Introduction

10.2 Introduction

Learning Objectives

Describe how the company was founded and how it operates as a family-operated enterprise.
Define how the dairy industry is organized and its larger context.
Understand that sustainability efforts have to be considered in the context of company organization and ownership and industry dynamics and conditions.

The founding family of Oakhurst, the Bennett family, has managed a successful dairy business based out of Portland, Maine, for ninety years. This is not a simple accomplishment. The dairy industry is dynamic and fiercely competitive, and Oakhurst has become the largest independent dairy processor in northern New England. The company is privately owned and as such its financial information is not publically available. Much of the information from this case is garnered from company interviews and a study of the company by Clean Air–Cool Planet (CA–CP).“Outreach and Education/Resources,” Clean Air–Cool Planet, http://www.cleanair-coolplanet.org/climate_preparedness/outreach_ed.php.

Instead of succumbing to the external economic and political forces that have reduced many family businesses to nostalgic memories of bucolic America, the Bennett family found ways to keep the dairy industry a part of the Maine economy. Oakhurst’s success can be attributed in part to the company’s strategy, built on the following:

Lean manufacturingA production philosophy that finds any process that does not add value to be wasteful and a target to be eliminated. and operational efficiency
Creation of business value through environmental stewardshipThe concept that we are entrusted with the care and protection of our planet. Promoting good environmental stewardship can be through safeguarding of our water and soil as well as other natural resources.
Psychographic-centered marketingAnalysis of consumer lifestyles to create a detailed customer profile. and brand equityThe premium that a company realizes from a product with a clearly recognized name as compared to its competitors. Companies can create brand equity for their products by making them easy to distinguish and superior in appearance and/or quality.

According to Oakhurst President William “Bill” Bennett, “We have been able to stave off being bought by maintaining a strong brand identity. People know what we do and what we stand for.”J. Hemmerdinger, “Maine in a Bottle: Oakhurst Dairy Homogenizes Its Marketing Message,” Portland (ME) Press Herald, January 9, 2011, accessed January 20, 2011, http://www.pressherald.com/business/maine-in-a-bottle_2011-01-09.html; the story was revised on January 10, 2011, to correct a reference to milk prices. According to the Maine Milk Commission, dairy farmers were paid a minimum of roughly $18 per 100 pounds of milk in November.

Co-owner of Oakhurst with his brother Stanley, Bill Bennett took on the role of president when Stanley was diagnosed with pancreatic cancer in the summer of 2010. Stanley had led Oakhurst Dairy since 1983 when he was named president after his father’s retirement.John Richardson, “Oakhurst CEO Stanley Bennett Dies,” Portland (ME) Press Herald, February 25, 2011, accessed March 5, 2011, http://www.pressherald.com/news/oakhurst-ceo-stanley-bennett-dies_2011-02-25.html.

The Bennett family firmly believed that the well-being of their company and the US dairy industry were dependent on environmental stewardship. Oakhurst’s proactive and interactive approach to reducing emissions has set the standard for best practices in the dairy industry. They have collaborated with interest groups, government agencies, industry competitors, and others in their sustainability efforts.See Clean Air–Cool Planet, Taking All the Right Steps: A Maine Dairy Reduces Its Carbon Footprint, http://www.cleanair-coolplanet.org/information/pdf/Oakhurst%20Dairy%20Case%20Study%2001272009.pdf. For the Oakhurst case and more information about Clean Air–Cool Planet (CA–CP), see http://www.cleanair-coolplanet.org/about and Innovation Center for US Dairy, U.S. Dairy Sustainability Commitment Progress Report: Sustaining the Dairy Industry for Future Generations, accessed January 9, 2011, http://www.usdairy.com/Sustainability/Pages/Home.aspx.

Stanley T. Bennett II was one of five third-generation Bennett siblings who were keeping their great grandfather Stanley Bennett’s business alive by being a preferred supplier of natural, healthy dairy products. Before his passing, Stanley T. Bennett II noted, “The cows that supply us with our product literally eat and drink and breathe the Maine environment. We have a natural self-interest in keeping that environment pure. It’s something we can market that our competitors can’t.”Clean Air–Cool Planet, Taking All the Right Steps: A Maine Dairy Reduces Its Carbon Footprint, http://www.cleanair-coolplanet.org/information/pdf/Oakhurst%20Dairy%20Case%20Study%2001272009.pdf. For the Oakhurst case and more information about Clean Air–Cool Planet (CA–CP), see http://www.cleanair-coolplanet.org/about.

