Life and death over chocolate milk: the madness of Lewis Road

Security guards in the dairy aisle, panic buying in the grocery section, counterfeits in schools, knock-offs in cafes, a burgeoning secondary market on Trade Me, where prices can be up to three times retail. And all for chocolate milk. What the hell is going on?

Trade me, Sunday November 16.

Have they got a deal for you. A quarter bottle of Lewis Road Creamery chocolate milk – only eight days old, one careful owner (no backwash), stored at an (almost) constant 4degrees. Buy now for $6. 

“Picked up this bad-boy from my local paknsave last night,” says the seller. “After tasting this orgasmic concoction I thought immediately of all the disadvantaged people in New Zealand who have not yet tried this.”

Thanks mate.

This real Trade Me listing is presumably a piss-take. But it's a great image for the madness that has gripped New Zealand since October 1, when a previously little-known milk and butter producer company, Lewis Road Creamery, introduced its chocolate milk (made with chocolate from our most famous confectionary brand Whittaker’s) into Farro Fresh and Moore Wilson supermarkets. 

A week later, it hit the shelves in other supermarkets and now is in 130 or so outlets – all in the North Island. At $6.49 for 750 mls it's pricey – you can get two litres of  Fonterra's Primo chocolate milk for the same price.

But that hasn't put anyone off. 

How to get one's hands on a (preferably unopened) bottle of Lewis Road Creamery chocolate milk is surely New Zealand's starkest first world problem.  

As Idealog went to press, eight weeks after launch, the company had ramped production from an initial 1000 litres per week, to 31,000 litres, but the craziness continued. 

Queues still formed in supermarkets when stocks arrived and security guards were sometimes needed to ensure no one made off with more than their fair share. Auckland cafes and national TV stations were concocting their own brews, and school kids were filling old Lewis Road bottles with rival products, and selling them to gullible mates.

And all this hype with an advertising and marketing spend of $20,000. Weep, FMCG hipster brand wannabes.

Common wisdom is that Lewis Road cunningly engineered a shortage from the start, deliberately creating an unfulfilled market demand, and thereby spurring the subsequent frenzy. That’s a myth – unfortunately, says Lewis Road boss – and former Saatchi & Saatchi supremo – Peter Cullinane. 

Cullinane the adman might quite enjoy the Machiavellian aspect of engineering a chocolate milk famine. But the reality, he says, is more prosaic. Pre-launch, Lewis Road was more worried about being left with a small lake of unsold chocolate milk, because the bottler, Waikato dairy Green Valley said they had to produce minimum 1000-litre batches. 

What Lewis Road was unprepared for was the opposite – a social media-induced cult status. The dairy has been struggling to ramp up production ever since.

“We were concerned we would end up with a lot of milk we had no use for. For a couple of days nothing much happened. But then social media kicked in and Farro said ‘We’ll take 4000 litres’ and from there on in it went ballistic.”

So what happened? 

Ask Cullinane why his chocolate milk boomed and he quotes the “theory of black swan events”, a metaphor describing an unexpected outcome, innappropriately rationalised after the event with the benefit of hindsight. Basically, Lewis Road had no more idea than the rest of us that this was going to happen – or why it did. 

Cullinane can tell you what didn't happen, though. And that was a massive – or even a moderate – advertising and marketing spend.

It’s an irony not lost on Cullinane, who has had a successful career as an adman, convincing clients of the value of advertising (see “Who is behind Lewis Road Creamery” sidebar.) 

The success of Lewis Road chocolate milk was achieved without a single TV commercial, or even a bit of in-store promotion.

“We had it on a shoestring marketing budget – $60,000 – but we haven’t spent anything like that, maybe around $20,000,” Cullinane says. “We had to stop any marketing almost as soon as it started.”

Compare that with another runaway success – KFC’s Double Down burger. “KFC did it with an enormous spend and on the back of a mega success overseas,” he says.

I reckon we will get to 10% market share in our dairy categories. I believe there is 10% of the market who are discerning - and can afford to be discerning.

Tipping points

Others don't believe Lewis Road's liquid gold miracle was quite as random as Cullinane might have one believe. There are tipping point trends the company tapped into, says Juanita Neville-Te Rito, CEO of retail marketing company Hotfoot (a sister company of Idealog).

It’s about tapping into people wanting to be in the know in their peer group – the ‘have you heard about…’ factor, she says. 

“It’s to do with our identity and our relationships – our standing within our tribe. Being in the know gives us a degree of status and acceptance. 

“It’s selling really well in the mid- to high-socio economic group, so there’s a degree of the early adopter phenomenon, of the hipster brand. And the scarcity is part of the appeal.”

Think the famous cronut (a mixture of croissant and donut, launched by the New York-based Dominique Ansel bakery more than a year ago, and still attracting punters prepared to queue out of the shop). Or the more recent Ansel nostalgia play, the cookie shot (a shot glass made from chocolate chip cookie, filled with milk). Or the latest craze out of Australia, the jafflechute (a toasted sandwich delivered to a designated spot by parachute).

