Discover how dairy executives are prioritizing sustainability and talent development in their strategic plans. Will these trends shape the future of the dairy industry? Find out now.
Latest revelations from an annual survey jointly carried out by McKinsey & Company and the International Dairy Foods Association (IDFA) have brought to light intriguing shifts in the dairy industry. The survey observed a noticeable surge in the emphasis given to the corporate purpose and talent development, overtaking the focus on environmental performance for dairy firms. Despite the apparent downplay, sustainability is increasingly getting the limelight among dairy executives, with its strategic significance registering a 7% growth year after year. However, it trails behind talent development (16%) and corporate purpose (11%). As many as 75% of the dairy bosses confess that their companies’ environmental efforts are predominantly customer-driven, with a lower percentage, less than half, attributing similar concerns to the consumers. This raises pertinent queries among some executives, who voiced their skepticism about consumers’ readiness to shell out a premium for sustainable dairy. They even questioned the possibility of a future change in these attitudes. Yet, defying these apprehensions, a recent Nielsen IQ and McKinsey analysis from February 2023 suggests a different trend. According to the analysis, consumers are exhibiting a notable inclination towards yogurt and cheese that come with Environment, Social, and Governance (ESG)-related claims, over those that lack such claims.
The Dairy Executives’ Prioritization: An Insight
From the deep probe into the dairy industrial space, the survey by McKinsey and International Dairy Foods Association(IDFA) furnished a well-segmented hierarchization of what matters most to the dairy executives. Let’s delve into those results:
- Setting and strengthening corporate purpose for stakeholders: This remained the top-most priority, reflecting the commitment to inherent values and stakeholders’ expectations.
- Talent and capability development: Rising by two ranks from the previous year, talent development underscores the growing importance of nurturing a capable and motivated workforce.
- Cost reduction and efficiency initiatives: A solid strategy to ensure organizational resilience and growth, this vital aspect held its previous position.
- Entering new categories, markets, and geographies: Reflecting the industry’s robust growth, this emphasis on outreach maintained its steady rank.
- Transforming the business to become more environmentally sustainable: Up by one rank, this reflects the industry’s increasing concern and effort towards sustainability.
- Increasing supply chain resiliency: Despite moving down by one spot, this is still an essential aspect focusing on uninterrupted operations and product delivery.
- Others: A mix of various priorities that do not individually feature within the top entries.
- Digital data and analytics: Despite moving down by one, the harnessing of digital capabilities and insights remains a significant executive focus.
- Portfolio simplification: Down by two spots, this represents the push towards streamlined product offerings and operations.
This ranked hierarchy of priorities, drawn from rich and extensive industrial perspectives, substantiates the aims and agendas shaping the future trajectory of the dairy industry.
Talent Development Takes Centre Stage
The annual survey by McKinsey and IDFA has unveiled an interesting shift in priorities in the dairy industry. Displacing other strategic concerns, talent development has captivated the attention of top executives, ranking second behind the all-important corporate purpose. This evolution of priorities was observed across a diverse set of respondents, a majority of them from US-based companies yet including representation from various parts of North America, Europe, and Oceania as well.
These dairy business leaders are deeply involved in an array of distinct sectors, like processing, production, retail and packaging, among others. Administered in Q4 2023, this year’s survey marks the sixth consecutive year that McKinsey and the IDFA have jointly worked towards tracking and understanding the nuances within ESG commitments and policies across the dairy industry landscape. This important task not only empowers businesses to tackle shared challenges but also harness opportunities in their collective journey towards sustainability.
The ‘people-first’ approach adopted by these dairy firms resonates strongly in today’s competitive and rapidly evolving business climate. In their quest to attract, retain, and nurture the best talent, they are actively considering enhancing remuneration packages, emphasizing on a powerful and constructive company culture, and ramping up investments in operational technology. Indeed, the dairy industry of today appears to be as much about fostering an empowered, skilled workforce as it is about churning out quality products.
