Why Dean Foods filed for bankruptcy

Dallas-based Dean Foods Co., which offers private branded and branded fluid milk and dairy products, filed for bankruptcy in the Southern District of Texas and said it is also in advanced discussions with Dairy Farmers of America Inc. regarding a potential sale of most all of its assets. Dean Foods is the country’s largest milk processor.

"The actions we are announcing are designed to enable us to continue serving our customers and operating as normal as we work toward the sale of our business," said Eric Beringause, who recently joined Dean Foods as president and CEO.

While private label sales of dairy products commanded 33.3% of dollar share in sales in 2018, according to the Private Label Manufacturers Association’s “2019 Private Label Yearbook” and market researcher Nielsen, sales growth in 2018 was only 0.4%. In addition, several grocers like The Kroger Co., Publix Super Markets, Albertsons Cos. and Walmart manufacture their own milk and dairy products, which has impacted dairy companies’ sales. These retailers are also selling their own brand milk at low prices to increase traffic.

When Walmart opened its dairy plant in Indiana last year, it was reported that 100 dairy producers that shipped to Dean Foods lost their contracts with the company. Walmart’s plant bottles milk for 600 Walmart stores.

“Despite our best efforts to make our business more agile and cost efficient, we continue to be impacted by a challenging operating environment marked by continuing declines in consumer milk consumption,” Beringause said.

Per capita consumption of milk has been declining and continues to decline. According to market researcher Statista, consumption is projected to decline from 194.9 pounds in 2010 to 155.3 pounds by 2028.

Dean Foods said it’s operating in the ordinary course of business and has received a commitment of approximately $850 million in debtor-in-possession (DIP) financing from existing lenders. Following court approval, the company expects to use the DIP financing with cash on-hand and operating cash flows to support its continued operation throughout the Chapter 11 process.

“I've taken a hard look at our challenges, as well as our opportunities, and truly believe we are taking the best path forward,” Beringause said.