With per-capita consumption continuing to decline and tough competition from larger retailers, the fluid milk category remains a challenging one for convenience store operators. Still, the segment shouldn’t be overlooked, owing to its good margins, promising outlook for emerging better-for-you products and the opportunity to cater to consumers searching for a convenient shopping experience.

According to the NACS State of the Industry Report of 2019 Data, average per-store sales of milk declined 4.4% to $31,019, from $32,435 in 2018. At 1.2% of in-store sales, fluid milk represented “a small but still top 10 category in terms of percentage of store sales,” remarked Jayme Gough, NACS research manager. Nevertheless, the category offers “decent margins at 30.91% and faster inventory turnover than any other category,” she continued. While fluid milk isn’t a category often promoted by c-stores, “customers expect it to be able to find it in store,” Gough said, providing retailers the opportunity to capitalize on planned shopping visits. Indeed, nearly 98% of all c-stores stock fluid milk, according to the 2019 NACS State of the Industry Report.

Rachel Kyllo, senior vice president, marketing innovation, at DFA Dairy Brands, the Dairy Farmers of America co-op, concedes that while per-capita milk consumption continued its years’ long decline in 2019, the overall dairy segment holds opportunity. “There’s a lot to be optimistic about as U.S. consumers are eating more dairy, with products like cheese, butter and yogurt driving substantial growth in per-capita consumption and reaching a record high in 2019,” Kyllo said.

That’s certainly the case at the Corner Post in Watford City, North Dakota. “We don’t sell a lot of traditional milk,” reported manager Shasta Fuller, but yogurt is a growth area. “As long as it’s single serve, it does well in our store,” she noted. “We’re also seeing a steady rise in protein-enhanced shelf-stable milks, thanks to the high-protein, low-carbohydrate trend,” Fuller added.

At Jiffy Trip, the 28-unit Oklahoma chain, a recent emphasis on pints and quarts of fluid milk has proven to be profitable. According to Steve Morris, director of merchandising and marketing, “We don’t use milk as a loss leader.” Rather, the stores focus on the smaller containers of flavored and 2% milk, with some locations devoting an entire cooler shelf to quarts of chocolate milk alone. “Some stores sell 100 units a week,” the retailer said, “which is pretty similar to sales of products like Coke and Mountain Dew.”

Millennials, Gen Zers and higher-income households increasingly seek out more premium, better-for-you products like plant-based milk alternatives.

Competitive Concerns

Convenience retailers agree that when it comes to fluid milk sales, it’s increasingly difficult to go head to head with the likes of the big-box stores. “I can’t compete with Walmart, who can sell a gallon of milk for $1.99, when my cost is $3,” remarked Matt Paduano, owner of Lakeport Market, with two locations in New York. “But at least I can benefit from the convenience factor,” he continued. “Unlike at Walmart or Wegman’s, our customers don’t have to walk to the back of a massive store just to pick up a gallon of milk.” To keep his loyal milk customers coming back, Paduano makes sure the stores’ milk selection is “in stock, rotated and everything is clean,” he said.

Similarly, Daniel Moran, category manager at California’s Rotten Robbie chain, said his stores can’t compete on price with local groceries when it comes to the milk category. “For that reason, it’s a small category for us. We keep no more than one shelf and just a few SKUs for our small dairy customer base,” he remarked. “At best, our milk sales are flat.” Non-milk dairy items aren’t a big focus at Rotten Robbie either, also due to pricing challenges. “We prefer to stick to those products that turn quickly,” the retailer explained.

The largest contributor to the category in c-stores is flavored milk, accounting for 32% of sales, followed by 2% milk, at 21% of sales. But other subsegments, including plant-based milk alternatives, are emerging. “The c-store shopper is following many of the same consumer trends that we’ve observed in other channels, namely a shift toward cleaner-label, lower-sugar, plant-based alternatives that align with a healthier lifestyle,” remarked Suzanne Ginestro, chief marketing officer at Califia Farms, the marketer of refrigerated nut-based milk alternatives. “This trend is particularly strong in metropolitan areas, where millennials, Gen Zers and higher-income households increasingly seek out more premium, better-for-you products like plant-based milk alternatives and more. These groups expect to find their plant-based favorites and other healthier options where they shop, including at convenience retail.”

