Tuesday 27 September 2016

Coca-Cola flexing its muscle for share of billion dollar protein drinks market

Published 15/06/2016 | 02:30

Fair Oaks has teamed up with Coca-Cola in the US.
Fair Oaks has teamed up with Coca-Cola in the US.

Anyone with an interest in the Irish dairy sector would be a fool to ignore the moves by Coke in the US dairy industry.

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For those playing catch up, here's the play.

Fair Oaks is a grouping of about 10 large US dairy farms, bringing together over 30,000 cows. It is headquartered on Mike McCloskey's 15,000 cow operation on the outskirts of Chicago.

The former vet holds various high-profile positions, including chairing Southwest Cheese, the joint venture with Glanbia that owns the largest cheddar factory in the world in Clovis in New Mexico.

While the farm is a seriously intensive enterprise, McCloskey prides himself on turning it into the Tayto Park of the dairy world, attracting 400,000 visitors a year to its spotless facilities, complete with a calving theatre, where visitors get to see any of the 100 cows that calve daily do their thing behind a floor to ceiling glass wall.

To the average dairy farmer, the idea of tour buses decked out in a Friesian livery, along with a 25ft high milk bottle that children can climb up, and endless other plays on all things dairy, may seem a bit gimmicky.

However, McCloskey's exposure to the best of modern dairy processing hasn't been lost on the serial entrepreneur.

Over the course of the last decade, Fair Oaks has developed a series of milk products with 'patented technology' aimed at the premium end of the market.

There's Mootopia, 'a high protein, low sugar, lactose-free milk', and Core Power, 'a specially formulated athletic drink'.

Sound familiar? Of course it does. Glanbia have been poking this space for years with their flavoured milk range, followed by lactose free versions, and most recently a protein milk aimed at the burgeoning sport's nutrition space.

But where Fair Oaks are a step further down the road is their partnership with global behemoth, Coca-Cola.

The soft drink superpower has been investing in many alternative beverages over the years as it seeks to shield profits from the gathering resistance to the high sugar drinks that it originally made its fortune from.

It has buddied up with Fair Oaks because it believes that these dairy products can become another 'billion dollar brand' for the corporation.

It's a marriage that has piqued the curiosity of most industry insiders, but few have made up their minds as to how it will all turn out.

"I think there are pros and cons to the development," says the National Dairy Council's CEO Zoe Kavanagh. Her perspective is notable given her previous role as country manager here for Coke's arch rival, PepsiCo.

"I think that the partnership might make a lot of people feel uncomfortable. They see the kingpins of fizzy drinks crashing into a space that is characterised by its wholesome, natural, unprocessed qualities," she says.

If anything, these 'whole food' concepts are becoming more important all the time, with the latest research showing that nature's formulations have a 'matrix effect' - one where the sum of the parts are greater than the whole.

This is the complete opposite direction to the one being championed by Fair Oaks and their Fair Life brand where the litre of milk is basically dismantled into its constituent parts before being reassembled into a formulation that is tailored for sub-sets of the market.

That's the gamble that Coke is taking, but they also bring something special to the table, as an insider like Kavanagh knows only too well.

"They're after a greater share of throat - that's the terminology that these guys use.

"What Irish dairy processors have been doing in terms of innovation with dairy is only scratching the surface.

"Coca-Cola research and marketing dollars will know that the dairy industry is missing loads of 'moments for consumption', largely due to unsuitable packaging and lack of chilled facilities.

"They'll blow this apart with product design to tick every box, so that they'll fit into lunch boxes, office bags, be irresistibly chilled from vending machines everywhere," says Kavanagh.

One of the hotspots for dairy to target are so-called 'points of sweat' - basically gyms where there's a ready market for functional beverages that are priced at a premium.

This is going to take a level of investment and marketing expertise that has been unheard of in the dairy sector according to the NDC boss, and that of course is where Coca-Cola's muscle comes to the fore.

But they won't be doing it for the good of their health. Coke expects to be able to charge double the average price of dairy products for its range, something that Kavanagh wonders if consumers will find a bit rich.

"Our latest research shows that men are increasingly wanting more natural products that are not too highly processed. They want elements like protein, but they don't want it messed with too much," she says.

Maybe the sweet spot is somewhere between these extremes. A bona fide natural product that has the marketing and financial clout to offer it to consumers in ways that fits with modern lifestyles - on-the-go, commuting, sport-crazy and so on.

In the meantime, with Coke's planet-encompassing reach, expect to see one of their new dairy beverages popping up where you least expect in the very near future.

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