Coca-Cola's third for liquid milk – even better than the real thing?

For many years now, milk consumption has been declining in a lot of countries around the world. For example, in the US it has declined about 1% per year for the past 70 years.

In 1945, Americans consumed an average of 156 litres each year. By last year, per-capita consumption had dwindled to 72 litres. Meanwhile, across western Europe, milk consumption has declined 5% in the last five years.

Even in Ireland, which drinks the most milk per head of population of anywhere in the world (121 litres per head per annum), milk consumption is also declining. In 2017, some 580m litres of milk was consumed in liquid form and this was down 9m litres on the prior year.

There are many reasons cited for the decline in consumption ranging from the rise of milk alternatives to a lack of innovation. However, one of the main reasons for the decline is the fact that a large number of consumers have stopped eating breakfast cereals regularly. Some 25% of liquid milk consumption is through breakfast cereals.

Milk consumption has declined 5% in the last five years across western Europe

This is a mature market, where innovation has been slow, leading to a race to the floor on milk prices in the supermarket aisles. In the UK, spending on milk has fallen in real terms faster than total spending on food and drink since the mid-1990s.

So why did Coca-Cola decide to enter the liquid milk market back in 2014? The answer is that it saw growth potential in the market and it wanted to exercise its marketing arm and felt it could come up with a way to add value to the mature market.

It also was looking at its own stable of products where sales were flat at the time and eyeing future potential growth for its own business.

But it didn’t see the potential in marketing standardised litres of milk – it wanted to shake up the world of milk. It had watched the rise of milk alternatives, a category that has grown by almost 60% in volume terms in the last five years and how standard milk had lost out to this growth.

Coca-Cola initially laid the groundwork for its move into milk when it inked a partnership in 2014 with Select Milk Producers to form Fairlife.

In what might appear as madness in the context of the Irish liquid milk market, Coca-Cola believed there was huge potential in going to market with a new kind of milk that would cost twice the price of regular milk.

The history

Fairlife began when a vet named Mike McCloskey and his wife, Sue, started a farm with 300 cows and called it Fair Oaks Farm. They went on to grow their herd to 5,000 head over time. Then in 1994, they started a co-operative called Select Milk Producers Inc (now the sixth-largest cooperative in the US) and created their own brand of premium milk called Fairlife. Select Milk Producers now has almost 100 family-owned dairies supplying it.

A pivotal point in the Fair Oaks story occurred when sediment appeared in the well that supplied water to the McCloskey cows. The cows stopped drinking water and they had to install a filtration system to keep the cows drinking and producing the same high-quality milk.

That’s when they had the idea to try filtering the milk. This allowed them to single out the components of milk and then add them back in at different levels to create a specialised product. Fairlife milk was born. Fairlife milk contains 50% more protein, 30% more calcium and half the sugar of ordinary milk.

It takes 1.5 litres of regular milk to make 1 litre of Fairlife milk (because of the filtration process). The milk is filtered into its five components (water, butterfat, protein, vitamins and minerals, and lactose) and then recombined in different proportions. This is the same filtration process used to create skim milk.

The company focuses beyond the product also to include animal welfare, smart and responsible farming, and sustainable agriculture. This all forms part of the brand and communication to the consumer through marketing and creative packaging.

Success

Sales of the specialty milk have soared since Coca-Cola introduced Fairlife. The brand has had three years of double-digit growth since it launched nationwide in the US.

It also posted 80% volume growth last year, outpacing the $6bn value-added dairy category, which grew 5%. In fact, Fairlife has grown faster than the plant-based milk alternative category for the past three years.

As for results, Fairlife had sales of $143m in 2015, $240m in 2016 and $333m in 2017. And at the end of 2018, Fairlife was well on its way to becoming a $420m US milk brand, tripling its launch value. Coke aims to turn the beverage into a billion-dollar brand.

To meet the increased demand for its products, Fairlife is expanding rapidly. It plans to expand its plants in Texas and Michigan, along with building a new plant in Arizona this year. After proving successful in the US, Fairlife has also announced its first international expansion with a plan to build a €75m new production facility in Ontario, Canada. Fairlife is also taking a hard look at setting up a plant which would use Irish milk from the southwest of Ireland.

Despite the downward trend in liquid milk it is important to remember that it is still a $25bn business in the US. In Ireland, in a very small market, it is a half billion euro business and uses some 0.6bn litres of milk per annum. It is also worth noting that milk is still purchased by 95% of American households over the course of a year.

It is notable that innovation in dairy is being led by companies from outside the category. Milk is the perfect candidate to innovate because it starts as a superfood before you add anything.

Fairlife gave Coca-Cola access to this $25bn milk category in the US where it had no representation up to that point.

Coca-Cola was one of those to realise the opportunity for dairy to steal market share from carbonated drinks under fire over sugar content. It is also winning back share from “alternative milks” such as almond or soya drinks.

Coke aims to turn the beverage into a billion-dollar brand

Globally, the dairy industry has not been listening to what consumers want. The beverage sector, juice and water companies have started to add protein sources and ingredients to their products. Milk already has them naturally. But dairy has done very little to educate consumers on the benefits of milk.

The time for innovation is now, given decreasing milk consumption and diverse consumer needs, and the competition in the alternative beverage space. Innovation, transparency and clever marketing are all ingredients for building consumer trust and a brand.

The fact that consumers are paying almost double the average price per litre for Fairlife indicates that this can be achieved. The category is ripe to be reinvigorated. And it can be done by simply just concentrating on milk’s natural goodness.

Senior executives in Coca-Cola have held a number of meetings in Ireland in recent months to learn about the Irish dairy industry with the aim of setting up a liquid milk plant in Ireland.

Coca-Cola has visited Teagasc Moorepark in Cork and the Dairy Processing Technology Centre (DPTC) at the University of Limerick to get a better understanding of the R&D work ongoing in the Irish dairy sector.

It is not clear yet if it plans to buy milk direct from Irish farmers. To date, Coca-Cola has not brought its Fairlife brand to consumers in Europe.