Expanding demand for dairy products

by Keith Nunes
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KANSAS CITY — Cheesier toppings at Domino’s Pizza and a raft of dairy-based beverage introductions at McDonald’s restaurants have given a boost to Dairy Management Inc., the group’s chief executive officer explained at the recent Dairy Farmers of America, Inc.’s 12th Annual Meeting in Kansas City.

Funded by the dairy checkoff program, D.M.I. is the planning and management organization responsible for helping build domestic and international demand for U.S. dairy products.

Tom Gallagher, c.e.o. of DMI, said the organization has been “changing the plan” in recent years in an effort to give consumers “what they want, where they want it, and how they want it.” In doing so, the hope is increased sales will result for the dairy industry.

A significant portion of that effort has come through DMI’s partnerships with Domino’s and McDonald’s.

“We started our partnership with Domino’s as we saw the mozzarella business the past five years really, just awful,” Mr. Gallagher said. “We couldn’t get people to work with us. We gave ourselves 36 months to fix it. We’re about 15 months into that.

Starting last August we’ve started to see the tick up in mozzarella sales. The top four chains since August have increased their orders of pizza cheese 48%.” Pizza accounts for 25% of cheese sold in the United States.

More cheese at Domino’s

Brandon Solano, vice-president of brand innovation for Domino’s Pizza, said the turnaround at Domino’s over the past year has been phenomenal, in no small part because of its pairing up with DMI.

“In our partnership with DMI we have absolutely transformed our brand,” Mr. Solano said. “We’re a different company than we were 18 months ago.”

The transformation has included a revamped pizza recipe, a new product line, heavy promotions and of special interest to dairy, a significant spike in cheese usage.

“We all want to sell more dairy,” Mr. Solano said. “We want to sell more dairy, which means we’re selling a lot of pizza. You (dairy farmers) want us to sell more. Last year, we sold 128 million lbs of cheese. We plan to sell a whole lot more in 2010.”

In addition to more cheese, Domino’s has taken steps to redefine its menu by adding new cheeses. As part of its new American Legends line of products, Domino’s is one of the few pizza chains to offer feta cheese.“With this new product introduction we’re able to really raise our brand’s equity, how people view us, as a food entity,” Mr. Solano said.

He continued, “When you ordered our old cheese pizza it didn’t taste very good. We took the step to add 50% more cheese to our new pizza. This is resulting in millions of pounds of incremental cheese sales, which in turn results in incremental costs to our franchisees. They’re business people like you are. They’re saying, ‘Hey, I’m not so sure this is a good idea.’ Our new and improved pizza is costing us millions and millions of dollars. And that comes out of our franchisees’ pockets, mostly. They took a leap of faith with us. They said, ‘Listen, the dairy farmers have been good partners, this makes a better pizza and we’re going to do this.’ The results have been fantastic. The product tastes significantly better.”

Menu changes at McDonald’s

What is McDonald’s doing to increase demand for dairy? In the opinion of Alex Conti, senior director of U.S. menu management for McDonald’s Corp., the restaurant chain is doing plenty.

“Over the years, we’ve expanded our menu with cheeseburgers and dairy products, including cones and McFlurries, and our whole breakfast menu,” he said. “Think about it, there is not a sandwich on our menu that doesn’t have cheese on it, because our consumers love cheese.”

Mr. Conti said McDonald’s learned early on in its partnership with DMI that it could make “a significant change” in terms of helping U.S. dairy producers find an outlet for their milk, cheese and yogurt.

A major part of what McDonald’s currently is doing involves the McCafe brand.

“This brand will be the umbrella as McDonald’s continues to build its pipeline of beverages, a lot of which will be dairy based,” he said, adding that beverage purchases have doubled, in some cases tripled, since the launch of the McCafe brand in May 2009.

Mr. Conti said the inclusion of more beverages in the morning has helped drive more purchases of sandwiches in the morning, which ultimately has driven sales of products with more cheese.

More recently, McDonald’s has stepped up efforts to improve its existing products, such as hot chocolate. Mr. Conti said the revamped hot chocolate is made with a shot of mocha and steamed milk.

The restaurant chain also is in the middle of rolling out Frappes, a dairy blend iced product available in flavors such as mocha and caramel. The Frappes are served with whipped cream on top. Mr. Conti said early sales of Frappes, which are available in select markets, are ahead of projections.

“It just goes to show that when you bring products to consumers at a great value and great quality they respond very well to those products overall,” he said of the early success of Frappes.

McDonald’s also continues to stretch the McCafe brand through testing on smoothies, which feature yogurt. Mr. Conti believes the price point ultimately will give McDonald’s a leg up on the competition.

Mr. Conti said McDonald’s is using the McCafe brand to reposition its shakes business, which he said has undergone few changes in the past decade.

“We’ve taken our shakes, put them in a McCafe clear cup, added whip cream and a cherry and consumers have responded extremely well,” he said. As a result, the restaurant chain has been able to increase shake sales 50% in certain markets, he said.

Further plans that will feature dairy include the May launch of a snack size McFlurry, a summer roll-out of an iced chocolate drink made with a shot of mocha and cold milk, and in the fall, a caramel mocha flavored espresso drink made with dairy.

“There are a lot of opportunities on the hot dairy side of our business that we’ll continue to mine out and a lot of opportunities on the iced side that we’ll continue to mine out,” he said.

As it moves ahead, Mr. Conti said McDonald’s is leaning on DMI to help provide credibility in the beverage category. As part of the partnership, DMI has helped hold sampling and couponing events.

“Being in this partnership with DMI has allowed us to really ramp up development to be able to create more demand for dairy in the restaurants,” Mr. Conti said. “It’s through the partnership … that has allowed us to excel.”

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