Lewis Road has also tapped into a growing retail trend around a desire for craft and authenticity – and to avoid mass market products, Neville-Te Rito says. 

“As a discerning shopper I am pushing away from the big multi-nationals. I am wondering why that pie lasts so long, and thinking about health and wellness. After the GFC, money’s not so tight, so I’m willing to pay for something that’s different, and that’s part of my status. 

“It’s about Ponsonby mums feeling more authentic because they never feed their children KFC, but go to [trendy, free-range, Auckland chicken rotisserie] Bird on a Wire.” 

Or it’s about worrying (having been told that Lewis Road milk is permeate free) about all those permeates in other brands.

“I don’t know what it is, but it can’t be good for you.”

Quality rules

Authenticity is good, says Cullinane, but the critical factor in creating an authentic product is quality. Lewis Road Creamery started out several years ago as a dream to create a premium-quality, New Zealand-made butter to match what you could buy in Europe (see “what’s different about Lewis Road”? sidebar).

Cullinane is scathing about the New Zealand-produced dairy products most of us eat and drink unquestioningly. Our milk and butter is mucked around with more than it needs to be because it's seen as a commodity, he says, and that's created a gap for a quality product

(Is he right? See Is Lewis Milk really any different sidebar page 31.)

In a social media-dominated world, Cullinane says, having a really good product is more important than ever.

“Ten or 20 years ago, great advertising could make up for a lot. Look at Telecom. In the days where the team at Saatchi produced wonderful, much-loved campaigns [think Spot, for example], people forgave Telecom its faults because they loved the advertising.

“Social media wouldn’t allow that to work. You have to fundamentally have a product that’s really bloody good and that a chunk of the population really appreciate.”

But there are plenty of good products out there. Why has the Lewis Road chocolate milk spread like wildfire when so many products fizzle and go out? 

Colleen Ryan, consumer strategist with The Research Agency, says Lewis Road also taps into another emerging trend– indulgence. Treats are back, after a period of austerity, post the global financial crisis, she says. 

Tied to that is a swing to premium products, she says, whether it be tea, yogurt or hoki fillets (sorry, lemon pepper-crumbed fish bites).

Another consumer trend benefitting Lewis Road, Ryan says, is an increasing confidence from New Zealanders that local companies can produce delicious food and drink. In the past, discerning shoppers might have chosen European produce over Kiwi-made, she says, but that’s no longer the case. In fact, in many cases now, European is associated with old and stuffy – and not so delicious.

“The wine industry has done that for us – given quality to the local market. Or 42Below. Or Whittaker’s. And look at the number of local [coffee] roasters, and all the farmers’ markets. 

“These other brands have paved the way for Lewis Road, they have ensured there is no unconfident questioning about how well a Kiwi company can make a premium food product.”

It’s impossible to know how consciously Cullinane and Lewis Road positioned the product to match these consumer trends – though with Cullinane’s background in advertising and branding, one might assume
it was pretty conscious. 

What is unquestionable is the deliberate nature of the company’s handling of social media. Even with only five full time staff equivalents, Cullinane says every Facebook post gets answered. “I don’t read the Facebook or Twitter posts in detail, but someone does. Anyone who goes to the trouble of asking a question deserves an answer.”

There are lots of rules about Facebook, like the fact a post should no longer than 90 characters, including spaces. Our most successful post was 1000 characters.

A rake through the Lewis Road Facebook page reveals that isn’t exaggeration – all posts are answered, often within two or three hours. The company has had 275,000 web hits, including Facebook, says Lewis Road’s general manager Michelle Preston, who came from Kohu Road ice cream and joined Cullinane in April. Lewis Road has just hired a marketing junior to handle Facebook traffic.

Isn’t rapid response just social media 101, and commonplace with consumer products? Surprisingly not. A comparison between the Lewis Road Facebook page and that of rival chocolate milk, Fonterra’s Primo brand, is telling. Most Primo page posts are from the company, rather than punters, and customer comments largely go unanswered.

Lewis Road had almost 60,000 Facebook likes (and rising) as Idealog went to press. Primo had 19,000.

Collette Ryan says it’s often daunting for brand managers to let go, and allow the public
to take over their site’s content. 

“Social media works best when it’s a shared journey between brand and consumer. It’s not show-and-tell advertising. It’s about being brave, and allowing the users of the page to create the messages, so the consumers feel they own the brand, and early adopters will feel good about helping the brand grow. 

“Marketing managers don’t understand that
if you set up a Facebook page it’s not to showcase product. But every time a post gets answered it’s the brand speaking.” 

Backing the basics

Creating an unanticipated social media sensation is all very well, Cullinane says, but actually Lewis Road’s success wouldn’t have happened without all the basic early-stage marketing graft that’s been going on for four years: making and refining a superior product; attending food shows; negotiating with supermarkets; getting the supply chain sorted; and having the branding and packaging right. 

“We’ve invested heavily in the packaging,” Cullinane says. You put it on the shelf and it speaks voluntes for the brand. But there’s an expense. That is why most milk bottles look like they do.”

