The following is the second of a two-part BevNET series on the ways emerging innovation is affecting the dairy aisle. Yesterday’s story introduced the setting, the players and the opportunity for alternative products in the dairy space. Today’s story analyzes the challenges of breaking into the aisle, as well as ways the industry is adapting.
Anytime optimism reigns in a story about the marketplace, a certain kind of feeling often follows. You’re hurrying to whip your brand into shape. You’re thinking of ways to draft a new press release. You’re telling the truck drivers to warm the engines. While it’s true that entrepreneurial beverage companies have taken encouraging steps in the dairy aisle, it continues to be a challenging place for emerging brands to find a shelf placement.
There just might be more challenges than opportunities.
Kicking things off, there’s the construction problem: Greg Steltenpohl, the founder and CEO of Califia Farms, said that despite the consumer demand for a grab-and-go package, the dairy sets aren’t designed for single-serve offerings. One of the great efficiencies of the dairy aisle, he’s found, is that stores are able to swap out a full door’s worth of multi-serve cartons at one time via rolling shelf sets, a supply chain innovation that benefits big dairy companies.
Also, past coffee flops in the dairy aisle make retailers think a bit harder before accepting a product that aims for category evolution. His dream — a retailer who has devoted a door or a 3- to 4-foot, highly-marketable, eye-level section allocation for alternative dairy products— remains as ethereal as the jackalope.
“I have a hard time pointing to a lot of retailers,” Steltenpohl said.
While Whole Foods, as one might expect, willingly partners with brands such as Califia, that retailer presents still another issue: the heavy emphasis on much-in-demand organic dairy products chews up space that could be dedicated to innovative brands in the dairy aisle. Whole Foods’ ear-to-the-ground approach when it comes to consumers plays both for and against innovators: while the demand for almond milks is growing, it doesn’t match the demand for organic products of all kinds.
On the East Coast, there’s far more class sensitivity, less brand awareness and, naturally, more foreboding by retailers. Amy Cramer, the owner of Dairy Delivery, a distributor in Penngrove, Calif., said that in many parts of the country, there’s little understanding of alternative dairy usage occasions. Most consumers stand by cows’ milk in cereal and coffee, she said. For the majority of the U.S., adding almond milk to these daily staples continues to be an outside-the-box idea. It’s a stigma they’re struggling to overcome.
“The word ‘alternative’ always gets them,” Cramer said.
Some entrepreneurs prefer not to try. Bhakti Chai founder Brook Eddy, said that, if available, she asks retailers to place her products in the grab-and-go section. If that’s not an option, Bhakti Chai products often end up in the dairy aisle, although she’d rather they didn’t. She understands the promise of the dairy aisle, but because most consumers and retailers haven’t yet caught up to this idea, Eddy prefers her products elsewhere.
“You’re usually not looking for a grab-and-go drink when you’re shopping milk options,” she said.
With retailers paying maximum attention to the guaranteed turns of big companies and big dairies, Steltenpohl said that many of the them require slotting or at least guaranteed minimum payments from less-established brands. He approximated that about 20 percent of Califia’s coffee and milk placements derive from pay-to-play scenarios. While the popularity of Califia’s citrus juice has helped prove the company’s brand name, he said that the payments are often expected nevertheless. The amounts have a wide range — $20,000 for smaller retailers, hundreds of thousands for major players, up front. That’s not so easy for cash-strapped startups.
“The slotting is serious,” Steltenpohl said. “We’ve demonstrated velocity and it’s still very difficult to get by without it.”
No further proof of the aisle’s difficulty is required after considering the case of International Delight. Remember the multi-serve coffee innovators? The company responded to the immediate success of its coffee line with a 4-pack of 10.5 oz. bottles, hoping for a quick brand build-out — and soon discovered the hardships of throwing new options into the market. With the original coffee line entering its third year of availability, International Delight brand manager Erik Carlson said that only now are enough consumers recognizing its existence to justify new products.
“People are still trying to figure out that we’re selling iced coffee in a half gallon,” he said.
International Delight discontinued the 4-pack of 10.5 oz. bottles nine months after its launch. Even though the company thought it was for a portfolio expansion, consumers and retailers weren’t prepared. Carlson said that the failed launch taught him a lesson in patience, which informs his current take on the dairy aisle: no thanks, not yet. While International Delight coffee must always be refrigerated, he prefers the juice and tea aisle because of its tail-end, which he said features lower-performing products compared to the dairy aisle. Put simply, there’s more room to grow.
