Giant milk: what will happen to Dean Foods
Despite the fact that the consumption of milk in the world is increasing, the demand for products is redistributed due to changes in consumer preferences. In 2017, Dean Foods announced a decline in profits and sales of drinking milk.
The company is among the top 20 largest dairy companies according to Rabobank (11th place) and ranks 7th in the rating of the world's largest processors according to IFCN in 2018.
By the way, in early 2018, Dean Foods announced the termination of more than 100 contracts for the supply of milk. “The decision was an incredibly difficult step that we tried to avoid", stated in the company. It was also stressed that the company will provide maximum access to information resources and advisory services for all farmers, whose contracts will end on May 31, 2018.
The company has seen a consistent decline in liquid milk sales. In addition to the factors of reduced consumption and increased production of raw materials, competition for shelf space has increased. In Dean Foods emphasize that the commissioning of new plants with excess capacity for milk processing exacerbates the situation.
By the way, in 2018, the retailer Walmart entered the milk processing market becoming a major competitor to Dean Foods in Wisconsin, the dairy state of America.
At the end of last year, the company announced the closure of a number of plants. Dean Foods closed seven sites in six weeks, redistributing their volumes to the remaining 23 sites. The company also reported that according to its data, the consumption of drinking milk in the country continues to decline (by about 2% per quarter), but this category still remains the fifth largest by sales in all outlets. The average consumption of drinking milk by U.S. households is 33 gallons per year (about 150 liters). At the same time, consumption per capita is about 3 gallons (for comparison - in 1975 the figure was 11 gallons).
Shares of Dean Foods in 2019 (as of May) have fallen about 60%, the company's market value of $141 million is about 5% of the indicator a decade ago. Dean representatives have sought advice from banks to explore possible options, including selling the company or separating some of the assets. Dean has received at least half a dozen offers to buy several plants, wrote the WSJ, citing knowledgeable sources. Top managers of the company rejected these proposals.
The problems the company has faced are hurting American farmers as well. Last year, dozens of them received letters from the company saying that it intends to reduce the volume of milk purchases due to the construction of a Walmart plant in Indiana.
In July 2019 Dean Foods has replaced the General Director.
The company's management team has also been updated.
“The bankruptcy we are announcing today, our actions are aimed at ensuring that we can continue to serve our customers while we work to sell our business”, said Eric Beringus, President and CEO of DF on November 12th. - "We have a strong operating and distribution network, an extensive portfolio of leading national brands and extensive private label capabilities supported by approximately 15,000 dedicated employees across the country. Despite our best efforts to make our business more flexible and cost-effective, we continue to be impacted by a challenging operating environment marked by a continued decline in milk consumption. It is important to note that we continue to provide customers with an uninterrupted supply of high-quality dairy products, as well as support our dairy suppliers and other partners".
With the help of $850 million from existing creditors such as Rabobank, Dean Foods plans to continue normal operations throughout the bankruptcy process. These funds will be used to pay salaries and benefits to employees, pay suppliers and sellers in full.
Rabobank said in a comment to DairyReporter that it was "proud of its role in supporting funding for Dean Foods. With this funding, we hoped to avoid major disruptions for consumers and the hundreds of American dairy farmers who supply milk to Dean Foods-owned processing plants".
Many international experts interviewed by The DairyNews, estimate the situation with Dean Foods as indicative. A number of global market participants declined to comment, stressing that the prospects of Dean Foods are very difficult to comment on. Many agree that the company's focus on fresh milk production was a key mistake. In addition, competition from retailers entering the processing sector has also crippled the oldest producer of fresh dairy products in the United States.
Meanwhile, worldwide consumption of drinking milk is declining, leading consumer demand towards fermented dairy products, innovative products. According to marketers, the growth of plant alternatives will also continue, despite the high rate, the share of this sector is still small.
In the US, experts believe that milk supplies will be redistributed, but it will still have some pressure on prices in the medium term. While Dean Foods continues to actively negotiate with DFA, some market participants wonder whether the same situation in the world will be repeated in other countries. According to analysts, the situation with the largest producer of whole milk products in the States is unique and is a serious lesson for the market.
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