While fluid milk is one of the highest profit centers in any grocery store, declining sales have grocers scrambling for new products, new sales and ever more profit.
The solution to declining milk sales, however, might be right there in the dairy case, says a new study by Prime Consulting Group and funded by the Milk Processors Education Program (MilkPEP).
The most logical place to start is to simply keep milk racks stocked throughout the day. That’s true on weekends, when consumers do their weekly shopping, and in the early evenings during the week, when many consumers rush in after work to pick up a gallon of milk and fixings for supper.
At any one time, 8% of fluid milk shelves are empty. And these are in the best managed stores, says Doug Adams, president of Prime Consulting Group. Simply keeping shelves better stocked could increase milk sales by as much as 3%.
That’s not an insignificant amount, since year-to-date fluid milk sales through November 2015 were down 1.4%. (Retail sales of two percent milk was down 6.7%, skim was down, 10.4%, and even organic sales were down 2.3%).
Beyond that, store managers must be urged to dig into their own sales numbers. If they do, the potential for increasing milk sales and store profits are huge. “Dairy is a very powerful category for grocery stores, and milk outperforms salty snacks, beer, water and coffee, cereal and eggs, and energy drinks,” says Adams.
“Dairy typically accounts for 3% of the linear feet in any grocery story, but it delivers 20% of the true profit,” he says. “That’s almost the same profit level of all grocery items that take up a third of the store.”
Using that calculus, Adams estimates that a grocery store that devotes 24’ more feet of shelf space to milk would generate another $42,692 in profit per year. For a chain of grocery stores with 125 locations, that equates to $5.3 million in additional profit.
Note of caution: Some economists are skeptical, saying an empty shelf of one type of milk might simply force consumers to grab another type. Plus, they say there will be a point of diminishing return as a store devotes more and more space to milk. “We have lost some shelf space for fluid milk, but have we really lost sales because of it?” asks Mark Stephenson, a dairy economist with the University of Wisconsin. “The question is: How many more sales could we see if we increased shelf space 10% or 20%?”
Still, the research suggests grocery stores, as they chase more dollars by providing more variety, may need to re-calibrate. That’s particularly true when it comes to milk and milk alternatives.
The MilkPEP research shows conventional white milk takes up 58% of fluid dairy case, but it generates 69% of the gross profit. Organic white milk has 10% of the space, and 11% of gross profits. But alternative milk beverages-soy, almond, etc.—take up 20% of the dairy case but generate just 12% of the profit. “Retailers lose $1,800 to $3,000 per shelf (per store) if they convert from milk to alternatives,” says Adams.
And here’s the final kicker: “Milk’s value is undermined by constant price promotions,” he says. Go figure.