Ryan agrees Lewis Road has been particularly canny about its bottles – trading on a borrowed nostalgia for milk bottles most New Zealanders under 50 won’t have experienced, but giving the bottles an “everyday luxury” feel – premium, but not too premium; artisan, but not old-fashioned.

Cullinane says without getting the basics right, particularly a good product, the fairy tale could have gone the other way; social media is unforgiving – with the bad, as well as the good, out in the open. 

There was plenty of scope for bad press after a Consumer report revealing Lewis Road chocolate milk had five times the fat of its competitors, and similar amounts of sugar as soft drinks pariahs like Coca-Cola. 

The news was widely reported, but it seems loyal consumers (and wannabe consumers) were largely unfazed.

“I doubt people are drinking chocolate milk for its nutritional benefits,” posted one Facebook fan.

“There’s a higher chance of dying in a car accident than of chocolate milk, so f** it, we will walk and drink,” said another.

Cullinane says the company never planned for its chocolate milk to have more sugar than Coke, “but to get the formula right in terms of taste that’s how it nutted out.

“In the age of social media, there’s no point in trying to hide it. So we just said ‘Yes, and drink accordingly’ and we put on the label that it’s an indulgent treat.

“The whole honesty thing is very appealing. There’s nothing we’ve done where we’ve had to say ‘I hope no one digs into that too deeply’.” 

A 10% market share – is he mad?

That Cullinane and Lewis Road have got it right with the quality of the products is undisputable. Lewis Road chocolate milk tops most (though not all) reported blind tastings,. And a former chef of Idealog’s acquaintance, who spent years complaining he couldn’t make decent pastry with New Zealand butter, is now cheerily making desserts with Lewis Road.

What is more controversial is Cullinane’s stated goal of capturing 10% of the dairy market. Cullinane says the first time he mentioned  the 10% figure to a dairy marketing expert the guy nearly fell off his chair laughing. 

Then chocolate milk came along. Michelle Preston says over the four weeks to November 9, Lewis Road took 29.6% (by value) of the supermarket flavoured milk category, according to Aztec scan data – and that's despite being largely unavailable. Obviously it helps being way more than double the price of your competition.

Cullinane says there is no reason other Lewis Road dairy products shouldn’t steal a 10% market share from the dairy giants. Although the company has only a 1.7% share of the milk and cream market, month-on-month Lewis Road milk sales are up 50% on the back of the launch of chocolate milk, and butter is up 20%, he says.

“I reckon we will get there. I believe 10% of the market are discerning consumers – and can afford to be discerning.” 

Still, as Ryan points out, Fonterra isn’t going rest on its laurels and watch some advertising upstart take market share from Anchor.

“Ten per cent is a big number in the dairy field, with Anchor and Meadow Fresh. And the [Lewis Road] products have a metro feel to me – adults spending money on themselves. I can’t see mums with young kids buying it, or people
in rural New Zealand.”

Fonterra Brands managing director Tim Deane says the company already produces premium brands like Kapiti cheese and Piako yogurt. He is reluctant to telegraph the company's plans, but says premium is “an important part of our plans.”

Deane says picking a number for where the high end part of the market might get to is hard, but 10% is a good an estimate as any. “The grocery premium segment is growing, and that's good because it gives consumers more choice.

“I think Lewis Road has done a really good job with its marketing and capturing a niche opportunity. This competition is good for dairy.

“Let's call the whole premium market 10%.
But rest assured, Lewis Road is not going to have the whole thing to itself.”

Where to from here?

Cullinane reckons chocolate milk production, now at 31,000l/week, could possibly go to 100,000 litres if the market settled at that level. Annual sales of flavoured milk in supermarkets have traditionally been worth $25 million, according to Nielsen data, but Preston says  if you annualise Lewis Road October figures out, the category would grow to $36 million. On the same basis, Lewis Road's chocolate milk sales would reach $15m, although that includes sales
in outlets not covered by scan data.

Next stop, butter in the Australian market (“it travels really well”). Then, once production allows, other flavoured milks, Cullinane says.

“At home we do a mochaccino-flavoured chocolate milk, with a shot of expresso. It’s an extraordinary concoction. Or we could do a coffee milk.” But that’s just the start, he says. 

“My unabashed ambition is to work my way down the dairy aisle. Ice cream is big on my list.”

On gardening leave from Saatchis in 2002, Cullinane attended cooking school in France and “learned to cook everything I like to eat”, including ice cream. I love it and we will definitely do that in a way it hasn’t been done in New Zealand before.”

Yogurt is also on the radar. Cullinane says although we there is some delicious ice cream and yogurt available here “we tend to make them in a very Kiwi way. Our default option is to forget what’s required with food is a complete package: a terrific product people really want to eat, treated with the respect it deserves. For example, packaging has be as good as the product, but Kiwis tend to go for quantity. Cheaper packaging and the bigger the container the better.”

Cullinane quotes Harvard Business Review's three rules for making a company truly great. First, better before cheaper. Second, prioritise increasing revenue over cutting cost. Third, there are no other rules.

It's a bit early to call six-person band Lewis Road Creamery a great company. But looks like it's might be doing something right.