The Genius Of Cokes Controversial New Milk

Dated: 02/13/2015

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Disruption is the strenuously overworked marketing buzzword du jour that typically appears in a digital context. It’s gotten quite a workout in the recent past to describe the impact of location-based upstarts like Uber or Airbnb on the conventional transportation and lodging sectors, for example.

But it’s also a very apt characterization of Coca-Cola’s lower tech but equally startling incursion into fluid milk with its Fairlife brand, an initiative that has the potential to upend not only how business is done in the dairy case, but also in other highly commoditized supermarket categories like meat and produce.

Coca-Cola’s product-portfolio diversification makes sense given that carbonated-soft-drink consumption as reported by Nielsen Scantrack and others has been in steady decline for the last decade or so as consumers shun added sugars. The drop in diet soft drinks has been equally precipitous, reflecting growing unease with artificial sweeteners.

Arguably the only other major beverage category to experience such a dramatic reversal of fortunes has been fluid milk; once touted as nature’s most perfect food, milk has lost substantial volume over the past decades. USDA reports that milk consumption has sunk from 32 gallons per capita in 1970 to less than 20 gallons per capita in 2012, despite high profile efforts of the dairy industry to stem the flow.

The Fairlife product itself represents a savvy synthesis of current dietary imperatives, where addition counts more than subtraction. What’s been added? It has 50 percent more protein—the hottest ticket in the food business at the moment—and 30 percent more calcium. To be sure, some stuff has also been removed: It is lactose free and boasts 50 percent less sugar than conventional milk. All of this is made possible by a proprietary filtration process that separates various components of milk; however, lest it seem a few steps too far removed from the udder, promotional material reassures us that the product comes from sustainable family farms and tastes just like regular milk. All of this also comes with a hefty price tag, since a 52-ounce bottle will sell for about $4.60, more than twice the typical cost of a 64-ounce half gallon of ordinary milk.

Sandy Douglas, president of Coca-Cola North America, has acknowledged that it may take quite a long time to establish a beachhead in the dairy aisle, but he absolutely believes that the product will eventually “rain money.” Given both Fairlife’s higher price tag and the moribund nature of the traditional milk category, that’s the kind of bold prediction that seems calculated to invite failure. There are some positive augurs, however.

  • First and foremost is the strong tailwind provided by Starbucks and various bottled-water brands that prove it’s possible to add value, goose prices and contemporize tired beverage commodities.

  • Second, Coca-Cola has a strong success template with its Simply Orange Juice. A home run that’s totally in tune with the zeitgeist, the juice is never frozen, sweetened or made from concentrate, and a “majority of its fruit is still picked by hand.” It doesn’t hurt, of course, that Donald Sutherland lends credibility and gravitas with his voiceovers on the Simply commercials.

  • While functional foods have been the next big thing for a darn long time, they are getting real traction buoyed by a one-two push from both Baby Boomers and Millennials and exemplified by the runaway success of Greek yogurt, which turned around a similarly mature, lackluster dairy category.

  • What’s more, organic milk sales are booming despite a substantial price premium, proving that the milk cooler is not immune to value-added merchandising.

There’s no question that Coca-Cola will face some real challenges, starting with the fact that it’s Coca-Cola, a brand not exactly synonymous with better-for-you potables.

To address this potential disconnect, press releases have put the focus on the Fairlife company, a separate entity for which Coke’s primary job is to leverage its formidable distribution capability to get the milk jugs into milk coolers from coast to coast. This last is also a potential sticking point. Big national beverage brands are swimming upstream against a rising tide of local, artisanal and craft drinks, the popularity of which has led to some interesting contortions as giants like Anheuser-Busch attempt to establish their bona fides in the burgeoning craft-brewed beer business.

No matter how Fairlife fares in the long term, other food marketers plagued by a low margin commodity positioning should be lining up to take notes from its playbook. If Fairlife succeeds, it will be responsible for the premiumization of much more than the fluid-milk category.

Nancy Kruse is a menu trends analyst and the president of The Kruse Company. She is also a contributing editor to Nation's Restaurant News.

Photos: Getty Images

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