Could the refrigerated iced coffee category generate $600 million to $1 billion in sales? That’s Carlson’s goal with International Delight as a catalyst. But if that’s going to happen, he thinks the steam will start outside of the dairy aisle.
Turning the Corner
If the dairy aisle ever morphs from a quixotic dream pondered by beverage entrepreneurs into a true hub of innovation, the brands need retailers to play along. The barrier to entry remains strong, but it seems that some accounts, both big and small, are making progress and leading the idea into reality.
“Dairy buyers are more open to trying new things in their dairy cases,” Cramer said.
Steltenpohl thinks that there’s just too much movement from almond milks and iced coffees for everything to stay the same. The alternative milk category has been one of the fastest growing in beverage for the past two years; meanwhile, cow’s milk has been in gradual decline.
“Something’s gotta give,” he said.
He added that in parts of Los Angeles, Northern California, the Pacific Northwest and Austin, Tex., Califia flies off the shelves of the dairy aisle. In bigger retailers, he typically gets placement of two SKUs of coffee and three almond milks. Smaller independent stores will stock three coffees and five almond milks.
He cites Whole Foods, Kroger, Wegmans, Publix, Fairway, Giant Eagle, Safeway, Albertson’s, Nugget Markets, Stater Brothers and Roundy’s as some of the stores that have embraced innovation in the dairy aisle, adding that even mammoths like Target and Walmart are starting to get there as well.
The gradual uptick in retailer cooperation will continue to encourage alternative dairy innovation. Steltenpohl said that many mainstream brands are positioning chocolate milk as a healthy way for kids to get protein and, in turn, boost energy. He doesn’t buy that, saying most chocolate milk products contain too much sugar.
“They’re trying to hype it as an energy beverage for kids,” he said.
However, the growth of chocolate milk has opened up the placements for single-serve products and four-packs. That’s a tradeoff brands like Califia will gladly take.
At the upcoming Natural Products Expo West in Anaheim, Calif., Steltenpohl will introduce his own takes on chocolate and vanilla milk. Per serving, “Chocolate Protein” and “Vanilla Protein” contain 140 calories, 13 grams of sugar and 8 grams of fat. The products epitomize Califia’s attempt to translate a healthier product to a mainstream audience. Retailing at $2.99, they’re also packaged in 10.5 oz. bottles, following the grab-and-go trend.
“In Southern California,” he said, “it’s all about the car.”
International Delight and Bhakti Chai, among others, know that this on-the-go sentiment prevails in a significant portion of the U.S. The ready-to-drink, 16 oz. bottles of Iced Bhakti Chai have already hit the market. Carlson said that because iced coffee is seasonal, International Delight will debut its new half-gallon coffee flavors on March 3. He said that most competitors offer three flavors: mocha, vanilla and caramel macchiato. International Delight wanted a point of differentiation and a memorable branding strategy, so it partnered with Hershey’s for “Cookies ‘n’ Creme” and Cold Stone Creamery for “Sweet Cream.” When the time comes, Carlson said that International Delight could certainly try grab-and-go bottles once more.
More than just offering a smaller form of a standard, the increase in portable products complies with the timbre of a lifestyle. These products only reinforce what’s already practiced. Cramer said that she’ll immediately distribute Califia’s upcoming grab-and-go products, which also include three coffee SKUs — Cocoa Noir, Salted Caramel and XX Espresso.
“We’ve become a culture that is on the go all the time,” Cramer said. “We want the easiest, the quickest that we can get, but yet we still want to eat quality and feel good about it.”
As consumers begin to increase awareness of their own health, recognizing that they may be lactose-intolerant, for example, and need an alternative for their coffee and cereal, they’re calling for different types of dairy products. The calls of consumers will always prevail in the minds of the retailers, who will gradually carve out more space on the shelves.
The obstacles will long exist, but perhaps the consumers, in time, may notice what’s happening here. Beneath the supermarket glow, amid the cart-pushing stupor, they may be awoken, surprised to find something other than cow’s milk in the dairy aisle. They could even pick it up, look at it. Maybe they’ll make the purchase.