Challenges in Fluid Milk Consumption October 25, 2017

Increased Competition At Store

1970’s • Milk

• Soft Drinks

• Coffee

• Juice

1980’s • Milk

• Soft Drinks

• Coffee

• Juice

• Bottled water

• RTD juice

• Teas

1990’s • Milk

• Soft Drinks

• Coffee

• Juice

• Bottled water

• RTD juice

• Teas

• Wellness

• Sports drinks

• Flavored tea

2000’s • Milk

• Soft Drinks

• Juice

• Coffee

• Bottled water

• RTD juice

• Teas

• Wellness

• Sports drinks

• Flavored tea

• Functional

beverages

• Energy drinks

• Enhanced water

• RTD coffee

• Almond drink

• Coconut beverages

Today • Milk

• Soft Drinks

• Coffee

• Juice

• Bottled water

• RTD juice

• Teas

• Wellness

• Sports drinks

• Flavored tea

• Functional

beverages

• Energy drinks

• Enhanced water

• RTD coffee

• Almond drink

• Coconut beverages

• Veg/Fruit blend

drinks

• Sparkling juice

• Fusion drinks

• Fermented tea

• Coconut water

• Craft sodas

Increased Competition From sports drinks to coconut water, more products than ever

are competing for finite space in consumers’ stomachs

Overview

Cold Cereal Is Disappearing From Breakfast As cold cereal consumption declines, so does milk consumption

Innovation The milk aisle has not kept pace with other beverages in terms

of new product development

The Rise of Value/Combo Meals 8 billion value meals are sold annually; other than in kids’

meals, they rarely include milk as a component

Big Brands’ Advertising Budgets Continue To Grow Coca-Cola announced a plan to increase spending on media

and brand building to $1 billion this year

The past decade has seen increased ad spending by big beverage companies, myriad new product

innovations, and shifting consumer preferences. All of these have had an impact on milk consumption, which

has fallen in the last 25 years.

$1.3 Billion Spent on Drink Ads in 2013

Source: Rudd Center analysis of Nielsen data (2014); Ad Age Datacenter

$19

$20

$22

$32

$33

$41

$53

$74

$127

$140

$175

$210

$384 Regular Soda

Diet Soda

Energy Drinks

100% Juice

Sports Drinks

Fruit Drinks

Plain Bottled Water

Light Juice

Soda Brands

Iced Tea

Flavored Bottled Water

Other Diet Drinks

Other Sugary Drink Brands

Advertising Spending by Category (2013) (in millions of dollars)

FUN FACT:

From 2013 to 2015, Coca-Cola

increased its ad spend by 21%,

spending $565 million in the US.

Coca-Cola CEO Muhtar Kent

pledged to increase media spending

and brand-building initiatives by up

to $1 billion in 2016.

Advertising Beyond Television

In addition to the $1.3 billion beverage companies spent on traditional media formats (i.e., television, magazines, billboards, etc.), they also maintain large budgets to reach consumers in other ways.

Sponsorships PepsiCo spent more than $350 million on sponsorships in 2014, including $90 million on its sponsorship with the NFL. Coca-Cola spent $295 million on sponsorships in 2014 (and is estimated to spend $100 million on Olympic sponsorship alone).

Social Media Energy drinks and soda brands are very popular on social media. Not only do they have many followers, but Coca Cola averaged 25,000 display ads viewed on Facebook every month in 2013.

Smartphone Apps Apps such as Coca-Cola’s Freestyle and Red Bull’s Racers provide games, entertainment and music while promoting the brand. Estimates range from $250,000-$750,000 per app and many brands have more than one (Red Bull alone has 15 apps).

57% 18%

8%

5% 5%

2%

% of new milk beverages by source 2015

Dairy Nut Coconut Soy Grain Other

Dairy Alternatives Are Proliferating

74%

2%

24%

% of new milk beverages by source 2005

Dairy Nut Soy

Source: Innova New Product Database

Includes Milk/Milk Drinks, Cream/Creamers, Dairy Alternative Drinks, Drinking Yogurt/Fermented Beverages; US only

Dairy-based milks have fallen from 74% of new milk/milk beverage products introduced in 2005 to 57% in 2015.

