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Milk Finds Favor With Vending Patrons In Extensive Test

Posted On: 11/25/2000

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USA - Milk is finding a more prominent place alongside soft drinks and snacks in vending machines as pint-sized, gable-top cartons and classic machines give way to attractive plastic resealable bottles, innovative flavors and eye-catching, state-of-the-art equipment.

A national test of new-look milk in today's mainstream vending channel is the latest effort in a groundbreaking initiative by the dairy industry to expand consumption of milk beverages away from home, and to make them more competitive with other cold drinks. The test is in its final weeks, and the results thus far are promising.

Research into consumer behavior made the dairy industry aware that milk is generally regarded as a beverage that needs an accompanying food item. This awareness underlies the very successful "Got Milk?" campaign, which humorously emphasizes the importance of milk as an enjoyable (and sometimes life-saving) aid to snack consumption.

And that awareness readily translated to a vending concept. Three years ago, Jeff Manning of the California Milk Processor Board told V/T that "Our whole strategy is that food drives milk consumption." He suggested Nabisco "Oreo" cookies as an ideal complement to milk in a vending environment (see V/T, November 1997).

The Fluid Milk Strategic Thinking Initiative (FMSTI) was formed in 1998 to identify and overcome the obstacles that existed to selling milk for away-from-home consumption. Vending was targeted as one of several underutilized distribution channels, and packaging was seen as an area in which improvement was needed.

"One issue was that it was hard to open the traditional gable-top cartons, so we proposed to the milk industry a round, resealable, 'grab-and-go' package," said Linda Racicot, executive vice-president and chief operating officer, Dairy Management, Inc. (Chicago). DMI is involved in the FMSTI, whose sole mission is to increase the demand for dairy products.

Racicot observed that there are several practical objections to the classic milk carton, among them that cars do not have square cup-holders.

A number of milk processors responded to this challenge, rolling out attractive plastic, resealable milk containers and innovative new flavors. One that has attracted considerable attention is the colorful wide-mouth "Chugs" bottle from Dean Foods (Franklin Park, IL). It has proven popular, especially with younger consumers, in many retail venues.

FMSTI also enlisted the help of vending operators and equipment manufacturers to determine how to make milk more available to the vending consumer, how to make milk more competitive with other beverages in machines, and how to best market milk to vending locations and patrons.

The machine manufacturers did their part by creating refrigerated and refrigerated/ambient combination venders that can accommodate the new packaging. The new venders are equipped with health controls, which disable vending if a power failure results in loss of refrigeration, and are available with eye-catching milk-themed graphics. The combination venders made it possible to test the "milk and cookies" concept.


Armed with new equipment and milk packaging, the International Dairy Foods Association's Milk Processors Education Program (MilkPEP) launched an intensive field test early this summer; it will conclude early next year. Indications to date are that milk in the vending channel is not only viable for operators and dairies, but actually is the beverage of choice for many consumers.

IDFA enlisted the cooperation of three prominent regional vending operations to conduct the test. The program has been conducted by placing 25 refrigerated glass-front "Nabisco"-branded venders, stocked with three rows of sweet Nabisco snacks , including "Oreos," "Chips Ahoy!," "Fig Newtons," and "Snack Well's" , and three rows of bottled milk. Also placed at the vending sites were 8- to 12-select U-Select-It dedicated milk venders, essentially modern packaged cold-drink machines with enhanced refrigeration systems and health switches. Front-panel graphics feature celebrities wearing "milk mustaches."

Participating in the study are: Five Star Foodservice (Dalton, GA); All Seasons Services (Braintree, MA); and Custom Food Group (Dallas, TX).

"Anecdotally, the test showed that milk machines can support the velocity to make milk vending viable for both the vending operator and the milk processor," said Amy Heineman of MilkPEP. "The dairy industry" is finally waking up to vending, and the vending industry is opening its eyes to the potential of modern milk packaging, flavors and machines. This test will prove the case for milk in vending to both vending operators and to the dairy industry.

"Milk products give our customers a refreshing choice," commented Bob Smith, operations manager of Custom Food Group. "I have heard this from customers on several occasions, especially during the 110-plus degree summer we had in Texas."

Custom Food Group has a total of seven Automated Merchandising Systems "Visi-Combo" Nabisco-branded milk and sweet snack venders, and four USI dedicated milk machines on location, primarily banked with other food, snack and beverage machines, in a large healthcare unit; public and secured locations in an airport; large white-collar and blue-collar workplaces; and in an employee break room in a large retail store.

Custom Food Group's milk menu includes whole and 2% white, chocolate, strawberry and root beer (which replaced banana when the latter was discontinued by the supplier.)

According to Smith, "Chocolate milk volume is very acceptable; it's rivaling white milk." And while variety is key in any vending application, sales of the other flavored milks are marginal. Smith added that, in his market, he believes the addition of chocolate 2% milk would generate a healthy sales increase.

