Warren Erickson Chief Operating Officer. Background –Founded in 1930 –Now in third generation of...

Warren Erickson

Chief Operating Officer

Background– Founded in 1930– Now in third generation of ownership and

control– One of the largest independent dairy

processors in the United States– Service Iowa, Parts of Illinois, Kansas,

Missouri, Minnesota, and Nebraska

Background– Full function plant in Des Moines, IA– Products include all fluid milk, juices, cottage cheese,

sour cream, dips, yogurt, and ice cream mixes– Approximately 600 employees and $160MM in sales– For background I will show a DVD giving you some

idea of the history and processes of AE

Milk Procurement– All of AE’s milk is procured from Iowa

• Two large direct ship farms – Harlan and Atlantic

– In September 2009 we purchased 40 million pounds of milk.

– September 2009 Class I utilization was 73%

Milk pricing– AE buys milk based on components, pounds,

and classification– AE sells milk based on customer accepted

unit of measure –typically ounces– Class I price set in advance by USDA– All other pricing is set retroactively– Pricing has been extremely volitile!

• Reaction to volatility– Difficult to assure supply – Difficult to predict return on investment– Customers are unsure of pricing

Other pricing factors– Political considerations (Dairy Crisis of 2009)– Weather (NFMP, OJ)– International supply– Agriculture pricing

• Sweeteners• Milk Solids• Other ingredients

Changes in the industry– When AE was started there were over 200

dairies in Des Moines, all home delivery– 30 years ago there were around one hundred

retail routes (direct to home)– In the last 10 years the retail market has

undergone significant changes

Changes in the industry (continued)– Mass merchandisers continue to branch out

into grocery and expand their base of operations

– Dairy is more national in scope than ever before with Dean Foods, HP Hood, and other big players

Changes in the industry in Iowa– Sale of two dairy plants

• Swiss Valley Dubuque Plant – Prairie Farms• Wells LeMars Plant – Dean Foods

– Increased milk supply in Iowa– Continued proliferation of mass

merchandisers

Challenges– Customer changes in taste and packaging

preferences over time– Product mix variations on a seasonal basis (only

meaningful comparison is year-to-year, month-to-month is too volatile)

– High level of capital investment required for any changes

– No hedge for risk protection on long term contracts

Why AE is different– We are innovative and willing to take risks– We are the local alternative!– We promote our brand and our service– We offer a full line of quality products

Marketing– We promote our brand to the end customer– Target market is women 25-49; mom’s are the

gatekeepers to the household refrigerators!– Stress the health benefits of milk and dairy

products– This target is skeptical of technology

Health Benefits of Milk:• Milk is dubbed “nature’s wellness drink, its nutrient rich

and contains 9 essential nutrients including: Calcium, Vitamins A, B12, D, Niacin, Phosphorus, Potassium, Protein and Riboflavin 

• Overall healthier diet – adding milk instantly boosts nutritional value of meals and snacks

• Healthier weight – regular milk drinkers on average weigh 17 lbs. less, protein in milk satisfies hunger

Health Benefits of Milk:• Better bones – the combination of calcium and vitamin D

helps prevent osteoporosis • Lowers risk of heart disease – the calcium and

potassium all assist with normal heart function• Recovery aid – chocolate milk is best beverage when

consumed within 2 hours following exercise because of the unique combination of protein and carbohydrates

New things for AE:– New flavors (Orange Grapefruit Yo Lite,

Raspberry White Chocolate Almond Lowfat Yogurt, Chedder French Onion Dip)