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3 Open Minutes with Tom Gallagher

Progressive Dairyman Editor Walt Cooley Published on 06 November 2015

Progressive Dairyman Editor Walt Cooley sat down with Dairy Management Inc’s CEO Tom Gallagher face-to-face at World Dairy Expo. He asked the dairy checkoff leader about several factors currently influencing dairy consumers and their impact on dairy product sales. 

Tom Gallagher

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Q. On a scale of 1 to 10, how would you presently rate consumer confidence in dairy products?

A. GALLAGHER: From all the research we do, I would say they’re at about an 8. But that’s a question that you have to define: “What does consumer confidence mean?” You know, it’s not the issues of safety. Those aren’t big concerns with dairy consumers. Even animal care, for most people, isn’t on their radar.

We were just looking at some cutting-edge data, and it’s really about consumers not having [dairy products] available. As fluid milk consumption has gone down and consumers drink less milk, they know less about the product. They interact with the product less, so the scores don’t end up as high as they used to. But it’s not that something bad has happened; it’s that they don’t interact with milk as much.

Q. What will it take to move the needle from an 8 to a 9?

A. GALLAGHER: Some of the things we’re doing in fluid milk are a big deal, and I’ll give you an example. When we started working with McDonald’s 10 to 12 years ago, they were still using cardboard containers. They were selling 50 of those cardboard containers a week per store times 14,000 stores. Now they’re doing 300 of those round resealable containers a week per store.

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Since then, food service outlets and schools have converted to round resealables. Now there’s 28 million such milk containers used per week. Over a year, that’s a billion-and-a-half times a year that kids and others can interact with a better depiction of our product. And when people have an enjoyable experience with your product, and it meets their expectations (not just nine essential nutrients, which a lot of companies can put into a bottle now), they interact with it.

That’s what has to happen, and through the things that we’re doing with some of our partners, I think you’re going to see a whole change over the next three to four years in how consumers will interact with milk products.

And nationally and locally, we continue to fill up the trust bucket so that we define ourselves for consumers. We don’t want the activists to define us.

Q. What are activists doing to try to define dairy farmers?

A. GALLAGHER: They can define us with a lot of bad videos on how farmers treat their animals. Yet it still hasn’t impacted the vast majority of consumers we talk to. They still trust dairy farmers. So if we can make sure to depict what really happens on a farm, transparently, to the younger generation, who has a little lower level of trust, I think that’s going to go a long way.

For example, we took a bunch of college-age kids and other younger people who had never been on a farm to a dairy farm. We said afterward, “OK, now tell us what you saw.” We wanted them to find everything wrong visually that they could. They said, “It’s awful that they take the calves away from the mothers right away.” We had dairy farmers explain why, and then they said, “Well, that makes sense. That’s great.”

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If somebody else is telling that story, it’s in a negative way, like this: “Oh, look at how they’re treating those animals; they take the calves away.” But if we can tell it, then they will say “OK” and not be impacted by that same story.

These videos are an interesting thing because there are some things on the farm that are exactly the right [thing] to do, but they may not look that great to a consumer, and so we have to be able to explain them. There may be some things that sound good and are right, but the consumer is just not going to accept them – such as tail docking – and we’ve got to change those. If you can’t sell it to the consumer, you ultimately are going to have to change it.

Q. How will ‘Acres and Avenues,’ a new DMI-produced Web series that aims to connect urban people with dairy farmers, move the needle?

A: GALLAGHER: Trust. It’s been proven time and again that trust in any product is going to equal or impact sales over a long haul. So if you build trust, people don’t have to think about their food. And they don’t want to have to think about their food. But, you know, that’s what these activist videos are doing. They’re making people think, “Am I eating a cow that’s been beaten?” If we can improve that trust factor with “Acres and Avenues,” we know that it lays a foundation of sales.

Trust for people my age [boomers] and trust for young people [millennials] are very different, and we have very different trust issues. We define sustainability different; we define global different; we define local different. And where we get our information is very different.