Unmasking the New Corporate Purpose of Dairy Firms
Building a strong corporate purpose is no longer just a strategy; it’s become non-negotiable in today’s business environment. The same stands true in the fast-paced dairy sector, where businesses are striving to define and communicate a compelling corporate purpose that resonates with their stakeholders. This strategizing isn’t occupationally confined, it spans across processors, producers, retailers, and packaging firms.
More executives are focusing on their company’s raison d’être – a guiding north star around which they can pivot their actions. It’s about demonstrating to their customers, employees, and society at large that their company is more than just profit-led. It’s about proving their societal value and the positive impact they’re driving in the world. This is reflected in the annual survey where setting and strengthening corporate purpose for stakeholders retained its first position in the list of priorities.
In this high-stakes environment, it’s not surprising to see dairy firms taking a proactive role in crystallizing their purpose. For some, it means refocusing initiatives on broad-based sustainability efforts. For others, it’s about doubling down on talent development and making their workforce feel valued and essential in advancing the company’s mission. Regardless of the specifics, what’s clear is that companies want to be seen as positive forces, not just economic entities.
This awareness is indeed laudable, but it’s only the starting point. Companies need to align their purpose with actionable initiatives, strategic decisions, and their everyday operations. In other words, purpose needs to permeate everything businesses do—if they are truly going put it at the top of their priority list.
Navigating the Challenges of Sustainable Dairy
While many dairy executives express keen interest in meeting the rising consumer demand for sustainable dairy products, they are, simultaneously, deeply concerned about the significant challenges presented by Scope 3 emissions. These indirect emissions occur outside a company’s direct sphere of control, making them an issue that is not only difficult to accurately quantify but also especially hard to mitigate effectively.
On a similar note, McKinsey analysts have highlighted a delicate balancing act for the industry. The need to reconcile environmental concerns with surging dairy demand in the US makes the situation even more complex. Even though the data reveals a positive trend, with emissions per kg of milk witnessing a 27% reduction from 1995 to 2015, the overall rise in US dairy production has paradoxically resulted in an increase in Greenhouse Gas (GHG) emissions. This is clear evidence that the industry’s environmental challenges cannot be considered in isolation and are closely intertwined with market dynamics and consumer preferences.
The Tug of War Between Growth Aspirations and Demand Hurdles
In the circuitous landscape of supply and demand, growth shines like a beacon of hope for dairy executives, evidencing the inherent resilience of the sector. Based on McKinsey’s market data, the storyline of US dairy has been promising, with the retail value experiencing an elevation of 9% between 2021 and 2022, followed by a 7% surge from 2022 to 2023. Interestingly, this was predominantly steered by pricing.
However, as we gaze into the future, the baton of growth is expected to be passed on to volume. Undeniably, achieving this is no mean feat, with numerous hurdles poised to test the industry’s adaptability. How can dairy businesses scale up production without compromising on sustainability? Can they meet the ever-evolving consumer expectations? Such questions pose fresh challenges for the industry, adding layers to the already complex interplay of growth and demand.
A Renewed Emphasis on Labor
The spotlight is increasingly shining on labor in the dairy industry. In fact, a startling 60% of executives now declare talent development and retention as a pivotal strategic priority, boosting it from a modest fourth to a notable second place in the list of key organizational goals. Clearly, the talent piece of the puzzle is integral to the bigger picture of business success in the dairy industry.
So, what strategies are dairy leaders implementing to combat potential labor issues? Well, they’re placing their bets on three principal approaches: compensation, culture, and process improvements. Indeed, many firmly believe in the power of a well-structured compensation package, an engaging company culture, and streamlined operational processes in attracting and retaining top-tier talent.
To better comprehend this issue, let’s take a trip back to 2019. FARM, a well-respected organization in the dairy industry, conducted a comprehensive nationwide survey that delved deep into the labor practices on American dairy farms. Their findings laid bare several areas that demanded urgent improvement. An alarmingly high rate of employee turnover, a lack of adequate management training offered on most establishments, and a surprising underutilization of pre-employment screenings were among the key issues highlighted. Yes, there are certainly challenges on the labor front, but with awareness comes the potential for positive change.
