Dean has seen its share of the U.S. fluid milk market fall.
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WILBRAHAM -- Dean Foods Co., new owners of Friendly's ice cream manufacturing and distribution network, is the country's largest processor and distributor of milk and other dairy products, according to the U.S. Department of Justice.
But in recent years the Dallas-based national conglomerate has been forced to adjust to changing tastes and to a changing marketplace where behemoth retailer Wal-Mart will process its own milk for its own stores at a new plant in Indiana.
Wal-Mart's plans alone will cost Dean the sale of roughly 100 million gallons of milk a year starting next year, according to published reports.
Dean foods also announced Tuesday first-quarter profits of $39 million. Its stock, (DF) on the New York Stock Exchange, traded at $18.05 on Tuesday. That's down 15 cents on the day.
A beloved New England brand, Friendly's has an ice cream manufacturing plant in Wilbraham and distribution center in Chicopee. Dean's interest in Friendly's is part of the industry-wide shift toward branded products and away from the white carton labeled simply "milk" or "ice cream," observers said.
"My son, he only likes French vanilla from Friendly's, not the store brand, even though I can't tell the difference," said Bob Parsons, a professor and agricultural economist at the University of Vermont Extension Service. "You've got a regional market where Friendly has a good name. And you are looking to squeeze out a few extra dollars from customers willing to pay for a brand name and not the generic store brand of ice cream."
Parsons likened Dean Foods' purchase of the Friendly's brand to the sale of Ben & Jerry's to conglomerate Unilever back in the year 2000. The stockholders made money and the company founders are still in control -- as long as ice cream sales are strong and Unilever continues to get the return it likes on its investment.
Jim Dunn, a professor of agriculture economics at Penn State, said that while Dean Foods is a giant in the milk business, ice cream makes up only about 4 percent of its sales. Seventy precent of the company's business is fluid milk and the rest is cheese or other products.
"They have gone all over the country buying milk plants. I view this as the logical extension of what they are trying to do in the dairy sector," Dunn said. "And they are only in the dairy sector. But they have not moved out of the diary products side at all."
Friendly's announced Monday night that it had sold its retail ice cream and manufacturing business to Dean Foods for $155 million in cash.
Including franchised and corporate restaurants, Friendly's has 16,000 employees, including 200 in its Wilbraham plant and 150 "support center" jobs in Wilbraham and at a distribution warehouse in Chicopee.
Friendly's will retain ownership of the restaurants and the distribution center in Chicopee, said Friendly's CEO John Maguire. The company have a long-term contract to buy ice cream for those restaurants from the plant and from Dean Foods.
Friendly's plans to use the sale proceeds to grow its restaurant business.
Together with its franchisees, Friendly's has system-wide sales of over $500 million, the company said. Of that, it had $166 million in net sales of ice cream to supermarkets in 2015.
Friendly's ice cream is sold in more than 8,000 retail locations across the U.S., and has seen 105 percent growth in the retail business over the past five years, Friendly's said in its news release.
The company now produces 27 million gallons of ice cream each year for grocery stores. It also manufactures ice cream cakes and ice cream under store-brand labels for a number of retailers including Wal-Mart.
Dean Foods spokesman Jamaison Schuler said he couldn't go into detail on the acquisition yet. The transaction is not expected to be official for another 30 days.
But he said Dean Foods, despite its national footprint and 1997 acquisition of Lynn-based milk producer Garelick Farms, had no New England ice cream brand.
"This is a legacy brand that fits in with our own ice cream brands across the country," he said.
Those brands include Dean's Country Fresh, sold in the upper Midwest, and Mayfield, a legacy brand in the Southeast founded in 1923 that Schuyler likened to Friendly's.
"Mayfield has been around for a long time and it has a devoted following," he said.
Dean bought Mayfield in 1990. Scottie Mayfield, a grandson of the brand's founder, continued as president until 2012 and is now president emeritus of the company.
Brothers Curtis and S. Prestley Blake founded Friendly's in 1935 in Springfield.
Dean's portfolio of brands includes DairyPure, TruMoo, Garelick Farms and others.
Schuyler reiterated Dean Foods' stated plan to keep operating the plant in Wilbraham. Dean has other ice cream factories, but the nearest are in northern Indiana, northern Illinois, Ohio and Tennessee.
"We recognize the asset that the manufacturing plant is," Schuler said. "We have a desire to grow our ice cream business."
Expanding business
Samuel E. Dean Sr. started Dean Foods in 1925 with the purchases the Pecatonica Marketing Co., an evaporated milk processing facility in northwestern Illinois.
Suiza Foods of Dallas bought Dean in 1997 and continued on an expansion roll, buying more than 40 companies across the country in three years to become the largest milk and dairy producer and distributor in the county, according to its website.
The company has 17,000 employees across the county.
"They probably control more of the industry than they probably should," said the University of Vermont's Parsons. "But that's just an opinion."
In 2011, Dean Foods reached an agreement with the U.S. Department of Justice that settled federal allegations that Dean controlled too much of the milk market in Wisconsin, to the detriment of farmers and consumers.
Dean agreed to divest a significant milk processing plant in Waukesha, Wisconsin, and related assets that it acquired from the Foremost Farms USA Cooperative, including the Golden Guernsey brand name.
Meanwhile, Dean controls less of the milk market while retaining its No. 1 position. According to the company's most recent earnings report, Dean Foods' share of U.S. fluid milk volumes decreased by 10 basis points from the previous quarter and 70 basis points year-over-year to 34.6 percent of the market in the first quarter 2016. A basis point is one-one-hundredth of a percentage point.
Parsons said the market for milk has shifted from fluid milk meant for the table to milk used to manufacture cheese and other foods.
"That has been the trend since the 1960s. Our families are smaller," Parsons said. "Milk is not a primary beverage anymore."
As for the future of the Wilbraham plant, Parsons warned people not to confuse short-term with long-term plans.
"It'll be here in five years, but will it be here in 10 years?" he said. "That depends on what the company wants to do."
But both Parsons and Dunn, of Penn State, separately said location is one asset the Wilbraham plant has. It is close to the market Dean Foods wants to serve, a market where it wants to grow.
"Dairy products have transportation challenges. It is expensive to ship," Dunn said. "I don't see any reason that they would not want to close that plant. It's in a good place. The whole New England market is readily accessible."
Dean Foods closed 13 dairy plants around the country in the last four years, according to published reports. But the company blamed those closures on declining demand for fluid milk.
Dean has kept the legacy plants open in other areas, Dean said.
"You don't want to have to reinvent the wheel," he said.