Walmart To Open Dairy Processing Plant, Will Make Its Own Milk For 600 Stores

While Walmart generally sources its store-brand products from third-party private label companies, the mega-retailer is deviating slightly from that trend with the news that it will soon be supplying its own milk for hundreds of Walmart stores.

Walmart recently announced that it would build and operate its own dairy processing plant in Indiana with the aim of supplying private-label milk to hundreds of its stores starting in 2017.

In all, the company says about 600 Walmart and Sam’s Club stores in Indiana, Illinois, Michigan, Ohio, and Northern Kentucky will receive the Walmart-made milk.

“By operating our own plant and working directly with the dairy supply chain in the Midwest, we’ll further reduce operating costs and pass those savings on to our customers so that they can save money,” Tony Airoso, senior vice president of sourcing strategy for Walmart U.S. said in a statement.

Reuters reports that the move will allow Walmart greater control over costs and will more closely align it with other grocery chains like Kroger and H-E-B that have their own dairy processing plants.

The foray into the dairy business cuts down on the retailers’ deal with Dean Foods, which currently provides the milk for Walmart’s Great Value and Member’s Mark white and chocolate milk private labels.

Walmart says Deans will continue to make those products for more than 5,000 Walmart and 650 Sam’s Club stores that won’t receive product from the company’s own Indiana plant.

Still, Reuters reports that Dean Foods stock slipped by 12% on Tuesday after Walmart’s plans were disclosed.

The company said in a securities filing [PDF] that the retailer’s change could lead to the loss of 100 million gallons of “very low-margin private-label fluid milk volume” from late 2017. However, the change won’t affect its own national labels, such as TruMoo or Dairy Pure.

Wal-Mart jumps into milk processing, hits Dean Foods’ stock [Reuters]