Paul Carbonneau, partner at McKinsey & Company
New Research Points to Four Strategic Responses for Success
(Phoenix – January 26, 2016) The future is vibrant for U.S. dairy companies willing to make bold changes to pursue high-growth opportunity areas, according to new research from McKinsey & Company released yesterday at Dairy Forum 2016 in Phoenix. In a presentation to nearly 1,000 dairy executives from across the country and Canada, McKinsey consultants outlined the challenges and opportunities facing the industry, concluding that future growth in the competitive dairy landscape will require decisive focus and fortitude to implement a combination of new strategies.
Today’s presentation, “Growth in an Evolving Dairy Market: Strategies for U.S. Dairy Companies,” hinged on independent research that McKinsey & Company conducted last fall specifically for discussion at Dairy Forum 2016. The research involved in-depth interviews with 33 dairy executives followed by a broader survey of 61 dairy companies representing all dairy products and business models. The research findings also included responses from 10 McKinsey consultants with expertise in retail and dairy in both the United States and abroad.
Paul Carbonneau, a McKinsey partner, and Ludovic Meilhac, an associate partner, told today’s audience that the global imbalance of growth in dairy consumption leaves U.S. dairy manufacturers with the option of chasing international opportunities or competing for share in the increasingly competitive home market. Based on the research, the consultants believe U.S. dairy companies should consider four strategic responses – global growth, growth beyond traditional business models, insight-driven innovation, and operational and performance excellence – to capture growth in the current evolving environment.
Some manufacturers, they said, will grow by capturing share in the global market and employing “best-in-class” international export and local production capabilities. Other companies, excited about the prospects of ingredients and product categories beyond traditional dairy, will succeed by redefining their businesses and broadening their consumer bases. Targeting these markets will require “fit-for-purpose divisions” and tightly focused sales.
Noting that consumer preferences, particularly among Millennials, are evolving faster than ever before, Carbonneau and Meilhac explained the benefits of insight-driven innovation. Companies with top-notch consumer insight and product development capabilities can win consumers over through innovative product portfolios, they said.
Growth opportunities are also available to companies that heighten their efforts on operation and performance excellence, the consultants said. For dairy companies to remain competitive, they will need additional emphasis on network optimization, manufacturing and procurement efficiencies, supply chain and logistics, and in-store execution.
“Growth often requires changing how you do your business,” Carbonneau said, offering recent transitions made by companies in the carbonated soft drink industry as a good example. Facing annual declines in consumption, these soft drink companies redefined their businesses from being “cola-players” to companies that succeed by leveraging existing assets – such as world-class distribution and marketing and packaging capabilities – and becoming “lifestyle refreshment companies.”
The soft drink companies have many parallels with companies in the dairy industry, Carbonneau said. He encouraged the dairy executives to consider adopting new growth-oriented definitions that would move them from makers of milk, cheese, yogurt or ice cream to health-and-wellness lifestyle companies in the food and beverage category.
McKinsey & Company has prepared a white paper, “Got growth? Opportunities and challenges for U.S. dairy industry,” that highlights the research findings and suggested responses in more detail. The paper is available here on the IDFA website.
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The International Dairy Foods Association (IDFA), Washington, D.C., represents the nation's dairy manufacturing and marketing industries and their suppliers, with a membership of 550 companies within a $125-billion a year industry. IDFA is composed of three constituent organizations: the Milk Industry Foundation (MIF), the National Cheese Institute (NCI) and the International Ice Cream Association (IICA). IDFA's nearly 200 dairy processing members run nearly 600 plant operations, and range from large multi-national organizations to single-plant companies. Together they represent more than 85 percent of the milk, cultured products, cheese, ice cream and frozen desserts produced and marketed in the United States. Visit IDFA at www.idfa.org.