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Oakhurst campaign fights out-of-state dairy pressures

BY James McCarthy

4/1/2013

Oakhurst Dairy

Address: 364 Forest Ave., Portland
Chairman: William Bennett
Co-Presidents: John Bennett, Thomas Brigham
Founded: 1921
Employees: 195
Revenues: $100 million
Contact: 772-7468
oakhurstdairy.com

Two weeks after Texas-based Dean Foods closed its Garelick Farms processing plant in Bangor, Oakhurst Dairy launched its "Keep Your Milk In Maine" marketing campaign, displaying a 4-minute video profiling two Maine dairy families on its website. It begins with a pre-dawn image of a farmer feeding his cows, offers evidence that these are tough times for dairy farmers and encourages viewers to look for the Maine quality seal when they buy milk at the grocery store.

"Buy Maine milk and help support Maine's dairy farmers and all the people and communities who depend upon them," the video's narrator concludes. Only at the very end does Oakhurst's name appear, with the tagline "on behalf of our partner farmers and all Maine dairy farmers."

"We're not focusing in this campaign that you, the consumer, must go out and buy Oakhurst products," says Thomas Brigham, Oakhurst's co-president along with John Bennett. "It's a very soft sell to benefit the Maine dairy farmer."

Even so, the $100 million, Portland-based dairy's initiative represents a high-stakes counter-move to a corporate giant that earned almost $13 billion in 2012 and controls 70% of New England's dairy market. By closing its Garelick Farms facility, Dean Foods removed one of Maine's largest dairy processors from the state's $570 million dairy industry and eliminated roughly $600,000 it had been paying annually into the Maine Milk Pool, a fund that stabilizes Maine dairy farmers. Maine milk processors pay a 13 cents-per-gallon surcharge to the pool; the Garelick plant supplied 17% of the $3.6 million paid to dairy farmers last year.

The closure further destabilized an industry already teetering from increased operational costs and mounting out-of-state competition. For Oakhurst and other Maine-based dairies, the battle for survival centers on the dairy case and their ability to get consumers to choose milk processed in Maine.

"Every gallon that moves away from Dean Foods to a Maine processor will put money back into the Maine dairy pool and eventually back into the dairy farmers' hands," Brigham says. "Whereas if they stick with [out-of-state processors], the farmer loses…"

The premise behind Oakhurst's "Keep Your Milk in Maine" campaign is simple: If Garelick customers buy milk from Oakhurst, H.P. Hood, Smiling Hill Farm, Houlton Farms or any of the smaller Maine dairies, some of those lost Maine Milk Pool revenues might be recouped.

Dean Foods declined comment on the Oakhurst campaign, but sent the following email response to Mainebiz from Jason Schuler, senior manager of corporate communications: "We did end production at the Bangor facility in mid-January and the site is currently available to interested parties. We continue to operate a distribution facility that employs 38 people in Bangor, and we still purchase milk that is produced by Maine dairy farmers."

In a mix of new media and old, Oakhurst is using Facebook and Twitter as well as newspaper ads in the Bangor Daily News and weekly newspapers, primarily in northern Maine, to drive home the point that consumers play a key role in the sustainability of Maine's dairy industry, which in the past year has been hit particularly hard by rising fuel and feed costs.

Oakhurst, a third-generation family-run business that gives 10% of its pre-tax profits to community programs, is run by people who believe Mainers think of their state as one big village. Its "Maine milk" campaign obliquely targets Dean Foods' Maine customers who might have been buying Garelick Farms milk because of their affinity for its forerunner, "Benjie" Grant's dairy in Bangor. Grant's was sold in 1994 to Garelick Farms, then run by a Massachusetts family. Seven years later, Dean Foods bought the dairy.

With Garelick no longer processing in Maine, Oakhurst is encouraging those customers to switch allegiance to a truly local Maine dairy, primarily through social media channels.

"We see social media as the way to get the message out to as many people as possible," he says James Lesser, Oakhurst's vice president of marketing and sales. "We've had more than 25,000 'likes' on Facebook. If you do the multiplier on that [the median Facebook user has 190 'friends'] we've now reached [a wider] number of people … People trust their friends."