At Lakeport Market, some better-for-you dairy products are faring well. “We’ve seen an uptick in sales of Chobani Greek yogurt,” Paduano said, along with lactose-free and almond milk. Jiffy Trip’s Morris added that while there have been some requests for oat milk at some of the stores, only the chain’s urban locations currently offer plant-based milk alternatives. But he sees potential for the alternative products going forward. “As better-for-you takes hold, including trends like the keto diet, we hope sales of these products will increase,” Morris said.

We’re also seeing a steady rise in protein-enhanced shelf-stable milks, thanks to the high-protein, low-carbohydrate trend.

Pandemic Spike

As with a number of other in-store categories in 2020, fluid milk was impacted by changed consumer shopping habits due to the COVID-19 pandemic. “We’re seeing significant growth across the entire dairy category,” including double-digit volume upticks for items like butter and cheese, DFA’s Kyllo said in November. “On the fluid milk front, while we saw a big retail spike at the beginning of the pandemic, sales volumes at retail have leveled out and are up about 2.7% for the year.”

According to NACS’s CSX data, milk sales per store per month trended higher from March through July last year, compared with the two previous years. “In response to the pandemic, customers have been looking to convenience to provide household staple items, like milk,” explained Gough. That shift benefited plant-based milk alternatives, added Ginestro. “With the pandemic, we’re seeing more people placing an emphasis on self-health or self-care, scrutinizing their food labels more closely and trying to reduce ingredients like sugar, saturated fats and cholesterol,” she noted.

C-store operators, meanwhile, reported mixed results for dairy sales at their stores in 2020. “It’s been a rollercoaster for us,” Paduano said. “For the first month to six weeks of the pandemic, our sales went through the roof and tripled. We found that people didn’t want to go to Walmart or grocery stores for their fluid milk needs,” the retailer noted. By the fall, demand had settled back down, but sales were still up year to date, Paduano said. Morris also reported higher sales of fluid milk in pints and quarts at Jiffy Trip early in the pandemic. Sales of eggs, cheese and butter, however, suffered, he added, as consumers stocked up on those items at grocery stores. At Rotten Robbie, meanwhile, the pandemic has adversely impacted dairy sales. According to Moran, dairy sales were down 10% through October. “People are stocking up so much, there aren’t any last-minute outs,” he said.

I can’t compete with Walmart, who can sell a gallon of milk for $1.99, when my cost is $3.

Building Sales

Even though milk accounts for just a small portion of store sales, thoughtful merchandising and promotional support can add lift to the category. Both Rotten Robbie’s and Jiffy Trip offer “two fors” on some milk purchases. Jiffy Trip’s offer—a 25-cent savings on two pints or quarts—yields market basket increases, Morris said. At Lakeport Market, Paduano likes to keep dairy offerings fresh, so extra facings are added for popular seasonal items, such as eggnog during the holidays. Consumer messaging is also important in driving sales, according to Ginestro. She points to increased signage at the pump and in windows.

“Milk and dairy foods have an inherent role in health and wellness,” remarked Kyllo. “C-store operators interested in growing dairy sales should explore innovative products and grab-and-go offerings that will deliver better-for-you snacking options that appeal to different consumer targets and demographics.”

Jiffy Trip is a good example of a c-store operator looking to grow its milk sales. According to Morris, a recent analysis of various in-store categories found that the profit generated from just three shelves of fluid milk warrants opportunity for allocating more space to the products. “We’re going to try to do a better job with our gallon program,” the retailer said, “and give dairy the respect it deserves.”

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.