the same is attributable to "DairyPure."
