[MUSIC]
In this episode of the Roadside MBA we visit the Rosa Brothers Milk Company in
Central California.
>> Okay, who's ever milked a cow before?
>> Where we get our hands dirty on the farm.
>> Oh yeah, now she's got it.
Oh yeah, that's good stuff.
>> Find out what root beer flavored milk tastes like.
>> Oh, that's good.
Oh, that's really good.
>> And learn why product differentiation is the key to
helping your small business stand out in a crowded commodity market where you have to
convince your customers to pay more to survive.
[MUSIC]
We're on the road heading south from San Francisco.
Three economics professors leaving our day jobs behind,
off on a journey into California's agricultural heartland.
[MUSIC]
>> This area that we're in the middle of
now is called the Central Valley of California and it's full of dairy farms.
[MUSIC]
>> This is Tulare county.
The dairy industry here brings in as much as $1.8 billion a year,
more than any other county in the United States.
We've come to find out what it takes to make it in the milk business [SOUND].
>> Hello. >> Hi, Roland.
>> Hi, good to see you guys.
>> Scott, good to see ya.
>> Scott. >> Roland Rose is
a third generation dairy farmer.
He and his brother Nol inherited the family farm 16 years ago.
>> So, thanks for coming out.
Are you guys, interested in the full tour, or just kinda of standard farm tour?
>> We're ready, we're ready in a tour, we're ready for a tour.
We want to see some, see some dairy cows.
>> Good. >> We wanna see some cows.
>> Good, we've got plenty of cows here.
>> Roland takes us to the milking barn, where the production process begins.
>> Okay, who's ever milked a cow before?
>> Milking the cow wasn't my favorite thing that I did today.
>> There's a T-canal there, and so you wanna grab at the top and
kinda push the milk down, then it'll come out.
>> I was nervous when I was milking the cow.
I thought I'd might get kicked.
It went smoother than I thought.
Milk actually came out, which I was a [LAUGH] little bit surprised.
>> So this one goes on this quarter here.
>> Then you put the vacuums on each of the teats and the rest is sort of vacuumed or
sucked out through a tube.
>> It kinda simulates what you're doing with your hands.
So those pulses of milk go through,
they go through a sensor, and then goes into the pipeline.
>> I always sorta wondered, you know,
how did they get all that milk that they, you know, even had in production area.
How do they get all that milk?
Well, now I understand because those cows are full of milk.
>> Next he shows us where all those full grown cows come from.
>> This is the area where the calves are born.
That's a calf that was just born this morning.
>> Just this morning?
>> Right. >> Wow.
>> I also really liked seeing the baby cow, that was kinda cute, wasn't it?
[LAUGH].
>> Calves have just huge eyes,
it was kind of looking up at me, wondering why I was there.
>> So, first thing you wanna do if you're gonna feed it,
you want him to be standing up so they can-
>> Yeah? >> Swallow properly.
>> Get up, little guy.
So you have to reach your fingers into the cow's mouth, very sharp teeth, and
then following behind that, you have to come in with the bottle.
Urgh, there we go!
You would think the cow would be hungry, right?
This is a cow that has to grow, so it needs to eat, but,
yet, you've kind of had to convince it that that had to happen.
Squirting some milk into the cow's mouth,
forcibly, would show the cow that this is a good place to get a meal.
Oh yeah, now she's got it.
Oh yeah, that's good stuff.
>> Roland and his brother, Noel, enjoy being farmers, but
they say it can be a hard way to make a living.
>> The state of California sets the price for milk.
We're all gonna get the same price no matter what processor we go to,
the state sets a minimum price and that's all the processors pay.
In 2009 we saw a situation where our input costs really went up and a, and a,
the, the value of our product completely went down,
and that there was such a, a disparity there.
There was no way that any dairy farm in California was gonna survive.
And so it was a situation where you realize you can't run
a business like that.
We have to have some control over the product pricing.
>> A couple years ago they said, okay, how can we separate ourselves?
How can we differentiate ourselves from all these other dairy farmers around here?
And they said, let's move down the vertical chain of production.
Let's vertically integrate forward into producing milk rather than just taking it
out of cows and selling it to big processors.
We're gonna process it ourself and
have actual milk that we are going to sell to consumers.
[MUSIC]
So they built their own milk processing plant.
>> Okay, so I have a large and an extra large.
>> Noel showed us around.
>> We had to put on ridiculous white clothing.
>> I am a doctor so.
>> [LAUGH] >> So this is appropriate attire.
>> You're a doctor of economics, that's different.
>> [LAUGH] >> Well.
>> We had to wash our hands.
>> Soap and hot water after you dry your hands, sanitize them.
>> We had to step through with our shoes, some sort of foot bath of disinfectant.
And all that's to make sure that nothing is getting into the milk
bottles except for milk.
[SOUND] Rudy, this is Paul, Scott, and Mike.
>> Hi. >> Nice to meet you.
>> How you doing, Rudy?
>> Hi, nice to meet you.
>> They'd like to know how you make the milk.
>> Their facility is much smaller than many of
the other milk factories around here, which means their production costs
are significantly higher than their competitors.
So they needed to find a way to convince customers to pay more for their milk.
>> Of course, that's difficult unless you have some way of
presenting a different value proposition.
Some way of not being just another gallon of plastic milk in a refrigerator.
>> You can't make any money doing that if you just make milk the way
the other guys make it.
