The dairy downturn has now gone from family farm to corporate headquarters. When Dean Foods, the largest milk processor in the United States, filed for bankruptcy in November 2019, the entire business community took special note. And when Borden Dairy followed in January 2020 with its own bankruptcy filing, we all began asking “what happened?” Let’s see how Dean Foods and Borden Dairy can teach valuable lessons to the food sector, as well as learning the effects of our growing consumer trends and those of the industry at large.
What brought Dean Foods and Borden, two of the most familiar and respected names in the American food sector, to bankruptcy? Was it the dramatically changing dairy industry? Changing consumer demands? Maybe the increased competition? Was it bad business decisions? Possibly a combination of all those reasons, and more.
As two of the oldest and most well-known names in the dairy sector, both Dean Foods and the Borden Company have long and distinguished histories. Both also face the enormous business challenges created by a dramatically changing dairy landscape.
About Dean Foods
Dean Foods was founded in 1925 by Samuel E. Dean, Sr., who guided the growth and development of a basic milk processing operation into something much bigger and more far-reaching. Over time, Dean Foods moved to bottling its own brands, invested in research and product development, and alternative products, such as dry milk powder and coffee creamers, juice, teas, and other food offerings.
A long-term growth strategy through development of nutritious and tasty beverages and foods made Dean Foods one of the most recognized and respected names in the food and beverage industry.
After being acquired by Suiza Foods Corporation in 2001, Dean Foods began to see real change – in its structure, and its approach to the market. Some processing plants were spun off, and an aggressive program of acquisitions and divestitures brought more and more brands and consumer offerings.
Today, the company’s website reports Dean Foods to still be the largest dairy company in the United States, with 66 manufacturing facilities in 32 states, and revenues of $7.7 billion in 2016. Its regional and national brand portfolio boasts of such familiar household names as DairyPure, Mayfield, Tru Moo, Land-O-Lakes, Friendly’s, Tuscan, Meadow Gold and Dean’s. Another 50 brand names still populate dairy cases and food and beverage aisles seemingly everywhere.
By comparison, Borden Dairy also produces huge quantities of dairy milk for the retail market – more than 500 million gallons each year, from 12 plants across the country. This household name in dairy dates its origins back to 1857.
In addition to traditional milk, Borden’s family of dairy products includes lactose-free milks, flavored milks, high-protein milk, juices, creams, and dips. Similar to Dean Foods, Borden has a turbulent history of various food products, many of which were divested and sold off. A recent example is the acquisition of their cheese division by Dairy Farmers of America.
Is a Changing Industry to Blame?
Analyst reports show that the most commonly cited reason for the plight of Dean Foods rests in the fundamental changes that have been underway in the dairy sector for several decades. To many observers, both companies are simply victims of structural changes in the dairy industry that were just too big to overcome. Here are a few examples that come to mind:
- Fewer family dairy farmers. Dean Foods’ midwestern heritage helped shape a focus on buying milk from smaller dairy producers. However, the company couldn’t source enough whole milk at prices competitive with those offered by larger, more efficient operators.
- Changing milk processing patterns. As larger and more efficient dairy operations emerged, large processing and distribution centers began to change, as well. Many producers faced the cold reality of operating outside these new structural realities, adding to the cost-price disadvantage they faced.
- More competition from retailers. When huge companies such as WalMart and Kroger decided to aggressively market their own dairy labels, Dean Foods and other processors were put in the position of becoming not just suppliers to such companies, but competitors to them as well.
- Rising global competition. As international trade policies increasingly came to emphasize free trade, the American industry faces a tough fight for the export markets for any ray of economic hope in the beleaguered dairy sector. However, the European Union, Australia, Argentina and others can easily produce dry milk powder and other dairy products increasingly sought by consumers looking to improve family diets.
Or Changing Consumer Tastes?
But structural change was only part of the picture facing Dean Foods and the entire dairy industry. Changing dietary patterns and increasingly complex consumer demands also had to be considered.
- Lower consumption of whole milk. Evolving taste and health preferences, and changed lifestyle means we aren’t consuming as many whole milk products as we used to. U.S. Department of Agriculture statistics show that per-capita consumption of dairy milk beverages fell by 22% between 2000 and 2016.
- Rise in demand for alternative dairy-free products. Lately, us consumers are showing a lot of love for alternative dairy products. Soy milk, rice milk, oat milk, almond milk and other new, plant-based products have become retail mainstays, competing for shelf space, representing an alternative-product market estimated at almost $13 billion in 2018.
- Environmental sensitivities. More and more consumers also have indicated a preference for companies that mirror their own desire to be “close to” nature and protective of the environment and its inhabitants. Companies conveying these desired values tend to connect better with consumers.
Or Does the Company Need Changing?
For Dean Foods in particular, among the most contentious points raised in any analysis is the issue of “poor management” and “bad decision-making.” Hindsight and second-guessing follow business failure like kids chase ice cream trucks. But many critics point to a number of factors that may have contributed to the mess facing the company.
- Mistakes in managing the brand portfolio. For example, the company’s willingness to sell off some of its plant-based product alternatives and “healthy foods” units has been widely criticized. Such a strategy made it imperative for the company to maximize the operational efficiency of its traditional dairy businesses, which has proven to be a very daunting task, given the economic pressures facing the production industry.
- Failure to listen. The company has faced charges of not listening to the consumer and failing to recognize the fundamental changes in their expectations. Consumers want more choices that match health concerns and personal values. Reports by environmental groups citing the company’s alleged poor performance in dealing with water quality and other environmental protections can’t be ruled out as a contributing factor to the present situation.
So, what’s next?
Dean Foods and Borden Dairy hope to use the protections offered by bankruptcy to sort out these complex problems. But most attention has focused – and will likely to continue to focus – on Dean Foods’ reported discussions underway for its acquisition by Dairy Farmers of America (DFA) as a way out of its predicament.
DFA is a national milk marketing co-operative, with more than 14,500 members who operate dairy farms across 48 states. With revenues of over $13 billion annually, DFA accounts for slightly over one-fifth of all U.S. raw milk production.
But the organization also has drawn attention for its efforts to move into product production, often in competition with the same retailers served by Dean Foods. Borden Cheese, Breakstone’s Butter and Oakhurst Dairy are a few of DFA’s current roster of dairy brands.
Needless to say, the potential combination of the two organizations has prompted numerous questions about possible anti-competition issues, making Dean Foods’ future perhaps even more unstable.
What lessons can we learn?
For the average consumer, the take-away from the Deans Food and Borden saga is fairly straight-forward. Despite the continuing difficulties facing the dairy industry – and, in particular, the smaller family dairy farmer – they will see ample supplies of reasonably priced dairy products and dairy alternatives. Consumers can expect to see the number and variety of dairy products continue to grow, and the relentless competitive forces at work across the industry hold prices down.
Dean Foods and Borden Dairy offer a case study of what can happen when business mistakes fundamental market changes for passing fads.
Potentially the more important lesson may involve other sectors of the food industry. Business strategy, structure and operations must be linked to the realities of the market. That includes adaptation to new market economics, and the structure and way of doing business that accommodates them.
The Bottom Line
Today, consumers demand choice – not just for our tastes but our desires and values. We demand products that meet our standards for safety and wholesomeness, and food produced in a socially and environmentally responsible manner. Failure to recognize that change – and to adapt accordingly – can have profound consequences. Dean Foods and Borden are learning those lessons, painfully. The question now is how well others across the food chain will adapt.