Why Buy the Cow?

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The fact that Americans are drinking less milk has made national headlines in the past few years. News stories cite USDA data showing annual per capita consumption is down 106 pounds per person from 1975 (247) to 2020 (141) [1]. These stories only “skim” the surface; using data to understand the “whole” picture is vital, and a growing part of that picture is the alternative dairy scene. For example, while consumption of milk is down [1], the consumption of plant-based dairy alternatives is up and continues to grow [2,3]. For those businesses that utilize dairy or alternative dairy products on a daily basis, this information plays a major role in their planning, both in the short- and long-term.

Photo by Ksenia Chernaya from Pexels.

For the purpose of this exercise, assume you are the owner of “LaPlace,” a cutting-edge coffee shop in the bustling downtown Portland, Oregon business district. LaPlace has served local residents a “transformative cup of coffee” for the past 15 years. As the business owner, you must project your purchases for both the short- and long-term, and changes in plant-based dairy alternatives will have a direct impact on your success. In order to plan ahead, you must first understand the basic consumption forecast of these alternatives.

Q1: Develop a model to forecast the annual quantity of milk used by LaPlace over the next 10 years. For this, you will need to make some assumptions about the current amount of milk used, as well as the trends in milk and alternative milk consumption [1, 4].

Q2: Using the historical data on plant-based dairy alternative consumption along with your answer from Q1, predict the annual quantity of each of the following alternatives that will be used in LaPlace over the next 10 years: almond milk, soy milk, coconut milk, and oat milk. You may consider how other variables may influence your consumers’ consumption, such as (but not limited to) population shifts, geography, supply chain, cost, social influence, etc.

Q3: LaPlace must consider whether to sign a contract with a food provider. The contracts often require multi-year commitments and may contain logistical details that vary by company. In Portland, LaPlace has three options for food providers:

  1. Annual contract: the coffee shop signs an annual agreement to purchase a predetermined amount of product delivered weekly. If LaPlace needs more of a certain product (amounts cannot be lowered), they can either purchase it from a brick-and-mortar store (cost listed below) or adjust their contract for a one-time (25% of the weekly cost) fee, with any changes then becoming permanent for the remainder of the year. They are only allowed one such adjustment per year.

  2. Monthly contract: the shop can adjust quantities on a monthly basis, which requires approximately 10 person-hours per month to perform. Products cost 20% more than on the annual contract. Any shortfalls in ordering will require purchases from a brick-and-mortar store. 

  3. No contract: all products are purchased on a weekly basis from a local brick-and-mortar store. It requires five person-hours per week to determine and make the upcoming week’s purchase, with non-alternative dairy products costing 45% more than the annual contract. Plant-based dairy alternatives cost 60% more at brick-and-mortar stores, with a small probability that they are not always available.

Brick and Mortar prices (as of today’s date; prices as compared to an annual contract):

            Almond: 10% more per unit
            Coconut: 15% more per unit
            Soy: 20% more per unit
            Oat: 25% more per unit

Determine two optimal strategies for dairy and plant-based dairy alternative purchases over the next 10 years for your transformative coffee shop, LaPlace. The first strategy should be based on LaPlace’s main focus being profitability, whereas the second strategy is if LaPlace’s top priority is minimizing waste (while still remaining financially viable). You should use your results from Q1 and Q2, but you may want to consider customer demand, wasted money, menu changes, and various aspects of cost and revenue for these businesses. As in the previous questions, you will need to make (and justify) assumptions about any added variables you choose to use.

The following references may help you get started:

  1. Economic Research Service: USDA Dairy Data
  2. American Farm Bureau Federation: Trends in Beverage Milk Consumption
  3. Demand for Alternative Dairy Is Here to Stay, as Consumers Seek Balance Between Sustainability, Health and Taste
  4. U.S. Plant-based Milks - Statistics & Facts

Author: Neil Nicholson, North Central College