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Grocers like Kroger are moving to expand their private label business. Now Kroger is leading a new trend for grocers, bottling their own milk. The move could harm Dean Foods and other milk producers who have traditionally supplied the grocers. Heather Haddin and Benjamin Parkin report:
Milk is a low-margin commodity, susceptible to price swings. Americans are drinking less of it, even as demand rises for cheese, butter and other dairy products. But grocery executives say ensuring for themselves a steady supply of what remains one the most frequently purchased items in their stores is worth spending millions of dollars on manufacturing facilities.
“Virtually every basket that goes through has milk,” said Erin Sharp, group vice president for manufacturing at Kroger Co. KR 0.20% , the largest U.S. supermarket chain by revenue and stores.
Kroger, which built a fully automated dairy plant three years ago in Colorado, is now processing 100% of the fresh milk it sells. Competitor Albertsons Cos. opened a 55,000 square-foot plant in Pennsylvania this summer that will be able to produce orange juice, ice tea and other drinks when milk demand is low or prices dip.
“We are lot more agile” than traditional dairy processors, said Evan Rainwater, Albertsons’s senior vice president for manufacturing. “You can do a lot more in a dairy plant than make dairy.”
Wal-Mart Stores Inc. WMT 0.28% said it plans to open what would be one of the country’s biggest dairy plants in Indiana by next year….
Wal-Mart’s plant will supply milk to more than 600 stores across five Midwest states that are now supplied by Dean Foods Co. DF +0.00% , one of the world’s largest milk producers. Dean will still supply Wal-Mart stores elsewhere, but the new plant will cost Dean roughly 100 million gallons of annual milk sales out of 2.5 billion total beginning next year, according to Dean. The lost business from its biggest customer could affect earnings next year, Dean executives said.
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