a2 Milk Company nearly doubles revenue in US aiming to reach $100m annual sales as next milestone

By Mary Ellen Shoup contact

- Last updated on GMT

Photo: a2 Milk Company
Photo: a2 Milk Company

Related tags: A2 milk company, COVID-19, Dairy milk

With more than 20,000 stores in its retail footprint, new packaging and products, and increased trend spend, a2 Milk Company is moving closer to reaching meaningful scale in the US since its launch in select California retailers five years ago, said CEO Geoffrey Howard Babidge.

Including discontinued operations in the UK, total company revenue reached NZ$1.73bn in FY2020 (+33% compared to FY19) driven by strong growth in its key markets of China, Australia and New Zealand, and the US.

“The US continues to be a strategically important market for the company given the significant and growing premium milk segment,”​ said Babidge during the company’s FY2020 earnings results​ call.

“As we build towards reaching meaningful scale in the USA, our initial milestone for the business continues to be US$100 million of annualized sales.”

a2 Milk nearly doubled its revenue (+91.2%) to US$42.95m in FY2020 (year ending June 30, 2020) in the US market largely thanks to increased brand awareness driven by its “Enjoy Milk Again”​ national advertising campaign and new packaging, both of which have received positive feedback from consumers, noted Babidge.

Its distribution footprint grew from roughly 17,500 stores at the end of December 2019 to 20,300 retailers in FY20 (including Albertsons, Costco Kroger, Target, Walmart and Whole Foods) with average sales velocities between 14% and 74% in key accounts.

“Encouragingly, over 50% of our sales growth was driven from existing stores,”​ said Babidge.

New vs. Old packaging

a2-milk-cartons

a2Milk_oldpackaging

COVID-19 sparks price conscious shift

The global COVID-19 pandemic had an impact on the company across its key regions especially the US, which could have a negative impact on a2 Milk's long-term financials as consumers watch their grocery budgets more closely, said Babidge.

In its 2020 Private Brand Intelligence Report​,​ private label market intelligence firm Daymon found that consumers have been increasingly turning to private label brands throughout the pandemic with one-third of shoppers saying that private brands comprise a majority of their shopping carts, an 11% increase over the past two years.

“It is important to note that the impact of COVID-19 on the US market overall has been significant, particularly in Q4. We are seeing as a result of the economic uncertainties, that that’s having some impact on the view of consumers,”​ he said.

“Particularly we are seeing focus on them being more value focused.”

Positioned as a value-added premium product due its purported tummy-friendly health benefits, (the company claims the absence of the A1 beta casein in its dairy milk makes the product easier on digestion) a 59-ounce carton of a2 Whole Milk costs $3.99 (on Target.com) compared to $0.85 for a half-gallon of conventional whole milk under Target’s private label, Good & Gather.

Taking into account the recessionary economic climate in the US market, a2 Milk has adjusted its FY21 financial outlook, shifted its focus to in-store promotions and adjusted its sales and marketing plans.

“In FY21 we will shift our focus away from broadcast advertising media to a greater emphasis on in-store price and activation to drive demand. We are planning promotional initiatives in conjunction with our key retail customers with the objective of further building our facings and sales velocity,”​ said Babidge.

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