Slot debt consolidation

A battle royale between a handful of billion-dollar dairy processors is being fought one acquisition at a time. Meanwhile, Northfield, Ill.-based Kraft Foods Co. maintains its title as the overall top-selling dairy processor in the country.

To retain its No. 1 position on Dairy Field's annual Top 100 list of dairy processors, Kraft tallied 1999 dairy sales of $4.39 billion. Kraft's 1999 cheese and cultured products sales increased by 2.1 percent over 1998 sales of $4.3 billion.

The fight of the millennium is expected to take place in 2001, when relative newcomer Suiza Foods Co. will challenge Kraft's five-year hold on the Top 100 title.

Suiza came within one round of being a contender for this year's top slot. But the Dallas-based company's one-two combination of acquisitions and joint ventures created 1999 dairy sales that fell just short of a winning blow against Kraft.

While No. 2 Suiza Foods Co. reports pro-forma 1999 dairy sales of $6 billion, its actual 1999 dairy sales came in at $4.24 billion - $150 million dollars short of stripping Kraft of its title belt.

Suiza's 33.5 percent sales jump from $2.82 million in 1998 sales was enough to edge out rival Dean Foods Co. for the first time.

While Franklin Park, Ill.-based Dean beat out Suiza on last year's Top 100 by a scant $180 million, 1999 sales resulted in a more favorable outcome for Suiza. This year, Suiza's dairy sales surpassed Dean's by nearly $1.04 billion.

As a result, Dean slips from second to third place in this year's Top 100 rankings. No. 3 Dean chalked up $3.2 billion in dairy sales for its fiscal year ending May 28, 2000; while its ranking dropped one spot, Dean posted a 6.25 percent sales gain over the previous year's sales of $3 billion. The company reports that sales increases were driven by improved margins as well as the success of its single-serve Dips for One product.

Meanwhile, Land O'Lakes Inc. maintains its slot as the No. 4 processor. Finished dairy product sales of $2.74 billion in 1999 dipped by 2.15 percent when compared to the previous year's sales of $2.8 billion. DF anticipates the Arden Hills, Minn.based cooperative LOL's finished dairy products sales for 2000 will dip further as a result of the recently finalized divestiture of its $310 million in annual sales fluid milk business to Dean.

Cooperative Dairy Farmers of America (DFA) likewise retains its position with lower finished dairy product sales in 1999 than in 1998. No. 5 DFA posted $2.07 billion in dairy product sales in 1999, a 13.75 percent drop from 1998 sales of $2.4 billion. Company officials attribute the sales loss to plant closures and sales as well as the restructuring of several joint ventures.

For a quick look at the rankings of other processors on this year's Top 100, including a comparison with 1999 rankings, consult the index on page 36.

Tag Team

Dairy processors are entering and exploring complex alliances and joint venture arrangements. It's all part of a strategy to serve consolidating retail and foodservice customers on a megaregional and national basis.

Notable among the processor alliances is the strong link forged between No. 2 Suiza and No. 5 DFA. Following previous Suiza-DFA ventures on the East and West coasts, Suiza's acquisition of Southern Foods Group, Dallas, was finalized in January 2000. The blockbuster deal - Southern Foods was No. 10 on the 1999 Top 100 - adds $1.15 billion to Suiza's 2000 dairy sales.

"Our customers want and expect a consistent and uniform approach to the business across markets in terms of quality, service and pricing. This gives us the ability to give them that approach," notes Gregg Engles, Suiza's chairman of the board and chief executive officer.

DFA previously owned 50 percent interest of Southern Foods. Today, the co-op holds 33.8 percent interest in the Suiza Fluid Dairy Group. Suiza retains 66.2 percent of the venture; its Morningstar Foods division and international businesses, including the original Puerto Rico dairy, likewise remain wholly owned Suiza subsidiaries.