Under Bill’s leadership, Oakhurst has focused on ways to boost operational efficiency in the highly competitive dairy industry. With price pressure intense in the industry, success at reducing costs without sacrificing product quality and integrity could contribute to increased profitability. Finding ways to reduce energy, electricity, water, and sewage costs could enhance company profits at the same time it reduced the company’s environmental impact and could enhance its favorable reputation with significant numbers of consumers.

On his brother’s passing, Bill stated in the company’s news release, “Oakhurst is where it is today because of Stan’s leadership and foresight; he always kept an eye on the future. For a number of years, we’ve put a lot of thought into making sure we have a caring, experienced, and committed team in place; and this team will continue to lead us well into the future.”Front Burner PR, “Oakhurst’s Bill and John Bennett Well Prepared to Lead Respected New England Dairy,” news release, February 25, 2011, http://www.frontburnerpr.com/uploads/oak_transition_feb2011_final.pdf.

Bill’s brother John joined the company in 2004 as vice president of sales and marketing after owning and operating a successful wholesale seafood business on Portland’s waterfront. Other members of the senior management team with years of service included their sister Althea Bennett-McGirr, director of customer service and consumer affairs (thirty years); Tom Brigham, executive vice president and chief financial officer (fifteen years); Paul Connolly, vice president of logistics and chief information officer (ten years); and Joe Hyatt, vice president of human resources and administration (thirteen years).Front Burner PR, “Oakhurst’s Bill and John Bennett Well Prepared to Lead Respected New England Dairy,” news release, February 25, 2011, http://www.frontburnerpr.com/uploads/oak_transition_feb2011_final.pdf.

Bill Bennett, reflecting on his brother’s life and contribution to Oakhurst, stated, “The main reason we’ve been so successful over the years is because of him.” Bill added that many of the recent steps the company had taken to decrease its carbon footprint, including purchasing biofuels from a local company that turns restaurant fry oil into biofuel and installing solar panels on the roofs of the company’s various buildings, were because of Stanley Bennett II’s leadership.“Stanley T. Bennett II, Oakhurst Dairy President, Dedicated to Community,” Forecaster (Falmouth, ME), March 1, 2011, http://www.theforecaster.net/content/pn-obitbennett-030211.

The challenge for Oakhurst management was to buck the industry trend toward large-scale dairy farming, processing, and distribution through consolidation of dairies while maintaining profitability. According to Bill Bennett II, “Twenty-five or thirty years ago, we were a big dairy in a sea of little dairies. Now we are a small dairy [processor].”J. Hemmerdinger, “Maine in a Bottle: Oakhurst Dairy Homogenizes Its Marketing Message,” Portland (ME) Press Herald, January 9, 2011, accessed January 20, 2011, http://www.pressherald.com/business/maine-in-a-bottle_2011-01-09.html.

Like its counterparts across the country, Maine dairy farmers were finding it difficult to make a profit let alone stay in business. However, compared to its northern New England neighbors, Maine was losing its dairy farms at a lower rate as a result of Maine’s innovative dairy stabilization program (see sidebar “The State of Maine’s Dairy Industry”).

The State of Maine’s Dairy Industry

In 2009, Maine’s dairy industry generated more than $570 million annually for the state’s economy, paid $25 million in state and municipal local taxes, and provided more than four thousand jobs. In the 1950s, Maine had 51,000 herds of dairy cattle. By 2009 it was down to 32,000 cows making 590 million pounds of milk per year (69 million gallons). By 2009 there were 315 dairy farms in Maine ranging in size from 10 to 1,700 cows. In the period from 2000 to 2004, Maine lost 106 farms. Maine has more than sixty milk processors. Six processors package fluid milk for drinking: Oakhurst Dairy, H. P. Hood, Houlton Farms Dairy, Garelick Farms of Maine, Kate’s Butter, and Smiling Hill Farm Dairy. By far the largest was H. P. Hood with $2.4 billion in revenue and 3,000 employees in 2010. Dean’s Foods, a National food and beverage company had revenues of $12.9 billion and lost $1.5 billion (2010). Oakhurst Dairy was the largest privately owned Maine dairy processor with 2010 revenues of $110 million and 250 employees.