So take a show like the Daily Show, for example. People my age look at the Daily Show as entertainment, and if something is on there, they almost don’t believe it, whereas millennials get their news from the Daily Show. So if you put something on the Daily Show, you’re going to cover both audiences, but they’re going to have a very different view of it.

If we can get consumers at risk of not buying dairy products (and it’s not a huge segment) who think about issues like animal care or water use (which is a topic in “Acres and Avenues”) connected with farmers, we can reinforce that farmers treat their cows and the environment well.

Q. What dairy product issues don’t get enough media or public attention that should be getting more airtime?

A. GALLAGHER: Without taking a position on what should change or not change, I think standards of identity in the fluid milk arena need to be looked at. We’ve got the worst of all worlds right now. Some of our marketers are limited by what they can say. For example, you can’t say 98 percent fat-free milk in many states because of regulation.

On the other hand, soy and almond beverages can call themselves milk. If we could get the standards of identity to where soy and almond and those other products can’t call themselves milk, fine. But if we can’t, then we’re being hurt by our own standards of identity. We ought to adjust the standard so that we can market our product more effectively.

For example, most every consumer, when they hear the words “whole milk” think that means it is 100 percent fat. They don’t realize it’s 96.75 percent fat-free. So I think that’s a big issue. We either have to get the FDA to rethink its position or (maybe it’s an and) adjust the standards of identity to meet today’s marketing needs. 

Q. If you could wave a magic wand and put in place another checkoff partnership, one that’s not already existing, what would it be and why?

A. GALLAGHER: One that is hot on our mind is taking the partnerships that have worked so well in the U.S. to companies that have an international presence, such as Yum Brands, which owns KFC. KFC is the chain in China. They don’t really sell any milk and not much cheese.

We’re working with Yum to try to create that international partnership, and I think that’s going to be more the model going forward. Why should we limit ourselves to our borders when we cut a dairy partnership deal?

Q. If you were to relate fluid milk sales to some type of a sporting event, what period of the game are we in?

A. GALLAGHER: I’ll use baseball because there are more innings and not just quarters. I think we’re in about the fifth inning. For years, in the first or second inning, people ate at home, and there was going to be a gallon of milk on the table. Then we went through the third and fourth inning, where for 30 years milk consumption dropped like a rock.

We took for granted that people were going to always eat the same way and want a gallon of milk. And now I think we’re in the fifth inning where, you know, our starter is getting his second wind now. I think you’re going to see growth, both in this country and in China and other overseas countries. The plants that are being built are for aseptic or long-shelf-life milk.

I’m real optimistic. I think we will recapture fluid milk, maybe not at the per-capita level where we used to have it, but I think we can get to the point where we’re not looking at sales every year and going, ‘How many billion pounds are we going to be down this year?’

Q. So what’s the score? Is it close?

A. GALLAGHER: We’re still losing. But we’re getting closer. We’ve almost broken even, so let’s say it’s 6-4.

Q. What do you attribute the comeback to? 

A. GALLAGHER: One of the problems with milk processors over the years, as well-intentioned as they are, is that they have seen each other as the competition. Coke and Select Milk Producers don’t see conventional milk as a competitor to Fair Life. They see soy and almond as the competitor.

If you define yourself and say, “I’m a milk company, you’re a milk company – so you’re my competition.” And then go into Walmart and compete on price – you’ve made your product the mother of commodities. If it’s a commodity, why do any advertising? Why do any innovation?

That happened for 30 years. The milk cooperatives and Coca-Cola entering this market place – and you watch, Pepsi will still enter – is going to cause everybody to act different. It already has. There’s more money spent by Fair Life in marketing milk the past 12 months than MilkPEP itself has to spend. So imagine it; there’s more money by just one company spent in one year than I would contend that all the brands added together have spent the last five years.

What causes our rally, to use the baseball analogy, is the heart of the order is coming up – Coke, Select, DFA, Shamrock – all those guys are the heart of the order. And they’re bringing the rest of the team along. PD

Walt Cooley
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