Drinkable Yogurt Smooths Borden's Path

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Drinkable Yogurt Smooths Borden's Path

By Pan Demetrakakes - 03/01/2016

The Borden Dairy Co. had to make a decision.

It was expanding its drinkable yogurt distribution far beyond the initial sales region of Southern California. It quickly became clear that Borden would have to sell the stuff to consumers other than the initial market of Hispanic Americans who were familiar with it under its original brand name: Lala.

So Borden had to choose between two of the biggest dairy brands in North America: Lala or Borden.

The reason it even had this choice in the first place is because Borden and Elsie the Cow, one of the most storied American advertising icons, were kept alive by a Mexican dairy company. The Borden name had gone through more than a century (see "Elsie Has Had Her Ups and Downs" on page 16) before it got revived for its latest permutation. Just before Grupo Lala, the only nationwide dairy company in Mexico, went public in 2013, it spun off its American subsidiary, Lala USA, into a separate company that quickly changed its name to Borden Dairy Co.

Drinkable yogurt is among the Lala products that Borden hopes will become popular with American consumers.

This gave Borden management a two-tiered organization, a setup that endures to this day. The bulk of sales, about $1.2 billion, comes from Borden's extensive fluid-milk operation. This is mostly a private-label business, although it does include some milk brands, Borden itself among them.

The second tier is known as "branded products" within the company. They are mostly further-processed products, but also include the Promised Land line of fluid milk and dairy products derived from Jersey cows, whose milk supposedly is especially rich in protein and calcium. These have only about $150 million in sales, but have the most growth potential.

"Frankly, internally, we almost run the businesses ... as two completely separate businesses," says CEO Steve Gorman. "That's part of the fun, though. From the standpoint of the fluid milk, it's an established customer base. Very, very strong brands, particularly in the different regions. The strategies to improve that business are related to pricing discipline, cost discipline, service. While from the standpoint of the branded business, it's developing the growth plans, executing the growth plans from a standpoint of go-to-market, to pull the product through the stores.

"That's a bit of the fun," he adds. "It's almost like I have two different jobs."

Top members of the branded-products management team include, from left: Jim Richard, senior vice president for sales and chief commercial officer; Toby Purdy, chief marketing officer and executive vice president for branded products; George Lorenz, VP of supply chain for branded products.

FROM AIRLINES TO MILK

Gorman has only been CEO since July 2014. His background was mostly in transportation, as CEO of Greyhound and executive vice president of Delta Air Lines. His only direct food industry experience had been as a Krispy Kreme executive. It was at Delta that he met Eduardo Tricio, then CEO of Lala, who ended up offering him the head job at Borden.

Gorman, a football fan, says if companies drafted like teams do, "I'd be probably listed as an athlete, as opposed to a very specific industry expert." He says his strength as an executive is his willingness to learn, as well as his knowledge of general business principles.

"I've been in a number of different industries in my career, and I enjoy immersing myself in these industries to learn new things," Gorman says.

He also is humble to the point of not allowing himself to be photographed for this article. He says his lack of background in the CPG industry made hiring his senior management staff a high priority.

"Particularly recognizing that I did not have specific industry experience, it's an interesting situation–I was looking for very capable, experienced, professional talent with the right way they approached the business and what kind of work environment they established, so that we would have good team chemistry," he says.

One of those team members is Toby Purdy, chief marketing officer and executive vice president for branded products. Purdy, who had known Gorman at Greyhound, had been an executive with Frito-Lay and Dean Foods.

Purdy says the branded business at Borden has potential for category and incremental growth, not just product growth.

"We're delivering category growth," he says. "Retailers love new products, but they are passionate about products that drive their category."


"Retailers love new products, but they are passionate about products that drive their category."

–TOBY PURDY


DRINKABLE YOGURT POTENTIAL

The Borden team decided that drinkable yogurt was one of those products. Industry sales statistics bear this out. According to sales data firm Spins, sales of yogurt and kefir drinks rose 15.4 percent nationwide, to $418 million, in the 52 weeks ending Dec. 27. Except for non-dairy yogurt, drinkables was by far the fastest-growing yogurt category. Much of this growth took place in the conventional multi-outlet grocery channel.


"As Toby and I looked at all that [sales data], we were able to make a pretty convincing story internally, to invest in our national advertising campaign."

–JIM RICHARD


That aligned with Borden's internal stats. According to Jim Richard, senior vice president for sales and chief commercial officer, drinkable yogurt sales grew 11 percent last year, and Lala's drinkable products grew 22.4 percent. This contrasts with blended yogurt, which grew only 2.7 percent in dollars and 1.1 percent in units, Richard says. (That's consistent with Spins, which has the total category rising only 3.6 percent, and dairy yogurt cups dropping 0.4 percent.)

For the Borden team, the opening was clear.

