White wedding

Milk and convenience is a marriage made in profitability heaven

While the white milk category is most definitely a mature one, it continues to grow in all channels and happily looks set to do so for a good while yet.

And that's great news for convenience and impulse retailers who should be all too aware that the 'Return On Inventory Investment' (ROII) from the milk category far exceeds that of other categories in store.

According to the 2009 Australian Association of Convenience Stores report, fresh milk enjoyed 4% growth last year and makes up an impressive 3.6% of total merchandise sales, and a staggering 40% share of take-home grocery sales.

Getting it right

Underpinning the expectations of still further growth is the fact that, compared to many European countries, we still consume a relatively modest amount of white milk ... and the health and wellness trend should also give grounds for further optimism.

Regardless of the channel through which it is sold, white milk is a category with extremely high penetration and a larger proportion of customers will walk out of a store with a carton or bottle of white milk than almost any other product.

With this in mind, it is critical that C&I retailers 'get milk right' and give shoppers a positive experience with their milk purchase. To do so, convenience and impulse outlets need to cater for the variety of consumers and to maintain an appropriate range that is not one dimensional.

"Supermarkets tend to have a larger range of products than smaller outlets primarily due to space, and this impacts the sales mix," said Alastair Kenvyn, National Foods' Senior Category Manager – White milk. "One consistency though is the core group of products that drive the category ... being full cream, low fat and no fat milk, and in that order."

The key difference between the convenience and grocery channels are the shopper missions or the reason for the consumer's visit. Supermarkets have a larger proportion of 'planned' visits and therefore shoppers often buy larger volumes and pack sizes to last a longer amount of time.

Convenience has a higher proportion of 'top up' or 'emergency' shops, and pack sizes will often be smaller. Despite these different missions, a 2 litre bottle of milk tends to be the most popular size in both channels.

Mr Kenvyn says that 1 litre and 2 litre containers tend to deliver greater volume in smaller outlets, while 2 litre and 3 litre hold most share in larger supermarket outlets.

Since acquiring the Dairy Farmers business a while back, National Foods now boasts market-leading brands including Dairy Farmers Full Cream, Shape and Lite White, alongside the Pura range which included Full Cream, Light Start and Tone.

"Households will often purchase a cross section of milk products with different products suitable for different users," said Mr Kenvyn. "Families may purchase a 3-litre Pura Full Cream for general consumption and, in addition, purchase a Light Start or Tone for parents more concerned about fat content."

Clearly it is important for operators to ensure that consumers can purchase an adequate repertoire of products across a variety of pack sizes to meet the different needs of different households.

Parmalat, which produces market leaders such as PhysiCAL, Pauls Full Cream, Pauls Smarter White Milk and Pauls Zymil, says that convenience stores are really competing for the same top-up shopper as the major grocery stores, and therefore the products on offer need to reflect the consumer's desire for choice.

How to grow the C-channel

"The key to growing the convenience channel is to have a strong product offer that consumers know will be available," said Damian Madden, Parmalat's Business Information Manager. "Full cream milk continues to be the leading SKU; however the trends are shifting more and more into the better for you products such as low fat and specialty milks."

Indeed, it is widely accepted that added value products such as specialty milks, as well as smaller pack formats will generally provide operators with greater margin opportunity, while large pack formats in full cream and low fat will generate volume and wider penetration.

"There is more growth to come out of the modified milk segments especially in the light of the ever increasing obesity and associated health issues," said Mr Madden. "As knowledge of general health issues grows it is believed that the growth of modified and specialty milk will continue in line with these."

Parmalat has demonstrated its faith in modified milk by just launching its calcium enriched milk PhysiCAL into New South Wales. This coincides with the re-launch of the brand which will see new packaging and a new multi-million dollar communications campaign including a new television advertisement.

"Consumer research identified the opportunity and the real need in the New South Wales marketplace for a high calcium offer which delivers on the nutritional benefits, but also tastes great," Mr Madden said. "PhysiCAL already represents 62% (Dairy Australia FY 2009) of the calcium-enriched dairy milk segment nationally and as a state New South Wales is currently under trading significantly in this segment."

PhysiCAL has 40% more calcium than regular milk and added Vitamin D to assist calcium absorption. It is available in both low fat and no fat and in 1 litre and 2 litre bottles.

Fonterra – which has a range of local white milk brands including Brownes in Western Australia, Norco in Queensland and New South Wales, and Riverina Fresh in New South Wales – agrees that it is important to offer a variety of full fat, reduced fat and specialty milks.

"Full fat and reduced fat still dominate consumption," said Tim Cusack, General Manager, Fonterra WA. "However, the no-fat segment is growing as consumers are increasingly looking for healthier options."

And he says the rewards for looking after the white milk category will be reflected by improved sales in other categories as well.

"Consumers are likely to make other impulse purchase decisions once in store, particularly in the bread and confectionery categories," Mr Cusack said. "Operators need to offer the right basics to their customers in order to encourage visits to their store and therefore other impulse purchases."

