Notes on talk by CEO of Great Lakes Cheese at DFA Conference

Gary Vanic, CEO, Great Lakes Cheese

Great Lakes Cheese packs one out of every four packets of cheese in the US. They also manufacture some of the cheese which they pack.

Gary said that he has been in the dairy industry for over 30 years and has never seen times like these.

Great Lakes Cheese does most of the sorter brands and also is well involved with the food service sector.

The company was founded in 1958 by a Swiss family. There sales total $2 Billion the total US cheese sales are $10 Billion..

They have 3 super plants as well as other smaller speciality plants.

Sales of Great Lakes Cheese have grown at three times the national average. They are very selective about which farms they source the milk from.

Employees get a stake in the business. The employees own 20% of the business and the original family own the remaining 80%.

The current recession has seen the most radical change in consumer behaviour for 30 years. There has been a 6.2% drop in the US GDP. Personal consumption accounts for 70% of US GDP.

Individual Federal Tax receipts are down 22%, corporate tax receipts are down even more.

Unemployment is nearing 10% and around 16.5% of the workforce is “underemployed” (working short time).

Consumers are afraid and holding onto their money:
• 6% of people are in panic mode buying only the absolute essentials
• 67% are looking at value
• 27% have not changed their buying habits


FOOD SERVICE
• Consumers are eating out less.
• Food Service down 3%
• Top and mid-range restaurants (white table cloth) are going through tough times
• Bottom tier OK to good
• Value-Value-Value

Value meals are being pushed hard by the bottom tier and even the mid-range restaurants are using promotions like two starters and entrees $20.

RETAIL
• Consumers are eating at home more
• Consumers are shopping a lot less frequently
• Retailers need to get consumers back in the store
• Over the last decade or so most stores have spent a lot of money on the outside of their stores – fish, counter, butcher, deli, bakery etc. At present consumers are more interested in the value items in the centre of the store.
• Store brands have taken off, leaving private brands in the dust. There is a 30% saving between store and private brands.
• Value-Value-Value

Stores are also doing promotions where if you buy a packet of private brand product (e.g. Kellogg’s Corn Flakes) and get a packet of store brand corn flakes free

Annualised cheese consumption in the US grows by an average of 2.9% per year, it rarely tops 4%, during the past year there has been a record growth in cheese sales of 6%. This is mainly due to weekly store promotions. Also consumer behaviour ihsa been fixated with value and cheese has been at a low price.

This unique situation has filled refrigerators (I have seen this for myself – cheese piled or rather heaped high). This is probably the limit of current demand. As prices go higher the promotions will slow down and stop. Consumers will then switch to other value options.

The existing infrastructure of plants in the Mid and North East are very old. The area needs new cheese infrastructure. Great Lakes Cheese have just commissioned a new “super” plant (165,000 square feet) in Adams, New York. This is the first cheese plant to be built east of the Mississippi in over 30 years.

15-20% of DFA’s milk goes through either the Great Lakes Cheese plants or the plants of their suppliers.