Dean Foods Company Dean Foods

Dean Foods Company

Dean Foods is in a challenging industry. The company is focused on the sale of milk and dairy products, soy milk and tofu. The five forces analysis will help to explain why the industry environment is so challenging.

The power of suppliers is high. Soy is traded globally on commodities markets, so Dean has very little pricing power for that product. The company has some pricing power with respect to milk because they are one of the nation's leading dairy companies, but the price of milk is also subject to support from the federal government so Dean does not have total pricing power over that key input. Owing to the company's size, however, Dean does have pricing power over labor, equipment and non-food supplies such as packaging. The power of buyers is moderate. While end consumers have little pricing power in Dean's product lines, Dean typically sells either to wholesalers or direct to grocery store chains. Some of these firms are very large and will typically not really on Dean for their volume. Dean can also spread its volume around different customers, but ultimately Dean needs to bring major retailers and wholesalers on board in order to fill its capacity.

There is only moderate threat of new entrants. Dairy and to a lesser extent soy are not hugely profitable industries due to relative lack of pricing power. As dairy in particular is subject to consolidation, the risk of new entrants is relatively low. With the entry into the soy business, Dean has actually addressed one of the major threats of substitutions. Milk and dairy, however, are firmly entrenched in American food culture so there is little risk that they will be readily substituted for most uses. However, as coffee creamer and margarine have demonstrated, there is risk of substitution even with long-established consumer staples.

The intensity of rivalry is becoming greater. Firms in both dairy and soy are fighting for market share, one because of market contraction and the other because of market expansion. Firms compete for shelf space at major retailers and because the products lack differentiation, firms in the industry tend to compete strictly on brand name, rather than product attributes. Overall, this leaves the industry moderately unfavorable. Soy is more favorable that milk generally, but milk is the much larger industry and for a sizeable, established player with strong distribution networks it is still a good industry to be in.