Last year Walmart announced intentions to move into the Dairy Business with plans to build a processing plant enabling them to produce their own-brand milk and serve an estimated 600 stores. Unfortunately for the discount superstore, this resulted in a 12% drop in stock for Dean Foods, which has more recently been reported to face an additional 20% decline in stock price.
Even amid a declining market, Big Dairy still means big money, however consumer habits are continuing to pose challenges for the industry and animal agribusiness as a whole. The annual refrigerated milk sales peaked at a huge $8 billion in 2016 however to put this into perspective, the USDA and Economic Research Service reported that the availability of milk per capita has declined by almost 100 lbs (or 38%) within the last 40~ years.
With these market trends in mind, Walmart’s new venture is all the more curious – why would this grocery giant dive into an industry with such steep declines? And with their first leap into Big Dairy only facilitating 15% of their stores, do they intend on building additional plants across the country?
Perhaps, as this article by Forbes suggests, Walmart is simply attempting to use the facility as a leverage and ‘negotiation tool to insure that they receive the lowest prices for milk’.
Just one example of this is that approximately 75% of the human population are lactose (sugar found in milk) intolerant; 25% of which live in the US.
At further detriment to dairy sales, the latest trend report from Innova shows the plant-based milk market is expected to reach 16.3 billion in 2018, up from 7.4 billion in 2010. The availability of dairy-free products has significantly risen and has made its way into the homes of consumers wanting healthier options.
So, is Walmart’s move into a declining business a good idea? It seems like they might be safe for now but with current predictions the way they are, the team at Wallys might just be better off milking some almonds.
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