Dean Foods Plans to Buy Alta Dena Dairy in California Expansion Effort
The country’s largest dairy processor and distributor, Dean Foods Co., said Monday that it will buy Alta Dena Certified Dairy for an undisclosed sum, another signal that food distribution is consolidating alongside that of the country’s giant supermarket chains.
Alta Dena, which since 1989 has been owned by Bongrain North America, processes and distributes milk and other dairy products throughout Southern California, with sales of about $200 million.
Dean, which is expected to generate $4 billion in sales, has been seeking to capture a piece of California’s dairy market. At the end of last year, the Franklin Park, Ill.-chain bought the family-owned Berkeley Farms, based in Hayward; 18 months ago, it took over American Stores Co.'s dairy business, which supplies milk and ice cream to Lucky Stores in California and Nevada.
“Alta Dena was Chapter 3 of our California strategy,” said William McManaman, Dean’s chief financial officer. “We wanted to make sure we got into California in a large way because California is both the largest producing state and the largest consuming state, and we felt it was a great opportunity.”
McManaman said Dean will continue to operate Alta Dena under its own name, as it has done with its other acquisitions, and will make few if any changes to products currently offered--including Alta Dena’s well-received non-growth-hormone milk products.
The plan is for Dean to add its products under the local companies’ names. For example, Dean’s “Milk Chuggs,” single-serving plastic containers of plain and flavored milks, will be marketed locally as an Alta Dena product.
Analysts said Dean’s acquisitions make perfect sense in an era when the giant supermarket chains are growing bigger still.
Last year, Kroger Co. announced plans to buy Ralphs Grocery Co. from parent Fred Meyer Inc. and Albertson’s said it would buy American Stores Co., which owns Lucky. A year earlier, Safeway Inc. took over Vons Cos. before later moving into Chicago to buy Dominick’s Supermarkets Inc. Roughly 10% of the supermarkets in the United States have merged just in the last six months.
As those chains move into a regional business, they have increasingly sought to be served on a regional basis, streamlining their buying and guaranteeing some consistency across their operations. That has meant a phasing-out of the old, independent dairies, as bigger companies such as Dean and rival Suiza Foods Corp. of Dallas snap them up to better serve their grocery clients.
But for companies such as Dean, the shift has not come without growing pains, said John McMillin, an analyst with Prudential Securities.
As Wall Street worried about higher milk prices and the cost of Dean’s acquisitions, the stock has fallen from about $60 at the beginning of last year to $38.06 on Monday.
But the dip in Dean’s roller-coaster ride makes it a good buy, McMillin said.
“I think their strategy is fundamentally sound,” he said. “I think ’99 will be a comeback year because of purchases just like this.”
Consumer groups that have railed against California’s milk prices, among the highest in the country in spite of its status as the No. 1 dairy producer, said they have little hope that further contractions in the processing arena will bring any relief.
“There’s very little competition already at the supermarket level on milk, and this makes it even worse,” said Elisa Odabashian, a policy analyst with Consumers Union in San Francisco, the nonprofit publisher of Consumer Reports magazine.
The prices paid to dairies for milk will fall 50 cents per gallon in April due to an increase in supply, and some industry watchers are hopeful that at least a portion of those savings will be passed on to consumers at a retail level. California’s largest grocery chains, however, have not always passed on the full decrease in farm prices to consumers. Either way, prices will be higher than they were last summer and are likely to continue to rank among the highest in the nation, consumer groups have said.
Executives at Alta Dena, whose parent is a unit of the France-based Bongrain, could not be reached for comment.