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2275 Half Day Road, Bannockburn, IL 60015Phone 847.945.1155www.primeconsulting.biz

Increasing Milk Sales in FoodserviceIncreasing Milk Sales in FoodserviceFinal ReportFinal Report

March 2003

Developed for

SmartMarketing 2003

Page 2

Executive Summary

Project Objectives & Approach

Processor/Operator Interview Summary

Focus Group Findings Summary

In-market Test Reports – VOLUME II

Separate Project Reports – Secondary Research– Detailed Focus Group Findings– Processor/Operator Interviews Full Report– Consumer Survey Responses (Electronic surveys)

Agenda

Page 3

Background: The Importance of the Restaurant Segment to Milk

Source: SIP Analysis 2002.

Executive Summary

Milk is only 3-5% of a restaurant’s beverage sales, while a much larger share of at home beverage consumption. The lower level of milk ordering when eating out, plus declining meals at-home, creates a doubly difficult challenge for the milk industry to overcome.

Restaurant sales continue to grow as more people eat outside the home or bring take-out food home, yet 90% of milk consumption occurs at home.

Recent innovations in flavors, packaging and quality hold promise as part of an effort to reverse the decline and capture an enormous untapped channel for milk sales.

One point is clear, without significant action to reverse these trends, milk consumption will decline as food at-home continues to decline.

854

870

885

1990 1995 2001

121

130

138

Annual Meals Purchased at a Restaurant

Per Person

Annual Meals Prepared & Consumed In-Home

Per Person

Page 4

Project Objectives

The objective of this project is to develop proven ways to increase milk sales in foodservice outlets through innovative research and testing.

The project was designed to:

gather currently available research about milk in foodservice operations. interview dairy processors and foodservice operators about current attitudes

and perceptions. understand consumer mindset regarding milk away from home. gain information about milk purchasing habits in foodservice settings. engage consumers to design consumption-building programs. develop, conduct and measure in-market tests based on learnings-to-date. report on development opportunities.

Executive Summary

Page 5

Approach

Three Phase Approach

Phase 1 – Gather Current Knowledge – Conduct secondary research and milk processor/ foodservice operator interviews to determine how milk fits into foodservice operations.

More than thirty interviews were completed.

Phase 2 – Understand Consumers – Interview consumers in focus groups to determine awareness of milk's availability in foodservice outlets, perception of freshness, desirability and likelihood of milk purchase.

Ten focus groups were conducted in three cities.

Phase 3 – Conduct In-market Tests – Design and conduct milk promotion tests for each processor/operator pairing. Analyze test results and develop market strategies.

Executive Summary

Current Knowledge

Consumer Understanding

Testing

1

2

3

Page 6

Approach (cont'd)

Four key foodservice formats were included in the research:

1. Quick Serve Restaurants (QSRs) – Offer a limited menu, usually specializing in a type of food and emphasize speed (e.g., hamburger, sandwiches, donuts, etc.).

2. Midscale Restaurants (MSRs) – Include a more varied menu than QSR, often geared toward family/value dining (e.g., Denny's, Old Country Buffet, Waffle House).

3. Upscale/Casual Dining Restaurants (USRs) – Offer an extensive menu, have wait staff, almost always sell alcoholic beverages (e.g., steak houses, Friday's, Chili's, etc.).

4. Business & Industry (B&I) – Covers a range of cafeteria or deli style settings in work places. Universities are included in this segment.

Executive Summary

Page 7

Approach (cont'd)

Important learnings were gained through preliminary research before development of the in-market tests.

The research conducted prior to the test development included:

– Processor Interviews – interviewed dairy processors about their foodservice customers' purchasing habits.

– Operator Interviews – interviewed foodservice restaurant operators to gain an understanding of their buying patterns, views about milk and other beverages.

– Focus Groups – conducted in 4 cities with teens, young adults, adults, and mothers with young children.