Venturing into New Markets: An Emerging Priority for Dairy Companies
As the dairy landscape continues to evolve, so too do the strategic priorities of the industry’s top executives. One key trend to emerge from the recently released survey from McKinsey & Company and the International Dairy Foods Association is a heightened focus on market expansion. More than ever, dairy firms see the potential and necessity of branching out into new markets, categories, and geographies.
Faced with shifting consumer demands, heightened competition, and innovations within the industry, many dairy firms are considering strategies to expand their horizons. However, with these exciting opportunities come challenges. A key worry for many dairy executives is how their organizations can adapt to meet evolving consumer expectations in their new markets. Demand comes in as the third greatest source of concern, following closely behind regulation and sustainability.
Welcome to this new epoch, where diversification and adaptation could be the name of the game for the dairy industry. Changes in globalization, urbanization, and technological innovation have opened up new vistas for expansion and growth. The exploration into new markets is exciting, but venturing into unfamiliar terrain also comes accompanied by risks and uncertainties.
The decisions dairy executives make today, balancing growth, sustainability, and talent development, will influence the industry’s trajectory for years to come. How well they manage this complicated dance between market expansion and maintaining purpose and sustainability will l determine how successfully they can realize their growth aspirations in both the near and distant future.
Remember, despite the challenges and complexities, dairy firms that successfully navigate this evolving landscape could very well unlock new opportunities leading to long-term success and resilience.
Digital Data and Analytics: A Dwindling Priority
Shockingly, digital data and analytics have taken a dip in priorities among dairy executive rankings, dropping down a position in the list. As much as the modern business environment celebrates data as ‘the new gold,’ dairy executives have shown a tendency to put less emphasis on advanced analytics and digital capabilities.
Much of this can be attributed to the immediate challenges that these leaders are grappling with, such as sustainability, talent development, and managing growth in an increasingly complex market. In light of these more pressing matters, the use of digital data and analytics may have been given a back seat.
This, however, doesn’t imply that data is no longer relevant. The world is currently in the data revolution era, no doubt. Nonetheless, dairy executives might need to strike a more balanced approach. The wealth of data available can provide useful insights about consumers – their preferences, behaviors, and concerns – and it could provide a steer on how to tackle the very challenges that they have ranked as more important.
Reducing the focus on analytics could potentially impact the approach to other priorities, like understanding consumer demand for sustainable dairy products, or identifying labor market trends. This might be a good time for these executives to revisit this decision and reaffirm the significant role that data and analytics can play in the quest for sustainability, talent retention, and market growth.
The Bottom Line
In essence, the dairy industry is confronting an array of challenges and opportunities. The pressing need for sustainable practices, attaining a balance between consumer demand and environmental responsibility, managing growth expectations, and prioritizing talent development are key. Sustainability, no longer a mere bonus, has become an obligatory requirement. However, this shift is countered by potential obstacles such as cost and limited product choices. But with 65% of consumers ready to pay more for sustainable choices, the future course of the market is transparent. A significant proportion of dairy processors, driven by consumer demand, signifies an increased awareness and concern for sustainable practices among consumers. The evolution of regulatory mandates requiring transparency and ever-changing consumer expectations will likely challenge corporations to justify price premiums for sustainable products. As the industry progresses, it’s crucial, particularly for the U.S. dairy industry, to prioritize environmental impacts, aligning with consumer trends. On the flipside, talent development has surfaced as a key priority. With the impending expansion of the dairy sector, companies need to hone in on culture, compensation, and processes to attract and retain talent, while diversifying into new markets and product innovation. It’s an intriguing yet exciting time as the once rigid boundaries within the dairy industry blur and redefine, preparing for significant transformations. One thing is indisputable: businesses which adapt and incorporate these key priorities into their strategies will be well-equipped to manage, and in fact, flourish in this rapidly evolving market landscape.
