The collapse this month of America's Dean Foods sent shock waves through the dairy world.
The Dallas-based company's descent into Chapter 11 bankruptcy protection was put down to the rising popularity alternative plant-based milks, but there was more to the story than that.
Granted, the rise of alternative milks didn't help, but Dean Foods' problems were also brought on by a decline in milk consumption in the US, a lack of diversification by the company, and a changing retail landscape that saw the retail Walmart - once a key Dean Foods customer - go it alone.
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So what can be drawn from the demise of Dean Foods, which ranks as the world's 11th biggest dairy company on the Rabobank Top 20 - behind Fonterra (5th) but ahead of the Dutch multinational, Unilever (12th)?
"This is not a surprise. The industry has known they have been teetering on bankruptcy for almost a year and shopping for buyers," said one Chicago-based commodities analyst.
"They just put all their eggs in one basket – drinking milk – which is a declining category. It finally caught up with them," he told the Herald.
"I think the alt milks are trying to jump on this story and declare victory – they are pretty good marketers – but I'm not sure the data supports that story."
A2 Milk chairman David Hearn said Dean Foods had gone under because it was the "epitome of an old school commodity milk play".
"And you don't want to be in an old-fashioned commodity milk business," he told a2 shareholders at this week's annual meeting.
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Wall Street Shock
Dean Foods is a milk processor listed on the New York Stock Exchange. It is very much a fresh dairy play.
Fluid milk - or drinking milk as it is labelled - represents about 67 per cent of its revenue and, of this, there is a 50:50 split between brands and private label.
It is a big business with revenue in excess of US$7.5b.
The company had been facing significant liquidity challenges.
Earlier this year, Dean Foods refinanced its revolving credit facilities and had completed a major strategic review in September - which included a potential sale - but resulted in the decision by management to continue operating independently. The key focus was to cut costs by lowering internal costs and further plant closures.
At the end of 2016, its share price was US$26 (NZ$40)and had fallen to less than US$1 this month - against its all-time high of US$51 in 2006.
Michael Harvey, senior dairy analyst with Rabobank in Melbourne, said Dean Foods had been facing fundamental and structural change in its core category.
Some of those forces were at play in the Australian market where New Zealand's Fonterra is a big player along with Canada's Saputo.
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"Firstly, liquid milk consumption in the US has been in steady decline for a long period of time. As a result, this volume softness across the category resulted in an ongoing deterioration in fluid milk manufacturing efficiencies," he says.
"Secondly, US retailers have been engaged in aggressive retail pricing of private label in traffic-driving categories such as fluid milk."
This had led to a continuing shift from branded to private label which negatively impact profit margins for dairy processors.
"Thirdly, the US market for fluid milk includes large vertically-integrated retailers," he says.
Walmart opened its own milk processing plant in 2018 in Indiana. Before that, Walmart and its subsidiaries accounted for 15 per cent of Dean Foods' net sales.
Harvey says other large US retailers have been investing in processing and bottling their own milk supply.
The US Federal government establishes minimum prices that dairy processors much pay to producers in federally regulated areas.
At the same time, US milk production had been steadily increasing, leading to ongoing pressure for shelf space from all dairy companies needing to find a market for milk, Harvey says.
In 2012, the Dean Foods subsidiary WhiteWave Foods - which made, marketed, distributed and sold plant-based foods and beverages - was sold to French food giant Danone.
This followed the sale of other brands and platforms and narrowed further their focus on white fluid milk.
Harvey said the sale of RightWay and other assets left Dean Foods too exposed to fresh dairy foods products, which compounded the problem.
In Australia, Fonterra and Saputo both had a diversified portfolio of products, brands, private label, and ingredient exports.
While most major dairy producing countries have are focused on their own domestic consumption, about 95 per cent of Fonterra's domestic production is exported.
In New Zealand, latest data from Nielsons shows that over the last 12 months, fresh white milk purchases were down by 0.4 per cent while alternative milk purchases were up by 15 per cent. Alternative milks make up 7.5 per cent of the milks category, according to Nielsons.
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Harvey says the industry needs to be mindful the challenges that lie ahead.
"It is conceivable that the drinking milk category in Australia will begin to shrink," he says.
He said the leading flavoured milk category in Australia is showing signs of pressure as consumers push back against high-sugar products, while the broader drinking milk category had actually shrunk.
Harvey says that while Dean Foods' collapse was largely expected, it was a key event for the global dairy industry. The rise of alternative milks was just part of the problem for Dean Foods.
"I'm not saying it's going to happen here, but it's a reminder that in some of these more developed retail markets, there is a margin squeeze for dairy companies," Harvey says.
"That's what Fonterra has experienced here in Australia to a certain degree because of how competitive the market place is and how much influence and power the big retailers have."
"As of now, Dean Foods is a still a very big dairy company. They operate in 29 states in the US and have something like 60 plants, so its a big footprint that they are trying to juggle," he says.
"At a very simple level, it's a reminder about the importance of diversification."