– Secondary Research – conducted through the Internet, publications, etc., to gain a broader understanding of restaurant promotions and views on beverages.

Executive Summary

Page 8

Research Participants

PROCESSORSPROCESSORS

Berkeley Farms

Borden Milk*

Dean Foods*

Garelick Farms*

Mayfield Dairies

Roberts Dairy*

Schneider's Dairy*

Shamrock Foods

Smith Dairy

Suiza Southeast

OPERATORSOPERATORS

Anderson Restaurant Group – QSR, USR*

Bickford's Diner – MSR

Cracker Barrel – MSR

Dairy Queen - QSR

Denny's Restaurant – MSR*

Epicurean Feast – B&I*

Hardee's - QSR

Hyatt Regency – QSR, MSR, USR*

Johnson County Community College – B&I*

King's Family Restaurant – MSR*

Krispy Kreme Doughnuts – QSR*

Krystal Hamburgers – QSR*

Legal Seafood – USR

Metz & Associates/Erie Life Insurance – B&I

Sodexho/EMC – B&I*

Waffle House – MSR

Wal-Mart Radio Grill – QSR*Test Participants

Project Objectives & Approach

Page 9

Processor and Operator Interview Key Findings

Restaurant operators have made few changes to menu beverage variety in recent years, except for carrying bottled water.

A few restaurants had started offering milk in a plastic resealable bottle (mainly QSR and B&I outlets).

In the QSR and MSR segments, operators usually offer 2-3 varieties of milk (in USR, even fewer).

In B&I/College restaurants, 3-4 milk varieties are offered, in some cases as many as 5-6 varieties.

Milk is generally not sold in a plastic resealable bottle, although some restaurants are beginning to carry it after seeing the success of other retail operators and their own success with bottled water.

The way milk is currently served in restaurants gives it a commodity image to operators and they believe it is an uninteresting beverage to consumers.

Executive Summary

Page 10

Focus Group Key Findings

Focus group participants said: they are open to ordering milk in restaurants, but aren't always aware of its availability; would like more variety in milk; don't usually view milk as a "treat" beverage as they do with other beverages.

When consumers sampled flavored milk in a plastic resealable bottle, they thought it tasted better and colder than milk in a carton or glass.

Participants liked the convenience and portability of milk in a plastic bottle.

Participants said they would be more likely to buy milk in restaurants if it were offered in a variety of flavors in plastic resealable bottles.

Consumers were shown several milk promotions and responded with enthusiasm. Kids-oriented promotions and meal deals were especially appealing.

Executive Summary

Page 11

Test DevelopmentExecutive Summary

Results from all preliminary research—focus groups, interviews, secondary sources—were analyzed and discussed with processors and operators participating in the in-market tests.

Processors and operators developed tests to validate the findings highlighted in the research.

Processors and operators tested:

– Adding flavored milk in plastic resealable bottles.

– Providing milk flavoring straws that turn white milk to a flavor when sipped through a straw.

– Targeting children by offering fun gifts featuring milk and accompanying point-of-purchase (P-O-P) material.

– Offering milk combo deals with meals or snacks.

– Promoting milk through menus, table/counter tests and other P-O-P.

Page 12

Tests Yielded Strong Results: +42% for the Average Program

Average program increasedmilk sales by 42%.

Milk sales increased on average 52% in restaurants where children were the primary target for promotions.

Milk sales rose an average of 35% in promotional tests where adults were the primary target, demonstrating adults will order milk if promoted properly.

Very little (< 20%) cannibalization occurred from other beverages. The milk increases were 80+% incremental to the restaurant.

Executive Summary

42%

35%

52%

Average Adults Children

Page 13

Promotional Test Concept: Milk Flavoring Straws

Children like the "entertainment" experience that flavored milk offers (through flavoring straws) and were excited to order milk.

– Flavored Milk was seen as a treat.

Flavoring straws allow a restaurant to offer additional milk flavors without carrying more milk SKUs or inventory.