That might be true, but will it be enough to make a difference for dairy farmers, who even before Dean Foods' closure of the Bangor plant were losing money on every gallon of milk they delivered to a processor? Brigham and Lesser reply that only time will tell, but they are confident Mainers share their company's commitment to the state's 304 dairy farms, of which 72 are sending their milk to Oakhurst.

"Mainers, in general, tend to be loyal to local companies that can provide them with high-quality products," Brigham says.

Chris Malone, chief advisory officer for The Relational Capital Group, a brand relationship marketing firm in Philadelphia, took a look at the Keep Your Milk in Maine website and followed its Facebook and Twitter links.

"My initial reaction is that this is pretty low-key," he says. "Oakhurst is taking a subtle approach … whether defensively or offensively, it's hard to tell."

But Malone, whose sales and marketing clients have included Choice Hotels, Procter & Gamble and the National Basketball Association, says that approach could succeed in Maine, where a more aggressive pro-Oakhurst pitch might come across as too self-serving. By creating a website that focuses almost exclusively on the plight of Maine dairy farmers, he says, Oakhurst is "trying to foster a conversation" with viewers, instead of selling them on the merits of its milk.

He isn't sure how much influence that will have on a consumer picking up a gallon of milk at the supermarket, but concedes that in Maine the campaign's neighbors-helping-neighbors message might be the dairy's best marketing option. He says it emphasizes relationships, the real source of brand loyalty.

The Maine Milk Commission is a five-member consumer board that sets minimum milk prices with a goal of balancing the financial interests of Maine's dairy farms, dairy processors like Oakhurst, major retailers like Hannaford, Shaw's and Walmart and cost-conscious consumers. It's a complicated, and increasingly urgent, assignment.

"We regulate everything involved in the dairy industry in Maine," says Tim Drake, executive director of the commission. "We decide what the farmers will get for their product, what the processors will get and what the retailers will get. We only set the minimum prices … they have the right to charge more than the minimum price, and most of them do. It's a balancing act. The commission tries to walk the line of balancing fairly each of those interests every month."

Since September, the commission's monthly meetings have been dominated by concerns that rising feed and fuel costs far exceed the price for raw milk that dairy farmers were being paid by the processing plants. Even with Maine's unique tier program, established in 2004, that provides a payment from the state's General Fund directly to farmers to offset shortfalls between what processors pay and farmers' production costs, many are selling their raw milk for less than it costs to produce.

At the same time that Garelick Farms served notice it planned to close its Bangor processing plant in January, Julie-Marie Bickford, executive director of the Maine Dairy Industry Association, pointedly warned the commission "the future stability of Maine's dairy supply is in jeopardy." For a small producer (average herd size of 54 cows), Bickford noted the $30.64/hundred weight average cost of producing milk was $6 to $7 more than the adjusted raw milk price paid to those farmers. Dale Cole, a dairy farmer in Sydney who serves as the association's president, warned that "related businesses in Maine" would be at risk of folding if dairy farmers' monthly losses weren't stemmed.

Fallout from the Garelick plant closure dominated discussion at the commission's Jan. 17 meeting, with retailers adding their concerns. Marc Lessard, representing Hannaford, said the supermarket's parent company, Delhaize Group, based in Belgium, was closing 30 stores in Florida and facing new competitive pressure in Maine with the expansion of the Massachusetts-based grocery chain Market Basket into Biddeford. The growing chain of 69 supermarkets in New Hampshire and Massachusetts, he said, "will cause changes to the retail grocery landscape" that could force Hannaford's parent company to "look outside of Maine to procure milk."

Lessard suggested that if Market Basket were to sell primarily non-Maine milk at its Biddeford store — at a cost of 10 to 30 cents less per gallon — it likely would "use the extra margins to lower costs on other products in the store." Milk prices in Maine, he concluded, had reached the tipping point in comparison to prices in New Hampshire and Massachusetts for both price-conscious shoppers and the supermarkets where they buy their milk.

That prompted commission member Colon Durrell to question if Maine consumers would remain loyal to Maine milk from Maine processors if the larger retailers began shifting to cheaper out-of-state milk. The Maine Dairy Industry Association's Cole said they would. Shaw's supermarkets can be the proving ground. Shaw's store-brand label was Garelick milk, processed in Bangor before the plant closed; it continues to use Garelick as its store-brand milk, but the milk now comes from Massachusetts.

