Founded in Australia 18 years ago, The a2 Milk Company established a U.S. market presence in 2015. To gain a deeper understanding of its growing A1-free market presence both on milk procurement and commercial sales, we interviewed Blake Waltrip, chief executive officer in the U.S. for The a2 Milk Company.
How did The a2 Milk Company begin?
The a2 Milk Company was founded in 2000 by Corran McLachlan and New Zealand dairy farmer Howard Paterson. McLachlan was studying different human populations and their health issues. Along the way, he identified the unique difference between the A1 and A2 milk proteins and the potential impact on consumers.
For the first seven years of the company’s existence, The a2 Milk Company really focused on scientific discovery and developing patents centered on a2 Milk. About 10 years ago, a2 Milk actually became a market brand available on grocery store shelves in Australia. If you fast-forward to today, the a2 Milk brand now garners 10 percent of fluid milk sales in Australian channels.
As a matter of fact, the Australian market is the only known developed dairy market in the world that is exhibiting market growth for dairy-based fluid milk sales. To us, that’s fascinating, as we developed extremely strong brand equity and consumers have really embraced the concept of the A2 milk protein attributes.
The a2 Milk Company created a partnership with New Zealand’s Fonterra co-op. Is that your first formal partnership?
The a2 Milk Company has always been focused on a sustainable business model and a dairy model that treats all animals with the highest standards of animal welfare. This is why we partner with Validus to certify all of the farms providing A1-free milk for our brand. We only own one processing plant on a global basis. We work on a co-manufacture basis from a processing standpoint. From a farming standpoint, we’ve always worked with family dairy farms.
The way that we view the Fonterra venture is it’s one of the biggest global validations of the A1-free milk category. At first, Fonterra was very skeptical of A2 milk protein and didn’t embrace it. More recently, Fonterra came to realize A2-A2 milk has a real benefit, and they wanted to be part of this project.
In Australia and China, the a2 Milk brand is one of the major players in infant formula. In Australia, over 60 percent of consumers who purchase a2 Milk do not have any known dairy intolerance. They’ve come to know the product as a better quality milk proposition.
But let’s be clear, in the U.S., we know that there are a lot of people with dairy intolerances. The facts, independent from our company, show that between 25 to 30 percent of the U.S. population has self-diagnosed some sort of dairy intolerance. With that in mind, you don’t have to look very far to understand one of the reasons behind the decline in fluid milk consumption. That’s a big issue if you have roughly 75 million people in the U.S. claiming to have a dairy intolerance.
We believe that A1-free milk can bring people back to dairy. That, to me, is one of the most significant opportunities in the U.S. right now. Not just from a consumer perspective, but also from a farmer perspective.
When did the brand debut in the U.S.?
In mid-2015, we soft-launched the a2 Milk product in California by conducting market tests to educate consumers and have them understand the a2 Milk proposition.
After establishing ourselves in the California market, we were approached by the largest retailer in the southeast U.S., Publix. That retailer had read about the a2 Milk proposition and was interested in the product. We launched the product in the Southeast in March 2017. We also populated our product in all the additional retailers beyond Publix in the Southeast.
Most recently, we have moved up into the northeastern U.S. and launched a2 Milk with all major retailers. We have supported that introduction with a national advertising campaign as well as a broadcast-heavy campaign in the Northeast.
You can imagine, for the average consumer, this is kind of a new concept. A lot of people didn’t realize the difference . . . that there are two proteins in milk. We have millions of consumers, on a global basis, who have come to the company and said, “I couldn’t drink milk before. I’m drinking a2 Milk, and I have no issues with it. And so now I can drink milk again.”
How does the company procure milk?
We first approached farms that were open to the idea and explain that, on average, roughly 30 percent of their cows are already A2-A2 producing. If there was mutual interest, we worked with the farmer to identify those cows that were producing A2-A2 milk protein.
We now work with dairy farm families in the Northeast, Southern California, Nevada, and Nebraska. Again, we developed relationships with these farms after they embraced the A2 milk protein concept.
When developing a milk procurement arrangement, we conduct genetic testing on the herd. On average, we have found, regardless of breed, that about 30 percent of cows are producing A2-A2, about a third of cows are producing A1-A1, and then the remainder produce a blend of A1 and A2 milk proteins.
Once we identify the cows, we work with the dairy farmers to ear tag and segregate these cows into separate pens. Then, we ensure a clean supply chain throughout the entire process. We have farmers clean the lines before milking and clean out the tanks before filling. The processor does the same thing.
It’s not just about genetically testing the cows, it’s also about testing the milk through the entire process to ensure that the end product delivers a truly A1-free product to consumers. This is a supply chain that requires a great deal of investment, time, and testing rigor to bring a truly A1-free product to consumers.
How are dairy farms selected to supply milk to The a2 Milk Company?
These days, we get a lot of calls from dairy farmers. We always chat with them, and we let them know that as we build this brand proposition, we certainly will be interested in working with more farms.
We have some very dedicated family farms that have worked with us, and they have done a phenomenal job in helping us develop this early supply chain in the U.S. The product and market are still relatively new in this country. We are also proud to work with farmers who share our values — all our family farms are independently certified by the Validus Group to ensure they meet strict animal welfare guidelines.
Are you paying a premium to the farmers who supply milk?
We do pay a premium at the farm gate. We don’t disclose the premium, but with every farmer who we work with, a premium is paid at the farm gate. It’s the right thing to do.
The premium helps compensate farmers for the extra work involved. The dairy farms we’ve been working with seem extremely happy with our relationship and the growth proposition.
Next issue: Does A2 milk protein deliver?