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Dean Foods Files for Bankruptcy

11/12/2019
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Dean Foods announced Tuesday morning that it has filed for Chapter 11 bankruptcy. The Dallas-based milk giant secured roughly $850 million in debtor-in-possession financing which will be used to maintain day-to-day operations and to put towards current debt obligations. Meanwhile, Dean Foods is actively pursuing a sale of its assets to Dairy Farmers of America.

Dean Foods’ bankruptcy filing is another page in the story of a struggling milk industry. As many consumers turn to non-dairy milk alternatives like almond milk and oat milk, there is little opportunity for growth in the traditional dairy milk category. Small pockets of growth can be found with fuller-fat milk varieties, but even there, profit opportunities are marginal. Stronger growth can be found in the less conventional, but still dairy-based, lactose-free milk category. These products have been “ultra-filtered” to provide higher protein content, less sugar, and perhaps most importantly, no lactose. Even with the solid performance of lactose-free milk, the bulk of the action is taking place with plant-based alternatives. While growth in the alternatives space is certainly not universal (soy milk has been in decline for roughly a decade), this is where the majority of innovation and consumer interest can be found.

Another detriment to the success of branded milk companies has been the increasingly positive view of private label products that have affected the entire packaged food industry. Many shoppers are turning to private label milk products as they come at a significant discount with no perceivable drop in quality. Consumer perceptions are not the only issue though – retailers are also investing more heavily in their own private label products. In June 2018, Walmart opened its own milk processing plant in Fort Wayne, Indiana. The opening of this plant meant a significant reduction in Walmart’s reliance on Dean for milk inventory. Kroger and Albertsons have made similar investments as well, and there has been reduced shelf space for branded milk products across a variety of retailers.

For better or worse, in the several years leading up to this bankruptcy filing, Dean Foods has made a variety of strategic moves related to its main milk portfolio.  In 2012, the company spun off Horizon Organic and Silk, a plant-based milk alternative brand. A few years later, in 2015, Dean consolidated dozens of its milk brands to form one overarching national brand named Dairy Pure. This new national brand launched with a premium, fresh, hormone-and-antibiotic-free positioning. The premium pricing, however, was not appealing to consumers who felt they could get the same quality out of the cheaper retailer-owned brands. In terms of management, Dean Foods has employed three CEOs in the last three years, the current chief executive being Eric Beringause who joined this past July.

It will be interesting to see how Dean Foods deals with this bankruptcy filing, and which strategic path they will choose to take moving forward. As dairy-free milk continues to shine in the spotlight with new entrants searching for market share and high profits, this news from Dean Foods illustrates the tough circumstances that lie ahead for those that rely heavily on the success of conventional milk products.

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