Straws increased milk sales 776% in an upscale/casual restaurant (USR), a format in which many USR operators believe milk doesn't sell well.

Avg. Sales Growth+55%

Executive Summary

* +55% growth over prior milk sales level

Page 14

USR Promotions Worked to Increase Milk Sales to Kids

During the test, 94% of respondents said their children ordered milk – yet 44% said their kids “never” order milk when in restaurants.

94%Yes

Did Child Order Milk Today?How often does child order milk

when dining out? (any occasion)

6%

44%Sometimes

44%Never

Frequently

Always

6%

6%No

Promotions converted Non-Milk Drinkers to

Drinkers

Page 15

Flavor Straws Were Very Effective in Increasing Ordering

Importance of Promotional Item in Child's Decision to Order Milk

13% Not

14% Some

20% Very

53% Extremely

53% Not

34% Some

13% Very

(Turns white milk to flavors)

Page 16

Server Suggestion Was Very Important for Ordering Milk in USR units

Server interaction is key to encouraging kids to order milk.

Did server suggest milk?Did server mention

flavor straws?Before ordering, did child see flavor straw poster?

NoYes

Page 17

Strong Opportunity Amongst Hispanics – Especially Male Teens

The opportunity for flavors is especially strong among Hispanics, where Milk consumption is:

– higher than the general market.

– flavors are consumed more often.

– achieved (converted) more often from a lower awareness level.

– higher than other beverages – especially amongst males.

0

5

10

15

20

25

30

Milk Bot.Wat.

FruitJuice

CSD Tea AllOth

Share of Teen Beverage Consumption

Share(%)

Milk Consumption Yesterday(% of People)

Source: SIP Analysis 2002

Milk in Restaurants

Hispanic GeneralAwareness 42 % 50%Purchased 21 11

Conversion 2:1 4.5:1

Page 18


Major Test Learnings

Promotional Test Concept: Combo Meal

Develop combo meal programs that appeal to target diners(e.g., kids meals with flavored, and potentially kids-sized milk; breakfast and milk pint for B&I diners).

Show price and promote milk and combo item together. Note: Diners respond better to promotions advertising price.

Vary combo items with milk at least every four weeks to maximize sales and offer variety.

Executive Summary


Page 19

Combo Meals Grew Milk Sales 57% in a B & I Outlet

Milk sales grew 57% in Dollars and 21% in Units.Cookie Sales doubled as well!

Average Weekly Units

Pre-Test Test

+21%

2961/2

Pints

246 1/2

Pints

111Pints

Average Weekly Sales $

Pre-Test Test

$1651/2

Pints$138

1/2Pints

$121Pints

296Units

357Units +57%

$165

$259

Page 20

Pre-test Test

Milk Pints

Milk Pint Sales Rose 47% During the Test in a Hamburger Chain

Average Store Weekly Unit Sales

+47%

58

85

Page 21

Pre-test Test

Milk Pints

Sales of Milk Pints Grew 19% During a Combo Test with Donuts.

Average Weekly Unit Sales per Store

+19%

Double-digit sales growth shows even a highly-developed milk business can increase sales through promotions.

680

810

Page 22


Promotional Test Concept: Promotions Targeting Children

Use as much child-oriented P-O-P material as possible – children

responded to repetition.

Include a promotional item that children can take home (e.g., got milk? temporary tattoos or stickers) – reminds them to return to the restaurant and order milk.

Flavored milk appeals to children – in a restaurant customer survey, almost all children said they would order it.

Promotions targeting children may increase the number of families dining, as they have a strong say in restaurant choice.

Executive Summary



Page 23

Suggesting Flavored Milk – through Flavoring Straws – Impacted Both White & Chocolate Milk Sales

White Milk Chocolate Milk

Total Milk

Test Locations

% Change vs. Year Ago

White milk sales increases were expected due to flavor straw popularity – straws turned milk into chocolate, strawberry or caramel flavor. The

chocolate increase indicates the power of suggesting Milk.