Since 2004 the US dairy industry has been marked by two significant factors. The western United States has seen unimagined and unprecedented growth in total milk and average size of each dairy operation. This shift was the result of state and federal government policies that offer financial incentives in the form of tax breaks and subsidies to take unproductive land and convert it to animal agriculture, or convert land from one type of production to dairy production. Secondly, the cyclical “boom-and-bust” dynamic of dairy pricing has continued on a national scale and has become more erratic and extreme. Maine has continued to lose farms, but at a much slower rate than the rest of the Northeast. Some farms have gone out of business because of the age of the farmer or the fact there was no one to take over the farm. Most importantly, the economic impact of the remaining farms has not lost its influence on the state’s economy. Many states have looked to Maine as an innovative leader in the dairy industry, first with the Northeast Dairy Compact and now with the Maine Dairy Stabilization “Tier” Program. Established in 2004, the “Tier” program provides a safety net during periods of historically low national milk prices. In contrast to the overall picture of New England dairy farming, Maine stands out and is considered a success story because of the 2004 dairy stabilization program. Since the start of the program, Maine lost 75 dairy farms, or 19 percent of the industry, in contrast to extreme losses in Vermont (52 percent) and New Hampshire (46 percent). The dairy stabilization program provides a payment from the Maine’s General Fund directly to farmers when the amount that they receive from the marketplace for their milk falls below their cost of production. In Maine, the cost of production is estimated at $25 per hundred weight of milk, while the farmer can receive between $11 and $23 per hundred weight from the marketplace. If the price of milk is high, no payments are made. When it drops, the program assists the farmers. Since 2007, $30 million has been paid to Maine’s dairy farmers through the tier program. According to Julie Marie Bickford of the Maine Dairy Industry Association compared to states without a milk commission, Maine is a relatively healthy dairy state.

Galen Larrabee, a dairy farmer from Knox, Maine noted that even with the tier program it hasn’t been easy for Maine farmers. He noted, feed costs have gone through the barn roof—up by a third over last year at this time. Fuel costs could be doubled by the end of the year. Energy bills—mostly electricity—have been running $6,000 a month. “We spent $730,000 on grain last year. This year it will be close to a million. Fuel for the first 10 months of 2011 has been $103,000. Last year it was $72,000. We’re paying our bills but there is not a lot left over.” Larrabee with 490 cows is considered one of Maine’s larger dairymen, but he certainly isn’t unique. “Most dairy farms, about 50 percent I think, are just about breaking even,” he said. “The other 50 percent are behind the eight ball.” With the cost of equipment, taxes, feed, veterinary services and infrastructure all jumping higher and higher, Larrabee said, it isn’t right to use the word “profit” when discussing Maine farms. “Most are just holding on.” Bickford said dairy-pricing policy is a hot topic these days in the congressional halls in Washington, DC. “Maine is finally getting some traction and the USDA is listening to the idea that milk should be priced at market value. It should reflect the going rate in competitive regions,” Bickford said. But as long as Maine’s tier program remains in place, there is a future for dairy farming in Maine. Larrabee was encouraged by the support received from Maine consumers. “People in Maine have always spent more on dairy than other parts of the country,” he said. “They want farms. They want the countryside to remain intact. They actively support us.”

Source: Sharon Kiley Mack, “Maine’s Innovative Dairy Program Keeping Industry Alive,” Bangor Daily News, October 29, 2011.

Key Takeaways

A strong commitment to sustainability requires visionary leadership, organization-wide action and commitment, and alignment of sustainability efforts to profitability and competitive advantage.
Sustainable business practices can improve operational efficiencies and company performance.
Sustainability efforts have to be considered in the context of market conditions and, in the case of Oakhurst, in the context of highly competitive and challenging diary industry conditions.

Exercises

Go to YouTube and find videos on Oakhurst Dairy.
1. What market segment(s) are targeted in the videos?
2. What message(s) is Oakhurst delivering in their advertisements?
3. Why do customers buy Oakhurst Dairy products?
4. Does Oakhurst use endorsement in their advertising? If so, who is featured?
In one hundred words or less, describe the Oakhurst sustainable business model and perceived competitive advantage for doing business in the dairy industry.