The competitive world of alternative milks has a new insurgent: the A2 Milk Company. The publicly traded Australian firm sells milk from cows that naturally produce the A2 kind of beta-casein protein only. Most cows produce another protein, called A1, and it’s the A1 version that the company’s research now suggests is responsible for digestion issues. “We know that there are millions of consumers in the U.S. who are self-diagnosing as being lactose intolerant when in fact they just might be A1 intolerant,” says U.S. CEO Blake Waltrip. “We’ve certainly spent time developing our consumer persona. These tend to be people that view food as an important part of their health overall.”
Even with the scientific learning curve, A2 milk has officially gone mainstream in America. It’s now sold in more than 12,400 stores, thanks to a new nationwide distribution deal with Kroger, as well as launching into more regions with Walmart, Costco and Safeway. Its store count has increased 45% since last November.
In the U.S., sales rose 114% for the first half of this year, according to its reported results, released on Tuesday. It’s still just a small slice of total revenue.
“Retailers are embracing this with open arms. Retailers are dealing with category of dairy declining. They’re looking for premium propositions that bring people back into milk but also are delivering on margin because in many cases the milk category is a loss leader for a lot of retailers,” says Waltrip. “Fundamentally, what retailers know is that if they get the milk purchase, then they get the rest of the shopping basket. It is a routine stock-up item, so they’re going do the rest of their shopping there.”
Founded in 2000 by a New Zealand research scientist, A2 Milk has been a leader in Australia for years. It is now the leading premium milk brand there, with $300 million in sales reported for the first half of this fiscal year, up 37.5% from this period last year. It controls more than 10% of the supermarket milk market. Its infant formula business is also a growth point: In Australia, it controls 33% of the market, and in China it has 5.6%. The company’s sales in China top $120 million overall.
A2 Milk came to the U.S. in 2015, starting small in California before picking up slots with natural nationwide chains the following year. Then Publix called and A2 Milk found a new home in the Southeast. At the same time, distribution grew both in natural and conventional chains like Whole Foods and Target. Last November the company also added more than 1,000 Food Lion stores throughout the Southeast. A2 is now also sold at every major retailer in the Northeast.
“The number one growth engine for the company is China. There’s such a strong linkage with Australia and China with the way we go to market,” says Waltrip. “But we view the U.S. as the second growth engine for the company. It’s an enormous milk market, worth $13 billion. The consumers are very open to innovation, and they’re very health and wellness driven.”
In the U.S., A2 Milk’s supply comes from a partner network of farmers in upstate New York, Colorado and California who are paid a premium to farm this way. That’s good news for American dairy farmers, who have been struggling with low milk commodity prices levels. “Farmers are looking for innovation. They want to be part of this,” says Waltrip.
The company helps farmers convert traditional dairy farms into ones that are A2-approved. First, they help perform genetic testing to identify which cows produce only A2 milk. (On average, around a third of U.S. cows are A2 producers. Another third produce just A1, and the remaining third produce both. Researchers have traced this mutation of the A1 gene back thousands of years to crossbreeding in Europe.) Then, A2 Milk helps the farmers segregate the A2-producing cows to special pens, because the farmers are allowed to still produce conventional dairy, should they want. “Then when we milk the cows, we clean the lines out and then we test the milk throughout the proposition. We ensure that we’re delivering to the consumer a completely clean A1-free proposition. And that’s what’s important,” adds Waltrip.
What’s next for A2 in the U.S.? New products. Right now, A2 Milk Company sells only the basics: cartons of whole milk, 2% fat, 2% chocolate and 1%.