A milk giant goes broke as Americans quit old staples

Bottles of McArthur Dairy Eggnog, a Dean Foods brand, displayed at a grocery store. Photo/AP

When Dean Foods was founded in the 1920s, milkmen still delivered pints to homes across the country and a glass of milk was considered a nourishing part of any meal. Nearly a century later, milk is quickly falling out of fashion, and Dean Foods has found itself unable to compete as plant-based and lactose-free alternatives become more popular.

The largest milk company in the United States, saddled with debt and unable to adjust to the changing consumer landscape, filed for bankruptcy protection Tuesday. It is in talks to sell itself to Dairy Farmers of America.

For legacy food and beverage companies, the situation facing Dean Foods is becoming increasingly familiar. The company was established in 1925, when Samuel E. Dean Sr. purchased an evaporated milk processing facility in northwestern Illinois. Over the decades, it grew to become one of the largest US food companies.

In recent years, however, consumers have moved away from brands — and even entire categories of food — once seen as household staples, creating major headwinds across the packaged food industry. The decline of the dairy industry has emerged as a particularly stark example of how changing tastes are challenging major companies.

"Long ago, the public figured out that diets do just fine without milk and no, we don't have to drink three glasses a day," said Marion Nestle, a food studies professor at New York University. "Maybe plant-based milks are the coup de grâce, but this industry just can't seem to keep up with changing tastes."

It isn't just Dean Foods that's struggling. Outside of the dairy industry, Kraft Heinz also found itself flat-footed as consumer tastes shifted.

In 2015, the merger between Kraft and Heinz, owners of some of the biggest brands in packaged foods, created a giant with $28 billion in annual revenue and dozens of products that are common in US households.

But as the public turned to healthier foods or organic alternatives, the company's sales and profits plummeted. Kraft Heinz also made steep budget cuts at a time when research and development should have increased, analysts say, with startups increasingly taking shelf space away from food giants.

Like Kraft Heinz, Dean Foods watched from the sidelines as smaller rivals dominated the growing market for trendy alternatives, like almond milk and plant-based milk products. In fact, in 2012, the company spun off units of the company that made such alternatives — a move that now looks like a strategic error, analysts said.

Dean Foods, which owns McArthur Dairy, filed for bankruptcy amid a steep, decades-long drop-off in US milk consumption. (AP Photo/Wilfredo Lee)

It also faced competition from private-label brands developed by supermarket chains like Walmart and Kroger, and did not invest aggressively enough in research and development to keep pace with consumer trends, said Matt Gould, a dairy industry analyst.

Dean Foods and Kraft Heinz "both carry a lot of debt," Gould said. "And that constrains your ability to try radically different things."

Written by: David Yaffe-Bellany

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