WATCH: The a2 Milk Co... ‘There's been a realization that there is going to be a significant sub-segment of dairy that's A1-free’

25-Mar-2022 - Last updated on 25-Mar-2022 at 17:02 GMT

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Billed as friendlier on the gut, The a2 Milk Co's milk comes from cows that only produce A2 beta casein protein. But how much science is behind it, and what share could it ultimately take of the US fluid milk market? We caught up with Blake Waltrip, US CEO at The a2 Milk Co, at the Natural Products Expo West show.

Around 30% of cows produce just A1 beta casein, and 30% just A2 beta casein, with the rest producing both. However, as milk from all of these cows goes into the same pool, dairy milk typically contains A1 and A2, says The a2 Milk Co, which claims A1 may be responsible for mild digestive discomfort experienced by milk drinkers that cannot be attributed to lactose intolerance or milk protein allergy.

“I now sit on the IDFA fluid milk board, and I think there's been a realization that there is going to be a significant sub-segment of dairy that's going to be A1-free," claimed Waltrip.

"Six years ago, nobody had ever really heard this. Fast forward to today, and there are five or six different brands [exhibiting at Expo West] that have an A2 component now, added Waltrip, who claimed A2 milk had been one of the key growth drivers in recent years in a fluid milk category that has been declining since the 1970s.

“Innovation is the only way out of long term declining commodity categories… and we’ve been able to establish a very strong growth business over the last five years. We're now in close to 27,000 doors across all channels of trade [in the US].”

Private label competition

The fact that major retailers have recently launched private label A2 milk products validates what The a2 Milk Co has been doing, argued Waltrip, who insisted their entry had not had a major impact on The a2 Milk Co, although US revenues for the six months ended Dec 31 were dented by “the loss of certain regions of a major club channel customer due to private label substitution,” according to its latest financial report.

However, average velocities grew within key accounts, while recent launches (a co-branded chocolate milk with Hershey, and a2 Milk Half and Half) “have seen significantly higher than expected listings in trade,” said the company, which intends to increase pricing to improve gross margins and offset higher distribution costs this year.

According to Waltrip: “We always planned in our strategic plan that our success was going to breed competition… and we expect more competition, both local regional players, as well as national retailers coming in with private label. But as long as we establish a really strong brand equity, which we're investing in, that’s the best defense.”

a2 hershey milk — The a2 Milk Company recently teamed up with Hershey to launch a co-branded chocolate milk combining Hershey’s cocoa with 2% reduced fat a2 milk. Image credit: Elaine Watson

‘Hershey's approached us…’

The partnership with Hershey, meanwhile, is an exciting development for The a2 Milk Co, he claimed: “Hershey's approached us… We have both a gable top multi-serve product that's going across traditional grocery, and an aseptic single serve product that we just launched in Sam's Club. It’s early days, but it's going extremely well.”

a2 Milk Half and Half, which has been accepted in over 6,000 stores, is also doing well, with “velocities exceeding expectations in the majority of accounts,” according to the company’s latest financial report.

“The half and half category, which is a billion dollar plus category growing at 6% a year, had had no real innovation for 20 years,” claimed Waltrip. “And so we saw a great opportunity when we were originally in the creamer category [a2 milk creamers were launched in the US in 2019 and subsequently discontinued] which got super crowded, to pivot over into half and half, which is much more in tune with the brand equity, a clean, simple, cream and milk proposition with no added sweeteners.

“It's an innovation in the category and retailers have welcomed it with open arms. And in some of the earliest retailers, we're seeing the same velocities as the milk already.”

a2 milk half and half — While a2 Milk Co creamers did not set the world on fire, the company recently pivoted to half and half, with great success, says Waltrip. Image credit: Elaine Watson

Who is buying a2 Milk products, and why?

What has become clear as the a2 Milk brand has continued to grow in the US, said Waltrip, is that while many consumers are buying it because they have trouble digesting dairy, others just see it as a premium product.

“What we've found over time is that consumers have taken the fact that this protein is a more digestible protein, and they've elevated that to effectively a better protein and a better milk. We see a lot of our competition now with organic…

“We obviously played back and forth with [ultra-filtered high protein dairy milk brand] fairlife to some extent, nowhere near as much with the lactose free market [as the company originally expected]. And then you have a lot of people that are trading up from traditional conventional dairy into premium value added opportunities.”

a2 milk expo west 22 — The a2 Milk Company – which is based in New Zealand but made a big push into the US market in 2015 - has developed a genetic test to identify cows that only produce A2 beta casein protein (most milk contains A1 and A2), so their milk can be segregated. Image credit: Elaine Watson

Clinical studies

To date, four human clinical trials on A2 milk have been published in peer-reviewed journals in recent years (see box below) that lend some credence to the company’s claims that some people who believe they can’t tolerate lactose (milk sugar) should really be blaming their digestive discomfort on the A1 beta casein protein in milk.

According to Waltrip, “It's never about one study… there's a body of evidence, it's pretty clear that there's a digestive benefit associated with the A2 protein, and we've had to work with regulators here in the US to share that with them.”

‘We got a lot of pushback from dairy until they realized that we're just here to bring innovation into dairy and have more people drink milk’

As for the wider dairy industry, while not everyone is convinced of the science behind A2 milk, attitudes are changing, he said: “Early on, we were viewed with a lot of suspicion … we got a lot of pushback from dairy until they realized we're just here to bring innovation into dairy and have more people drink milk.”

The size of the prize

“The US fluid dairy is about a $13bn market,” said Waltrip. “The premium/specialty category is $3-4bn, so we think there's a very significant addressable market for us, not just in fluid dairy, but also in other wellness-based propositions that leverage the A2 protein.

“Think about the ability to extend beyond traditional dairy into protein-based products based on this A2 beta casein protein. Most of the products in the category are really focused on whey-based proteins, and we think there is a real opportunity for this brand to extend beyond where it's at now.”

Clinical evidence: Four human clinical trials conducted in China, Europe and the US on a2 Milk have been published in peer-reviewed journals over the past few years, with the most recent study (2020) led by Dennis Savaiano at Purdue University, an expert in lactose intolerance.

While the study was funded by The a2 Milk Co, said Waltrip, "Once we fund a study, we have to step back and stay at arm’s length."