Beyond Meat surprised the stock
market when the company turned out to be the best IPO of 2019. “Beyond Meat”, “Beyond
Meat”, “Beyond Meat”. Alternative meat was
having a moment. Alternative milk, on the other
hand, has been quietly revolutionizing the dairy
industry for years. Milk, the kind from cows, was
once a staple of the American diet, but now consumers have
their choice between almond milk, rice milk, hemp milk, coconut milk,
soy milk—you get the idea. Here’s how plant based milk is
taking on the $107 billion dairy industry. Milk gained popularity
after World War II. Dairy farmers had amped up milk
production to supply the war effort, but when the war ended,
farmers struggled to sell all the milk they produced
at a favorable price. So, the government stepped in. Some methods the government used
to drive demand included adding dairy as its own food group
to the USDA’s food guidance and instilling it in school
lunches across the nation. But in 2019, Americans are
drinking less and less milk. In fact, milk consumption has
fallen nearly 40 percent since 1975. Analysts say a big reason
behind the shift is Americans growing more aware of
milk allergies and intolerances. People are turning to plant-based
milk and people with extra cash would also rather spend the
money on soy and almond than organic milk. The dairy industry isn’t too
happy about the changes. The dairy industry is challenged
really at all levels. Look at the farm level with milk prices
having been low for the past few years. Profitability for dairy farmers
has been very weak. You’re seeing a lot of financial
pain at the farmer level, you know, coming through to the
processor level where Dean Foods is—that’s more of a reflection
of, you know, these multi-decade declines in fluid milk consumption that
don’t really seem to be evading. In response, the dairy
industry attacked the plant-based alternatives for branding their
items as “milk.” Plant-based milk companies use the
term because it’s easier for consumers to understand. The dairy industry thinks it’s misleading,
which is why you see “coconut beverage” on some containers
instead of coconut milk. And in 2017, Senator Tammy Baldwin
proposed the Dairy Pride Act. It would “require enforcement
against misbranded milk alternatives”. In 2018, the FDA addressed
the dairy industry’s concerns. They called the labeling “misleading”
and said that it, “could compromise the health and
wellbeing of consumers.” However, no standard has
been put in place. And despite backlash from
the industry, dairy-related companies are seeing the popularity in
nut-based drinks as a business opportunity. In 2017, Danone
acquired WhiteWave, the company behind Horizon Milk and Silk
Pure Almond, for $12.5 billion. Since the purchase, Danone stock
has gone up more than 30 percent. Analysts say the dairy industry has
failed to innovate and as a result, sales of milk have dropped
by $4 billion since 2015. But tech innovations have improved
and more plant based products have appeared on the market, and
they look pretty similar to milk too. Meet Michele Simon, the executive
director of the Plant Based Foods Association whose members include
Beyond Meat and Blue Diamond Growers. She explains that plant-based beverages
like soy have been around for a long time and it
was the marketing of soy milk that opened the door
for plant-based drinks. What really brought soy milk into
the mainstream market was when it shifted away from that type
of merchandising to being sold in the refrigerated section right
next to cow’s milk. So they changed the packaging
and went from those shelf-stable packages to the familiar gable-top
milk style packages and sold it right where cow’s
milk is sold. And it worked. Today, almond milk dominates 68
percent of the plant-based industry with soy milk leading
in second at 13.8 percent. Former milk producer Elmhurst
Milk 1925 shifted from cow’s milk to nut-based beverages in
2017 after signs of the declining industry. The change came when CEO
Henry Schwartz met food scientist Cheryl Mitchell who was perfecting a
way to use the whole part of the nut
for nut-based beverages. Here’s Cheryl Mitchell
explaining Elmhurst’s HydroRelease process. When we do the HydroRelease method,
it’s kind of like power washing. Instead of grinding to a
flour, everything comes off in layers, right, and it’s actually
a very gentle, gentle process here and big particles, right. Well, that’s what you want to do
with a fiber is that you want to make sure that the fiber stay
very long makes them easy to separate from the protein. And, that’s what the hydrorelease process
so I was able to figure out the right equipment to
make sure all of this happens. Oh, and by the way, Cheryl
thinks it shouldn’t be called plant-based milk. Elmhurst 1925 calls it
“milked” because they’re literally lactating the milk. According to IBISWorld, a
market research organization, the plant-based beverage industry could
be worth $2.4 billion by 2024, but
it’s facing challenges. Some companies often have trouble keeping
up with demand and to see where the old school
dairy industry is going. Some analysts say to look
at the coffee industry. A 2016 Wells Fargo report draws
parallels between the milk and coffee industries. From 1946 to 1996, coffee
consumption declined by 56 percent, but since 1997 it’s
rebounded by 14 percent. The coffee industry had become
complacent with producing instant coffee and had continued to market
to adults instead of a larger market. Coffee intake was also
down due to speculative links between caffeine and cancer, high
cholesterol and other health diseases. Sound familiar? The dairy industry has
the same problems. The game changer for coffee
was focusing on premium and specialty coffee. So we think what the milk
category is really missing is, you know, what coffee leaned
on 30 years ago. It’s quality. It’s marketing, it’s investment, it’s
branding and we’ve seen that with Fairlife, you know, from Coke
and I think that that is a little case study that shows that
if you do have an emphasis on quality, emphasis on taste,
you know, marketing dollars behind it you can actually drive
growth in the category and even at higher price points. While plant-based milk may be the
newest threat to cow’s milk, it wasn’t the first. The dairy industry also dealt with
the rise of soda and bottled water. So as plant-based meats take
on Wall Street and hit store shelves, remember it was plant-based
milk that flooded the market first.