Page 24


Program Test Concept: Introducing Plastic Pints

Add plastic bottled milk to existing milk offerings, evaluate results and determine products to be carried/ discontinued.

Add "flavored milk" without increasing SKUs by using flavor straws that turn white milk into flavored when sipped through the straw.

Link new products into existing promotional events to capture the target market, if appropriate, (e.g., ongoing kids eat free night event with new kids-size flavored milk).

Executive Summary



Page 25

Milk Growth did not Cannibalize Coffee/Tea Sales at a Coffee Bar

Coffee & Tea Milk

% Changevs.

Year Ago+32+25

Pre-Test

Test

Pre-Test

Test

Page 26


Suggestive selling was part of most tests.

Servers and/ or cashiers can reinforce the milk message by telling customers about milk and the promotion – encourages purchases at the point of order/sale.

Having servers wear "fun" apparel – got milk? hats, buttons, etc., is a visual reminder to the customer and server to order/suggest milk.

Promotional Test Concept: Milk Drinker Frequency Card

Frequency card returns show diners bought milk in a B&I setting5.7 times per week.

A focus on meal purchases by frequent milk drinkers increases total dollar ring and the likelihood of buying milk with meals.

Promotional Test Concept: Suggestive Selling & Promotional Effectiveness

Executive Summary

Page 27

Test Recap: Promotions delivered 30-60% sales growthExecutive Summary

Milk sales from the promotional and pint distribution tests grew an average of 42%.

* due to a very low base.

Average Growth From

All Tests

Upscale/Casual

Business & Industry

Midscale

Quick Serve

0%

40%

80%

52% Children

35% Adults

42%

AvgTest Milk

Sales Growth

Milk Flavor Straws

Children-Oriented Promos

Combo Deal

Intro Plastic Pints & Flavors

60%

20%

62% MSR

55%

48% MSR

62% MSR

48%48% MSR

47% QSR

34% MSR

58% B&I

47% QSR

23% B&I

30%

19% QSR

58% B&I

34% MSR

32% QSR 33%

= Average

776% USR* 776% USR*

Page 28

"Menu" for Program Design – Quick Serve Restaurants

Develop milk sales by promoting:

– Meal Combos – breakfast sandwich lunch sandwich/ burger

kid's meals

– Flavors – ready-to-drink product

Support the promotion with:

Server/Cashier POS Consumer Involvement Signage Giveaways• Suggestive Selling • Menu Boards • Temporary Tattoos• Apparel – "got milk" • Register Cards Shirts/ Buttons • Drive-thru Menu

• Backlit Menu Board/ Extender• Cooler Decals

Page 29

"Menu" for Program Design – Mid-Scale Restaurants


– Milk in existing programs (i.e., family nights, meal combo programs).– Adults and children at the same time.

• Adults may order as role model for child.– Focus on flavors – RTD flavors and modifiers (powder, straws,

syrup).


Server/Cashier POS Consumer Involvement Signage Giveaways• Suggestive Selling • Coloring Placemats • Temporary Tattoos• Apparel – "got milk" • Menu Cards Shirts/ Buttons • Table Tents • Ceiling Danglers

Page 30

"Menu" for Program Design – Upper-Scale Restaurants


– Milk in existing programs (i.e., family nights).– Mystery diner for server contests.– Milk served in a chilled glass – White and flavors.


Server/Cashier POS Consumer Involvement Signage Giveaways• Suggestive Selling • Coloring Placemats • "got milk" Stickers • Menu Cards

Page 31

"Menu" for Program Design – Business & Industry


– Meal combos (breakfast and lunch) – Between meal combos (2-4 weeks long).

• Cookie or muffin and milk.– Frequent diner card.– Flavors through sampling.– To frequent milk drinkers who aren't purchasing at B&I location.