Eric Blom, spokesman for Hannaford, declined comment on Oakhurst's campaign, citing company policy against speaking about other companies' initiatives. But he pointed to Hannaford's "Close to Home" shelf tags, which help consumers find locally grown or manufactured food products, and the 3 million gallons of Maine milk it buys each year for its private label — as two efforts that are closely aligned with the general goal of Oakhurst's "Keep Your Milk In Maine" campaign.

Shelley Doak, executive director of the Maine Grocers Association, says her organization represents 350 grocery stores in Maine and wholesalers that supply those stores, including Oakhurst, H.P. Hood and Garelick Farms. The Oakhurst campaign and its focus on the plight of Maine dairy farmers, she says, hits close to home, since her husband's cousin is a dairy farmer who ships to Oakhurst. Her husband's grandfather was a dairy farmer in Waldo, she adds, and her work experience includes an 11-year stint with Maine's Department of Agriculture.

"Maine is one big village," she says. "The processors and representatives of related industries have worked tirelessly over the years, working together to provide opportunities for all sectors of the dairy industry to be sustainable. If you look at that YouTube video, that's the heart of the message that Oakhurst is attempting to portray."

Doak bluntly says that without Oakhurst and H.P. Hood, the two largest Maine-based dairy processors remaining after Garelick Farms closed its Bangor plant, "We wouldn't have a dairy industry." The reason, she says, is that dairy farmers own their raw milk until it arrives at the processing plant — so they must pay the cost of shipping it there. Transporting milk to Massachusetts or beyond for processing, she says, would be the final straw forcing many of them to fold.

The estimated 20 to 30 dairy farmers who sent their milk to the Bangor plant are now paying to ship it elsewhere, adding an expense to their strained operations.

"The clear difference between Maine and Vermont [which has lost half of its dairy farmers in the last decade] is the fluid processing capacity we still have in our state," Doak says. "Vermont farmers ship their milk out of state for fluid milk processing."

But Doak also acknowledges her members, as much as they have been supportive of Maine's dairy farmers and processors, face their own challenges in the shifting landscape of the grocery business in Maine.

Last year's closure of the Associated Grocers of Maine, she says, has had a ripple effect among the 230 independent grocery stores that are not part of larger chains. Whole Foods, Target, Trader Joe's, Walmart, CVS and the pending arrival of Market Basket in Biddeford, she says, are all relatively new players in Maine's retail food sector. While that gives consumers greater choice, it introduces a less local perspective in the wholesale buying decisions made in corporate offices well beyond Maine.

In particular, Doak says, the 115 MGA member stores near the Maine-New Hampshire border are in an "unenviable position" when it comes to selling milk because they know their customers can pay lower prices just across the border — in part because of Maine's subsidy surcharge.

Warren Knight, whose family owns and operates Smiling Hill Farm in Westbrook — one of the four remaining milk-processing plants left in Maine, along with Oakhurst, H.P. Hood and Houlton Farms — acknowledges his family's dairy is a small player in the state's milk industry.

"Oakhurst processes in one day what we do in one year," he says.

Even so, with his family's farming history in Maine dating back to the 1600s, Knight strongly supports the Oakhurst initiative. In his view, it's all about being a good neighbor and recognizing the inherent value of supporting local businesses, farmers, processors and all the agriculture-related businesses that support them.

"I'm a big fan of [food writer] Michael Pollan," Knight says. "He says, 'Vote with your fork.' You vote three times a day with your fork. The more we spend our food dollars locally, they churn in our local communities, they help our local businesses."

He believes the growing "buy local" movement in the food industry presents an opportunity for Maine dairy farmers — not only in-state but regionally.

"It's like 'Maine' lobsters," he says. "'Maine' milk has that same appeal. People who live farther south want Maine milk. We should be doing more to exploit that."

For all the complications and the very real challenges facing Maine's dairy farms, Julie-Marie Bickford of the Maine Dairy Industry Association shares Knight's optimism and believes Maine consumers and food retailers will rally behind Oakhurst's campaign.

"What's unique about Maine's market environment is that we've been able to do some creative things to bolster our dairy industry," she says, citing the Maine Milk Pool as a prime example. "We've had a strong collaboration between processors and producers to find mechanisms to help the industry … In Maine, we take care of our own."