Non Dairy Alternative Beverages

Reasons Consumers Choose Non-Dairy Beverages

Source: Packaged Facts January 2015 survey based on national online consumer panel of 2,000 U.S. adults age 18+, balanced to Census on primary demographic measures. Percentages correspond to 468 consumers in the sample who drink non-dairy milk. Published in Packaged Facts’ Dairy and Dairy Alternative Beverage Trends in the U.S., April 2015.

4.9%

9.6%

9.6%

12.2%

13.3%

13.3%

13.9%

16.7%

20.3%

21.6%

23.3%

24.8%

30.3%

36.3%

41.5%

Other

Grew up drinking them

Don’t have to be refrigerated

Price

They are better for the environment

They have no cholesterol

They are vegetarian/vegan

They are non-GMO

No use of antibiotics/hormones/steroids

Dairy/milk/lactose allergy or intolerance

They have healthier fats

Like the flavor varieties

They provide better nutrition

They are healthier to drink

Like the taste

Tea, juice and coffee accounted for more than half of all new beverage introductions from 2001-2012. This is particularly bad news for milk, since these beverages all play in the same morning consumption space when milk is most often consumed.

Tea 7,998

Juice 4,853

Coffee 2,549

Energy Drinks 2,506

Drink Concentrate/

Mixes 2,474

Soft Drinks [VALUE]

Iced Tea 1,565

Flavored water 1,205

Milk 1,170

All other

Milk Represents Only 4% of New Drinks

Source: Innova New Product Database

"Today, for all of us in business and government and civil society, the choice is between

innovation and irrelevancy. You either innovate or you become irrelevant.”

- Coca-Cola CEO Muhtar Kent

Milk Not Widely Available Away-From-Home

• 81% of people drink beverages away-from-home, but only 14% drink milk away- from-home.

• Though reasons are likely varied (availability, competition, flavor pairing, etc.) it is worth noting that 8 billion value meals were sold in 2011 and virtually none included milk in the offer. Only kids meals tend to include milk as an option.

Source: Kantar World Panel

Cereal Consumption Is Down

Source: NPD Eating Trends in America

Cold cereal is leaving the breakfast table which has an impact on milk consumption (only 26% of in-home breakfasts included cold cereal in 2016, down from a high of 35% in the mid 90’s.)

Fruit, sandwiches, yogurt, toaster pastries and bars are all replacing cereal.

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'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 16

% of In-Home Breakfasts that Include Ready-to-Eat Cereal

Wisconsin Needs More Milk

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Milk Production vs. Milk Requirements

Produced in WI Extra Milk Needed *Preliminary estimate Source: USDA/NASS, Milk Production

Milk Produced in Wisconsin

Bill

ions O

f P

ounds o

f M

ilk

Growth Rates (based volume sales)

Source: IRI Custom WMMB Database MULO+C, Exact weight and random weight combined

Demand for Wisconsin Cheese is Strong

1.8%

6.3%

5.3%

9.5%

Non Specialty Specialty

0.6%

4.3%

3.2%

7.5%

Non Specialty Specialty

Past Year Growth, 2015-2016 Five Year Growth, 2011-2016

Total Category

Wisconsin-Identified

Cheese

Opportunity: Whole Milk

Opportunity: Milk Segments

White gallon milk is driving decline in

sales

Flavored milk and lactose-free milk

continue to increase

Organic milk is in a weak position for

2017

Milk Packaging/ School Milk

Opportunity: 1% Flavored Milk at School

Offers students another

choice and perhaps a better

option at school meals.

School Nutrition Directors

need to request an

exemption from their state

agency. (WI- DPI)

School Nutrition Directors

currently are not pursuing.

Challenges in Fluid Milk Consumption Discussion & Questions