Ed Donoghue, vice-president, vending operations for All Seasons Services, also has found that whole white milk and chocolate milk are the top sellers in his Northeastern market area. "Coffee milk," a longtime staple in parts of New England, is also a popular addition to All Seasons' milk mix. With some variance from location to location, All Seasons also offers fat-free white milk, strawberry milk, fat-free chocolate milk and banana milk. "There's no doubt that chocolate milk is growing dramatically, everywhere," he emphasized.

All Seasons Services has 10 dedicated USI machines on location and 10 glassfront combo Nabisco-branded sweet snack and milk venders. Of that mix, two machines are placed in secondary schools, two in colleges, two in hospitals, one in a nursing home, and 13 in business and industry environments. The majority (75 percent) of the milk machines are banked alongside food machines in full-line locations, but some are placed at traditional "Four C" accounts where food is not sold.

Frank Feist, vice-president sales and marketing, Five Star Foodservice was pleased, and admittedly somewhat surprised, to report that consumers at milk vending test sites are willing to pay $1 for a resealable, plastic 16-oz. bottle of milk, double the 50 cents they paid for the half-pint cartons to which they were accustomed.

However, Feist added that the majority of machines placed for the test are at Five Star's industrial sites, where many employees have limited disposable income to devote to vending. "I think their ability to pay so much on a consistent basis is slim," he commented. "I can give them a beautiful rib-eye steak for $2 , that's a heck of a value , but they won't necessarily pay that every day. It's a question of how much Suzie has in her pocket to spend at the vending machines that day. If it's $1.50, she can't get the rib-eye, or spend $1 or $1.50 for milk."

While he's excited about the initial reception of the milk vending machines among his clients and their customers, Feist expressed concern that the dairy industry is excessively fragmented and, as a result, the distribution channel for vendible milk is not consistently functional in the company's Southeast market.

"In many cases, some flavors are not available because certain dairies don't make them for vending," he commented. "Also, we might need four strawberry or banana milks for the week, but there's a minimum order of 12. Then you run into the issues of refrigeration, inventory and perishability. If you put 12 in, you'll stale eight out, and it's unlikely the dairy will mix a case of banana and strawberry."

Vending operators have been selling milk successfully for half a century, but it always has been a specialized business or a niche within refrigerated-food vending. And many dairies have been involved in milk vending for the same period of time, often as subcontractors to vending operations. But the objective of positioning milk as an alternative cold drink, analogous to juice or water, can only be attained after a good deal of mutual education.

The dairy industry is still in the process of learning the intricacies of the vending channel and addressing the issues involved in storing and transporting milk, which is a more difficult proposition than handling shelf-stable soft drinks and other beverages.

"We understand that the challenge is that it has a shorter shelf life and the disadvantage is if the refrigerator breaks down, you can salvage soda; and on a long drive, soda is okay but milk is not," commented Scott Hallman vice-president, communications, American Dairy Association and Dairy Council. "A shelf-stable product makes sense, but in this country, where there's a refrigerator in every household, we haven't developed a need, so it isn't easy to come by." In Europe, ultrapasteurized shelf-stable milk is commonplace, but it has not caught on as a mainstream format in North America. "The challenge of changing a culture to accept a shelf-stable milk product is enormous," Hallman observed.


The difficulty is that present ultra-high-temperature processing techniques impart a distinctive taste. The obvious alternative to changing the culture is to improve the flavor of the milk. In terms of market scope, this would be worth doing. A truly shelf-stable milk in appropriate packaging could be sold through any of the nearly 2.5 million cold packaged beverage machines in locations of all sizes and types. A product that requires continual refrigeration and health-control-equipped machines, however attractive it may be, reaches a much narrower segment of the potential market.

A UHT process that does not change the flavor of the milk is feasible, and the dairy industry has taken significant strides in this direction with its development of extended-shelf-life products. But there are questions of cost that need to be resolved.

A shelf-stable milk product in the attractive new packaging certainly would level the playing field for milk in its competition with soft drinks and alternative cold beverages. Vending industry veteran Jeff West, vice-president, sales and marketing for Dean Foods' Dairy Express unit (Parker Ford, PA), told V/T that Dean Foods has developed a superior-tasting ultrapasteurized milk in its research center. The issue is whether the end user is willing to absorb the higher cost of producing the UHT product, so vending operators can make their margins.

"The extended shelf life is a benefit to operators in terms of handling and reducing waste, but the question is whether consumers will pay the extra cost to get what, to them, is the same bottle of milk," he commented. "That's something we're currently researching."

West added that, provided the market exists for the extended shelf-life product, the cost of creating a shelf-stable product will not be much higher, and that shelf-stable milk will surely open new channels for vending operators now constrained by milk's shelf-life and refrigeration requirements.

"We have the right package ['Chugs']. If we can get to the final step , shelf stable milk , cost-effectively, we're there," he said.


