Milk glass and pitcher
July 21, 2020

Are Storm Clouds Forming Over the Dairy Aisle?

 |  By: Dairy Talk

The COVID-19 pandemic created a return to the dairy aisle in grocery stores unlike anything seen in recent times.

When COVID hit full force in the middle of March, total grocery store sales shot up 61% with dairy sales up 59%, reports Larry Levin, executive VP of Market and Shopper Intelligence with IRI. Levin spoke at The Dairy Experience held virtually in mid July.

The Dairy Experience, now in its third year, is hosted by Midwest Dairy and Dairy Farmers of Wisconsin to give retailers and other interested in the dairy category an unvarnished look at consumers’ perception of dairy products, practices and image.

Post panic, from the end of March through most of June, dairy retail sales are still up 17% and up 22% for the year.

The most telling reason why is that consumers have been forced home to eat practically all of their meals there. “Pre-COVID, only 20% of the population made 90% or more of their meals at home,” says Levin. “Since COVID, more than 50% of the population is making virtually all of their meals at home.”

Much of that is food is being sourced at grocery stores, where consumers are making relatively short, focused trips to get what they need every week or two. “They will shop for 20 to 25 minutes; they are not treasure shopping but are getting in and out as quickly as they can,” he says.

That also means they are buying familiar products they perceive as both healthy and comforting. “Nothing speaks tried and true as the dairy industry,” Levin says. The primary factors consumers are looking for are availability, price and safety. Less important are brand, locally made, recyclable and organic.

But consumers also warn that money is tight. A large segment of the workforce is unemployed, and no one knows how long the pandemic will last. As a result, consumers are asking food retailers to reduce prices temporarily and increase product promotions.

This focus on price could run head on into rising wholesale prices for cheese, milk and yogurt as those prices work their way through the system and end up in the dairy aisle. Recent price run-ups and volatility could shock consumers as they make their infrequent trips to the grocery store.

Levin did not specifically address rising dairy commodity prices in his presentation. But he urged manufacturers to do more product promotions, make products either available in larger sizes or make multi-packs more available. For example, he suggested ganging milk in 2- or even 4-gallon packs.

Cross-promotion with other dairy products is also key. An IRI study with 500 consumers who increased their dairy consumption more than 25% post-pandemic shows that these consumers increased their purchases not only of milk, but butter, cheese and yogurt as well.

Showing consumers how to use dairy products in new ways (cheese and yogurt as snacks or as staples in school or work lunches) and as new ingredients in the meals they cook are also critical to maintaining dairy sales gains, says Levins.

Over the longer term, the dairy industry outlook remains uncertain as consumer tastes and habits adjust to the on-going pandemic and its impact on the economy. “It seems likely that consumer behavior will be different for the next 12 to 18 months,” says Phil Plourd., president of Blimling and Associates, Inc. in a market assessment prepared for CoBank. “As that behavior takes route, dairy supply chains will need to adjust from farm to fork.”

In other words, the COVID-19 pandemic is far from over. The current market euphoria for dairy farmers could well foreshadow storm clouds ahead.