Server/Cashier POS Consumer Involvement Signage Giveaways• Suggestive Selling • Cooler & Register • "got milk" Magnets for• Apparel – "got milk" Signs – Include Price Office Shirts/ Buttons, Aprons • Table Tents (Not as• Sampling Flavors Effective) Occasionally • Ceiling Danglers

Page 32

Flavor Straws

Child- Oriented

Combo Deals

Introducing Pints

QSR (1,000 units)Quick Serve/Fast Food

$1,860,000 $800,000 $330,000 - $1,550,000 $1,460,000

MSR (100 units)Midscale/Diners, Buffets

$ 80,000 $ 186,000 * $ 598,000

USR (20 units)Upscale/Casual

$ 16,000 $ 16,000 * $ 34,400

B&I (100 units)Business & Industry

* * $45,000 - $ 113,000 $ 489,000

Projections assume restaurants will experience the same sales increase if running promotions similar to those tested. Pint introduction assumes 52-week distribution; other promotions assume three 4-week long promotions during a year.

* = Not testedNote: The USR with +776% growth started from a low base, as would most upscale/casual dining restaurants.

Executive Summary

Significant Sales Growth from Wide Range of Programs

Sales increase projections were developed for each segment and test program.

per Chain

Page 33

Implications for Processors and Operators

Milk sales grew an average of 42% as a result of the tests.

The annual incremental sales potential (applying conservative adoption rates) from these promotion programs across the four segments studied, totals $100–200 million.

The key learnings confirmed consumers:– are open to ordering milk more often.– need a reminder of milk's availability in restaurants.– respond to P-O-P, suggestive selling and combo offers.– view flavored milk as a “treat” beverage when eating out.– ordered milk in addition to other beverages.

This final point indicates that milk growth will be largely additive for the restaurant operator and not reduce existing beverage sales and profits.

Executive Summary

Page 34

Implications for Processors and Operators (cont'd)

The results provide strong evidence that restaurant operators and dairy processors can grow milk sales through focused and relatively easy-to-execute programming.

Upscale/casual restaurants benefit from milk promotions, even if selling little milk currently. One steak house format restaurant promoted milk to children and adults (with no price discounts) and saw a 776% increase since so little milk was sold before the promotion.

Executive Summary

Page 35

Key Steps for a Successful Sales-Building ProgramExecutive Summary

Determine the best milk promotion for the

targeted customer.

Present and gain commitment.

Jointly plan the implementation.

Implement.

Track and report results – fine-tune for next time.

Develop promotion revenue, cost and ROI.

Step 1

Step 2

Step 3

Step 4

Step 5

Step 6

Step 7

If the restaurant is introducing pints, be sure to let your consumers know

about it.

Use P-O-P as suggested on the

"Menu for Program Design".

Offer give-aways to children to keep them

returning with their parents.

Design the promotion based on your target customer and their consumer.

Page 36

Final Thoughts

Processors and operators should review the report for specifics related to their respective operations.

The breadth of ideas that delivered strong sales increases suggest there are many such ideas. Other ideas should be tested and implemented using a similar process.

Regardless of how attractive the consumer proposition, processors and operators will need to establish implementation steps and reporting to successfully execute even simple programs.

Executive Summary

Page 37

Final Thoughts (cont'd)

Since there is relatively little milk program activity today, processors are encouraged to first learn how operators implement programs before designing specific events.

The sales growth potential from developing milk sales in foodservice outlets is large – ranging from $100-200 million annually.

Processors are encouraged to develop greater foodservice marketing and programming expertise to capture this potential.

Executive Summary

2275 Half Day Road, Bannockburn, IL 60015Phone 847.945.1155www.primeconsulting.biz

Increasing Milk Sales in FoodserviceIncreasing Milk Sales in FoodserviceFinal ReportFinal Report

March 2003

Developed for

SmartMarketing 2003