Introduced at this year's National Automatic Merchandising Association National Expo was an extended shelf-life milk beverage line from Nestlé USA. The new "NesQuik" ESL beverages, with 90-day refrigerated shelf-life, come in resealable 16-fl.-oz. bottles, bright yellow for immediate consumer recognition.

And consumer recognition is a critical issue in vending. Five Star's Feist pointed out that local dairies do not package milk consistently from region to region, which impairs the vendor's ability to "brand" the product and affects consumers' perception of consistency.

"The dairies are too fragmented," Feist said. "Some have nice overwraps with great colors and graphics, and others just have the dairy's name; it varies tremendously. Throughout our market, every city has a different dairy and a different package," he said.

The question appears to be whether the growing consolidation of the dairy industry , Dean Foods has acquired 26 dairies over the past five years , and the success of the "Got Milk?" campaign and related marketing programs in identifying milk, not a particular brand of milk, as a desirable beverage can offset this fragmentation and regionality. Of course, such leading consumer-product companies as Nestlé USA and Hershey Foods enjoy national brand recognition which extends to their dairy beverages.

DMI's Racicot agrees that the new generation of milk vending has just begun, and a learning curve will exist until the distribution pipeline is working smoothly. She is, however, encouraged by the enthusiasm she's seen among dairy processors.

"We've had vending machines at meetings with the milk processors, and they are excited about how 'contemporary' the machines are, and the variety of products they accommodate , those single-serve products that they want to get out there," she told V/T. "There's a fabulous opportunity to get started with milk in vending. It's very much in its infancy, but we think it will take off like gangbusters, whether the product is all lined up in a glass-front machine or in a 'bubble front' vender, where it is competitive with soft drinks."


The appeal of milk as a beverage consumed with a sandwich or sweet snack is contributing in great part to the success of the pilot test, according to participating operators. Feist believes that the pairing of milk and snacks in the Nabisco machine has generated sales of more of each product. "It's a good pair, cookies and milk, and I think it led more people to partake in buying milk, and maybe more people to buy snacks, than in the past. They like the idea of cookies and milk together; it's a natural," he commented.

Custom Food Group's Smith added that he has had requests from customers to replace slower-moving cookies with candy or small boxes of cereal, which further spurs milk sales.

Smith believes milk sales during the test have been incremental and are not reducing the volume of sales of other beverages. "From my observations, the world is becoming more health-conscious," he noted, and milk is perceived as a better-for-you alternative. "I also think milk will gain even more acceptance based on continued multimedia advertising," he added.

All Seasons Services' Donoghue concurred, suggesting that while some milk sales may be "stealing from the mix," there is major potential for incremental growth in the beverage category by adding milk. "I absolutely think people see milk as an appealing alternative," he told V/T. "The new, 16-oz. bottles have made a tremendous difference, along with the new flavors and new equipment. I think there's major potential for additional sales to people who might have bought cookies and not wanted a soda, but now they will buy that bottle of milk to go with it."

Feist noted that decision-makers at vending sites were intrigued when Five Star approached them with the milk vending machines. "When we go to customers with a proposal, they like to see something new; and this milk test filled the bill," he said.

He added that Five Star vending patrons also were excited to see the nationally famous, highly recognizable "Got Milk?" graphics on the machines. "The test elevated the presence of milk in vending machines. I think the graphics of young kids on skateboards drinking milk and popular sit-com characters and sports figures draws people to the machines," added Feist. "There is enough demand for a dedicated milk machine in strong accounts, especially with longer shelf life products merchandised so well by the new machines."


Smith told V/T that Custom Food Group's customer relations managers met with the decision-makers at each targeted location to seek their approval to participate in the study. "During their presentation, they informed the customer of the benefit of offering this refreshment package," he said. "I supplied our customer relations managers with attractive color-printed materials that display the products and the machines themselves."

Smith received these marketing aids from his dairy suppliers, and reported that the dairies have been very supportive during the test program. "Their representatives have made themselves available since we kicked off the program," he commented.

Donoghue of All Seasons Services told V/T that, while he received little promotional support from his local dairy suppliers, his clients were eager to publicize the availability of the milk machines in their in-house newsletters. "They like to let their employees know about things that they perceive as a healthy alternative," he commented. "The milk machines have been very well accepted all the way around, with our clients and the customers. I've heard nothing but positive comments."

Hallman of the American Dairy Association and Dairy Council agreed that the perception of milk as a healthier choice should only strengthen its presence in the away-from-home market. "From a philosophical standpoint, few products in vending machines have the nutrition of milk. Milk is a good choice for the body in the fast pace that attracts people to vending machines these days," he stated.

"We're very pleased, and very encouraged by this test; you can expect a lot more milk in vending in the coming year as we release the results of the study," said MilkPEP's Heineman. "We are looking to launch a test in schools in 2001; we want to look at the 'cooler' new packages both in the machines and on the lunch line."