Meanwhile, No. 3 Dean and No. 4 Land O'Lakes have formed a less-inclusive partnership in conjunction with the Dean purchase of the Land O'Lakes fluid milk division. Completed earlier this month, the deal includes Dean's purchase of all assets of the fluid division, including five upper Midwest processing plants. Land O'Lakes will continue to supply raw milk to the facilities in a long-term agreement.

"The acquisition of the Land O'Lakes fluid dairy operations is another key step in Dean's long-term strategy of integrating strong regional dairies into a cost-efficient national dairy company that is better able to serve the consolidating retail sector and the individual consumer," says Howard Dean, chairman and chief executive officer of Dean Foods. "In terms of geography, strategy, operations, R&D capabilities and organizational culture, it is hard to imagine a better fit between the two parties."

Dean Foods and Land O'Lakes also created a separate 50/50 joint venture to market and license value-added and functional-food-type fluid and cultured dairy products. The goal is to expand the Land O'Lakes brand nationally under long-term licensing by Dean. The independent entity will hold the rights to develop, market and license Land O'Lakes products such as cream, half-and-half, sour cream and ESL products (including the newly introduced Grip 'N GO(TM) single-serve milk) in the United States.

No significant changes are expected to be made to Dean Foods' acquired LOL plant operations, employment or Land O'Lakes brand positioning.

Meanwhile, in a cheese-meetscrackers scenario, No. 1 Kraft Foods faces some changes to overall operations following its parent company Philip Morris Cos. Inc.'s anticipated October 2000 acquisition of Nabisco Group Holdings. Nabisco is expected to become part of Kraft Foods Co. The combined Kraft and Nabisco business would have resulted in total 1999 proforma sales of $86.6 billion.

Kraft Foods is expected to undertake an initial public offering (IPO) in early 2001. Kraft Foods will offer less than 20 percent of the newly combined company in the IPO; funds raised will be used to retire debt from the Nabisco acquisition. After activists organized Kraft Boycott actions in all 50 states, Philip Morris shareholders called for a spin-off of Kraft from the company's tobacco interests during the annual shareholder meeting in April 2000. (Company officials deny the spin-off is related to a tobacco-related class-action suit in Florida.)

"The acquisition of Nabisco coupled with our plans for an IPO of what will be the world's most profitable food company is truly compelling from a strategic, financial and shareholder value perspective," says Geoffrey Bible, chairman and chief executive officer of Philip Morris. "The IPO of Kraft adds an exciting opportunity for both Philip Morris and Kraft."

Among the latest scoops on the ice cream side of the dairy business is the formation of Ice Cream Partners USA LLC, San Ramon, Calif. The company was formed in October 1999 as a 50/50 joint venture between The HaagenDazs Co., a Minneapolis division of The Pillsbury Co., and Nestle USA.

The deal will create distribution and manufacturing savings while pairing the premium adult Hagen-Dazs brand with Nestle USA's largely kid-focused, water-based flavored product line.

The new company weighs in as No. 24 on this year's Top 100. (HaagenDazs checked in at No. 32 on the 1999 Top 100, while Nestle USA's other dairy interests retain a spot on this year's list at No. 28.)

More recently, Unilever USA's purchase of South Burlington, Vt.-based Ben & Jerry's Homemade Inc. solidified the multi-national's position in the U.S. ice cream industry. Unilever also owns Green Bay, Wis.-based Good Humor-Breyers, No. 15 on the 1999 Top 100. Ben & Jerry's checked in at No. 57 last year. Other dairy related products under the $45 billion in worldwide sales umbrella include Country Crock and Brummel & Brown spreads.

While each of the companies remains wholly owned subsidiaries, sharing an owner means sharing a listing. As the Top 100 is a dairy industry resource published in July and utilized until the following year, DFs new listing for Unilever ranks the company by the combined 1999 sales of Good Humor-Breyers and Ben & Jerry's, putting Unilever in the No. 11 position.

What's in a Name?

A combination of initiative and industry consolidation results in the annual debut of new names on DF's Top 100. The Top 100 2000 features nine new entries. Meanwhile, some familiar names have vanished.