Don’t want a cold soda? Try a glass of Coke milk

Re­fresh Coke?

Bloomberg Businessweek (Asia) - - CONTENTS - −Shruti Date Singh and Jen­nifer Ka­plan

Coke bets on high-pro­tein, low-sugar milk to beat the real stuff

“We look at milk, hon­estly, as one of na­ture’s su­per­foods”

In its quest to slake the world’s thirst, Coca-Cola is in­tent on mak­ing milk a bil­lion-dol­lar brand. But not just any kind of milk. Coke has joined forces with a dairy co­op­er­a­tive to cre­ate Fair­life, which pro­duces a fil­tered, high-pro­tein, low-sugar, lac­tose-free de­signer milk also called Fair­life. It costs about $4 for a 52-ounce bot­tle— more than or­ganic milk and about dou­ble what the con­ven­tional stuff sells for. In its first year on shelves, Fair­life reached about $90 mil­lion in sales, giv­ing a siz­able boost to the spe­cialty milk cat­e­gory, which in­cludes milk with more cal­cium or no lac­tose.

Coke is part-owner of Fair­life through its Ven­tur­ing and Emerg­ing Brands group, which has backed Zico co­conut wa­ter, Hon­est Tea, and Fuze juice drink. Fair­life Chief Ex­ec­u­tive Of­fi­cer Steve Jones worked at Coke as chief mar­ket­ing of­fi­cer from 2000 to 2003. While there, he played a role in mov­ing the bev­er­age com­pany be­yond its Minute Maid frozen or­ange juice busi­ness to high­er­mar­gin prod­ucts, such as Sim­ply juice, a bil­lion-dol­lar brand that’s chal­lenged mar­ket leader Trop­i­cana—owned by ri­val with its clear bot­tles. “It proved to me you can take a com­mod­ity and trans­form it into a dy­namic high-growth cat­e­gory,” Jones says of Sim­ply. “We can do the same to milk.”

Milk is only one of the lat­est at­tempts by Coke to off­set de­clin­ing soda con­sump­tion with health­ier prod­ucts. “We look at milk, hon­estly, as one of na­ture’s su­per­foods,” says Me­lanie Kahn, vice pres­i­dent for mar­ket­ing at Fair­life.

Jones isn’t the only brand­ing ex­ec­u­tive with Coke on his ré­sumé ped­dling milk. Dean Foods, the largest dairy pro­ces­sor in the U.S., has put Greg Sch­warz, a for­mer brand man­ager for Coke’s Hi-C fruit drink busi­ness, in charge of its mar­ket­ing.

Dean has co-branded its re­gional milks un­der one um­brella called DairyPure. The drinks are hor­mone­and an­tibi­otic-free. The com­pany is re­leas­ing a lac­tose-free va­ri­ety this year. Dean has 60 milk-pro­cess­ing plants around the coun­try. “We

can do lo­cal bet­ter than any­body,” Sch­warz says.

Con­sumers, es­pe­cially mil­len­ni­als, want an­i­mals and work­ers treated well with­out com­pro­mis­ing taste, con­ve­nience, or qual­ity, says Fair­life co­founder Mike McCloskey, a ve­teri­nar­ian turned farmer. He’s long been fix­ated on the com­fort of cows and sus­tain­able farm­ing meth­ods, such as con­vert­ing ma­nure into methane to power dairies.

The dairy in­dus­try has been strik­ing out for decades in its ef­forts to get peo­ple ex­cited about milk, as ce­real con­sump­tion has slowed and soy and al­mond milk have cut into sales. Per capita milk con­sump­tion in the U.S. fell to about 19 gal­lons a year in 2015, ac­cord­ing to the U.S. Depart­ment of Agri­cul­ture. At milk’s peak, in 1945, The av­er­age Amer­i­can con­sumed about 42 gal­lons. Clever ad­ver­tis­ing and mar­ket­ing—in­clud­ing the leg­endary Got Milk? cam­paign, be­gun in the 1990s—did lit­tle to spur growth.

Since 2011, Dean has tar­geted kids and adults with its TruMoo milk, which comes in such fla­vors as cook­ies and cream and choco­late marsh­mal­low. Par­ents like it be­cause the milk con­tains no high-fruc­tose corn syrup. DairyPure, on the mar­ket for about 10 months, ap­pears to be build­ing on TruMoo’s mo­men­tum. For the 12 weeks ended on Jan. 23, vol­ume sales of Dean’s branded milk rose 1.6 per­cent, com­pared with a 7.3 per­cent de­cline in the same pe­riod the year be­fore, ac­cord­ing to San­ford C. Bern­stein an­a­lyst Alexia Howard. Spe­cialty milk sales jumped 21 per­cent in 2015, up from 9 per­cent growth in 2014, largely thanks to “the launch of Coca-Cola’s high-pro­tein Fair­life brand,” Howard says.

Some say Coke’s drive for dairy will be an up­hill climb, given Fair­life’s pre­mium pric­ing. “Some­how you’ve got to build a value-added case that there’s more to this,” says Ian Shack­le­ton, an an­a­lyst at No­mura In­ter­na­tional.

Coke, which holds a mi­nor­ity stake in Fair­life, be­lieves its ef­forts will pay off. Jones was semire­tired when he con­nected with McCloskey and his wife, Sue, in 2010. He urged them to team up with Coke, which has a vast dis­tri­bu­tion net­work and ac­cess to hun­dreds of thou­sands of su­per­mar­ket shelves across the coun­try. Two years later, Jones helped bro­ker the joint ven­ture. “We needed the mar­ket­ing,” McCloskey says. “We had ev­ery­thing ex­cept the struc­ture to get it to con­sumers in ev­ery cor­ner of the coun­try.”

Fair­life can also tap Coke for guid­ance on re­search and de­vel­op­ment, chem­istry, and mar­ket­ing. Its board is split be­tween mem­bers from Coke and farm­ers from the co­op­er­a­tive.

The soda gi­ant takes a hands-off ap­proach to the part­ner­ship, says Scott Uzzell, pres­i­dent and gen­eral man­ager for Coke’s Ven­tur­ing and Emerg­ing Brands group. “They know dairy bet­ter than any­body,” Uzzell says. “We know con­sumers.”

The bot­tom line Spe­cialty milk sales jumped 21 per­cent in 2015, up from 9 per­cent in 2014, boosted by Coke’s Fair­life drink.

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