Brownes launched new packaging late last year which promotes the freshness and local source of the milk.

"Consumers have responded positively to the new look, which is indicated by sales and our brand health research results," said Mr Cusack. "Because of its impulse nature, it is critical that retailers range a variety of milk products in the front of the store where consumers will see them and be reminded to purchase."

He says that more than 50% of volume is full fat or reduced fat 2 litre bottles, followed by 3 litre, and the fact that the bulk of white milk is purchased by families explains the popularity of larger pack sizes.

"Two litre sales tend to dominate convenience outlets, although it really does depend on the location of the outlet," he said. "In some areas, 3 litre sales, which tend to have a much higher presence in supermarkets, will also have high sales rate in a convenience outlet."

Interestingly, Mr Cusack says that in Western Australia, white milk in the convenience channel is up 10% in volume on an MAT basis (7/3/10).

"Private label brands have been the key driver of this growth," said Mr Cusack. "Particularly as the major chains allocate more shelf space to these brands."

Peter Nathan, the Executive General Manager of a2 Milk, which includes the Full Cream and Reduced Fat variants, says stocking his products can increase total category sales as a2 Milk has a unique point of difference.

"Many consumers who suffer from intolerance responses to standard milk discover that they can drink a2 Milk," he said. "Furthermore, it will trade consumers up to a premium price brand further contributing to category sales and profits ... so making the decision to stock a2 Milk the first step in maximising total category profits."

Grocery is currently by far the biggest channel for a2 Milk sales, with route and convenience under-represented due to the difficulty in gaining distribution.

Nonetheless, a2 Milk has recently had a major relaunch and Mr Nathan says the company will continue to drive its brand with strong media support.

"Our packaging is critical in driving sales of our brand as it communicates the key benefit of 'Natural Intolerance Protection' powerfully," he said. "This is underpinned by the key feature of a2 Milk containing the 'original milk protein', which is the a2 beta casein protein."

Mr Nathan says the product's green packaging also stands out powerfully on shelf and communicates the brand personality.

"The path to growth lies in the hands of premium milk brands with a key point of difference," he said. "It is important to have a strong presence of a2 Milk in store as it is the fastest growing brand in the category and consumers are actively seeking it out."

Taste, value, health & wellbeing

National Foods has also recognised that as milk is a product naturally rich in calcium and protein, it is a great match with the trend towards health and wellbeing.

"Products such as Pura Tone, Dairy Farmers Lite White or Pura Light Start are well loved brands which provide these nutritious benefits to consumers, while at the same time reducing the level of fat," said National Foods' Mr Kenvyn. "The trend over recent years has certainly been greater consumer focus on these lower fat and health segments - yet given the underlying health benefits of milk in its whole form means that sales remain strong across the category."

She says that amidst the health focus, taste and value will always remain critical consumer measures so manufacturers such as National Foods are naturally keen to ensure these elements are not compromised when developing new products to meet changing trends.

But, of course, it is not just the products themselves which will keep white milk growing. It is the way it is ranged and presented that will be equally crucial ... and that aspect is largely in the hands of C&I retailers themselves.

"A large proportion of shoppers will purchase milk somewhere so providing them with the best opportunity to make that purchase within your outlet is the best way to capture that sale," said Mr Kenvyn. "Using front of store, open-faced fridges provides great accessibility to shoppers and encourages purchase ... in addition, we encourage the use of front of store point of sale materials to remind shoppers that they may need milk."

Parmalat is equally keen that C&I retailers maximise the opportunities for growth in white milk ... and says that out of stocks continue to be one of the main drivers of missed purchases.

Make milk an impulse purchases

"Focus on product adjacencies and location will drive further sales of not only milk but also lift other categories," said Parmalat's Damian Madden. "The convenience retailer needs to look at how they can turn milk into an impulse purchase and capitalise on the fuel only shoppers."

He says that white milk enjoys high turns yet it is generally positioned at the back of the store.

"Why make it hard for time poor shoppers looking to top up in the c-store?" he said. "White milk will remain a key product offering in the P&C product portfolio and the development of the modified milk segment will see an increase in people looking for products that meet their specific needs."

Parmalat believes that in-store marketing is a key component of growing any store's milk sales but says company activity and promotions are also crucial.

This year Parmalat is celebrating Pauls 70th Birthday with a major consumer promotion. The "Thanks a Million" promotion is giving away to one customer the opportunity to win $1 million.

There is plenty going on then in the rock solid white milk category and the convenience channel is in prime position to cash in as consumers take advantage of prime store locations and long trading hours.

After all, who hasn't used the last of the milk cooking dinner and had to do a late night milk run so the kids can have breakfast the next day? Or, who hasn't pulled in to a service station to fill up with petrol and forgotten if there was milk in the fridge?

And, as our lives continue to get busier and busier, these sorts of events are going to get even more common. In other words, white milk and convenience and impulse outlets were simply made for each other.

Long may the relationship blossom.