"As Toby and I looked at all that, we were able to make a pretty convincing story internally, to invest in our national advertising campaign," Richard says. "And then we've been able to get to the retailers and say, ‘This is a really unique opportunity. It's going to be healthy revenue, healthier margins, and oh, by the way, some data that we pulled together showed that it's at least 65 to 73 percent incremental compared to each of the big yogurt players.'"

The table was set by a deal with Walmart that eventually opened up Lala products to nationwide distribution. As that prospect loomed, Borden had to make a naming decision: Borden or Lala?

"We've got this momentum with Lala drinkable yogurts in Mexico, where the business is pretty enormous. Borden is a strong brand, but it's a strong brand in a different subcategory of dairy," Richard says. "We really saw the biggest opportunity to introduce Lala to the U.S consumer and smoothies to the U.S consumer through this advertising campaign."

YOGURTING

Borden is pitching Lala yogurts, especially the drinkable products, to younger, more active consumers. It's making a new verb: "Yogurting," complete with a hashtag, of course.

"As the mindset and behavior [of consumers] have changed, and we start to look at millennials, we fondly call them ‘Shapers on the Go,'" Purdy says. "Those are the consumers who have a mindset of, ‘I want something nutritious, delicious and convenient.' And that's Lala."

The campaign started at the beginning of this year and featured product placement in Jimmy Kimmel's show in which Guillermo Rodriguez, Kimmel's sidekick, leaps over a pit of snakes while chugging a Lala smoothie. Other appearances are planned with Conan O'Brien and The View. As might be expected for an ad campaign pitched at young consumers, much of it will play out on social media.

"What we're doing different is understanding the role that media plays," Purdy says. "Not just TV, but the power of digital. We did an unbelievable teaser campaign; we had 91 million impressions in a six-week span through Facebook and Instagram."

Borden still uses the Grupo Lala pilot plant in Torreon, Mexico, for R&D projects.

It wasn't just the advertising campaign that needed adjustment. When Borden began bringing Lala across the border, R&D quickly learned that it would have to adjust to American tastes.

"Originally we brought the Lala smoothie formula in Mexico to the U.S. market, and we started seeing barriers from customers," says Karla Teran, senior manager for R&D.

The problems included American consumers being less tolerant of "bad" ingredients. "That was the initial feedback that we started getting from customers. When they saw our product, they were like, ‘Oh, you have artificial flavors; you have artificial colors. Oh, that's a lot of sugar; it's too high,'" Teran says. "That was a big challenge for R&D because sales and marketing came back and said, ‘OK, we need to make something more acceptable for this market.'"

The four-pack is the primary SKU for yogurt smoothieorden wants in the grocery channel.s that B

Now that the yogurt has been reformulated with natural ingredients, the next step for R&D is developing new products and flavors. The newest flavors for drinkable yogurt, launched in January, include cherry vanilla, pomegranate blueberry and vanilla almond crunch. Borden is also about to launch Curb Smoothies, an enhanced-nutrition product with whole grains, 10 grams of protein and lots of fiber.

With the extra distribution and products comes extra production. George Lorenz, VP of supply chain for branded products, says that Borden has doubled the capacity of its drinkable yogurt production.

"It's been an adventure thus far," Lorenz says. "Obviously from the growth standpoint, we're really moving forward."

The entire Borden company feels that it's on the brink of breaking out with a major success.

"We've got a great product that's already in many of your major customers that we've just not had distribution capabilities outside of a tight geography," Purdy says. "But now we will, and we'll be able to go national."

Elsie Has Had Her Ups and Downs

Borden and its logo, Elsie the Cow, are two of the most recognizable names in American dairy, but its
history hasn't been smooth as milk.

Started in 1857, Borden prospered by producing condensed milk for Union soldiers during the Civil War. Throughout the first half of the 20th century, Borden developed into the leading U.S. dairy company and branched out into all kinds of non-dairy foods, including pasta, soft drinks and snacks. But by the 1990s, Borden was suffering from bloat, a lack of focus, and lots of debt. It fell into the arms of turnaround specialist Kohlberg Kravis Roberts (KKR) in 1995. KKR tried to right the company by spinning off the dairy operations to a unit of what would later become Dairy Farmers of America.

The remaining Borden operations crumbled away to virtually nothing. But meanwhile, in 2009, Dairy Farmers of America sold a majority stake in National Dairy Holdings, its further-processed arm, to Grupo Lala. With the deal came a processing plant in Omaha, Neb., where Lala started making drinkable yogurt for the first time in the U.S.

Grupo Lala spun off its U.S. subsidiary in 2013, which was renamed Borden Dairy Co. Many of the owners are the same northern Mexican dairy farmers who retain a majority stake in Grupo Lala. Except for a single ice-cream store in Lafayette, La., it's the only active business to bear the Borden name.