So they said,
let's try to figure out a way we can do that and sell it at a higher price.
And they figured out a way.
And it's by making the milk in glass bottles.
>> We researched this for
a couple of years and part of our research was, my brother went online and
found farms that were bottling their own milk across the country.
And I visited dairies that were in plastic jugs and
visited dairies that were in glass.
And what I found was the guys who
were in plastic were really struggling to differentiate their product.
And so, in the end what they ended up doing was they ended up competing with
the big store brands on price.
>> So Noel and
Roland decided to offer their milk in glass bottles rather than plastic.
If consumers preferred the taste of milk bottled in glass, recognize glass bottles
as a symbol of quality, they could charge a higher price and still sell milk.
>> The key to differentiation for Rosa Brothers was the glass bottle.
The glass bottle was a symbol to customers that the product was different and
the product was better.
>> So what we have here is our filler machine.
The bottles will come in here,
as the bottles are bushed up against the rubber boot there, it opens the flow,
the milk flows into the bottles and then the bottle will come over here.
And then as it gets to the end of the line,
we'll have a person take the bottle off of the line and put it into the cases.
So this is our skim milk.
Partially filled bottle coming off of the line.
Why don't you give it a taste?
>> I'll try it out, thanks.
Wow, that's good stuff.
>> Yeah.
>> Do you have any cereal?
>> [LAUGH] Yes.
[MUSIC]
>> This is where all those bottles come to be cleaned before the milk goes in.
>> So this is our bottle washing room.
This machine takes them through a hot water caustic bath, and then it does
a series of rinses, and then it does a sanitizer, and the bottles come out clean.
They go directly onto the conveyor and directly to be refilled.
>> Noel put us to work washing bottles.
>> I'm getting the hang of it.
>> But as we loaded the washer, we wondered,
why can't the big milk processors just put their milk in the glass bottles and
sell it at a lower price, putting Rosa Brothers out of business?
Turns out their factories are too big.
One broken bottle would be a disaster.
Everyone that I spoke to in the industry prior to us starting our plant, when I
mentioned glass in a food processing facility, they just said, no way.
Because if you have a large processing facility, you have multiple lines.
If one glass shard were to fly from this line and
it can contaminate thousands of bottles of milk.
We have one line.
If there was a problem, we could stop the line and
we could clear everything out easily.
[MUSIC]
>> How did you get distribution into the supermarkets?
>> That was the big hurdle.
[LAUGH] The supermarkets didn't wanna talk to us.
They're like, we don't wanna have to handle those bottles coming back.
We were so glad when Coke quit doing that years ago and
we don't wanna go back to those days.
And we have our own milk processing plant.
Major supermarkets have their own milk processing plant so
that they can supply their own stores.
They said, we view you as competition, we don't want anything to do with you.
So we got the door slammed in our face.
Okay? Multiple times.
>> So they started selling their milk directly to consumers.
>> We went to farmer's markets and did tastings,
started selling at farmer's markets to kind of build this grass roots campaign.
So we were out there at the farmer's markets talking about it and people say,
well why can't we buy this in the grocery store.
Ask for it.
We put it on the side of our distribution trucks, ask for it at your local grocer.
>> Then, they got their big break.
>> Then we went to a food show, and we won New Product of the Year.
We got a lot of press with that.
And so, a lot of people were talking about our products, so then we got the call from
some of the major retailers, yeah, we need to talk to you.
So, that ground swell of people pressuring the dairy manager,
who then pressured the store manager, who then pressured the district manager,
who then went to corporate and said, we need this product in our store.
[MUSIC]
>> Another way Rosa Brother's milk stands out from the competition is
its unique flavors.
>> Okay, guys.
>> Wow. >> Here we have some flavor samples.
>> Nice.
>> Chocolate, root beer float, orange cream.
>> Milk does taste better when it's fresh.
It also tastes better when you put a lot of sugar in it.
Orange cream tastes like a 50/50 bar, so
the sherbet with the vanilla ice cream in the middle.
>> Time to revisit a sweet taste from childhood.
>> This tastes exactly the way you described it.
>> Yeah. >> It tastes just like that.
>> Really like an orange creamsicle.
>> Yeah, yeah. >> Orange popsicle.
>> It's really good.
If my kids knew this existed, I would have to be down there buying it all the time.
>> This tastes like the last sip of a root beer float.
>> Oh, that's good.
Oh, that's really good.
The root beer is delicious.
>> The milks I knew you could tell that they tasted a little bit better because of
the, the glass bottle but the variety of different flavors,
those milks were distinct.
And that's really key in a differentiation strategy,
to make sure your products are significantly distinct.
So that, if you find the people that really get a kick out of
orange creamsicle milk, well,
then I've got something that definitely appeals to them, and we can make a match.
>> Now he's gonna get the cream and put in the correct number of gallons.
>> They also use the excess cream,
that's a by-product of making low-fat milk, to make ice cream.
>> I'd like to try coconut and chocolate.
This is the one that tastes like an Almond Joy bar.
>> The ice cream tastes great.
>> Oh, this is delicious.
I could sit here and eat that the rest of the day.
>> This is like my ideal.
This is awesome.
>> I had the pistachio ice cream, which was excellent.
I would buy that if it were available where I live.
>> Noel says they use all natural ingredients and
they don't use preservatives like the big manufacturers because they don't have to
ship their ice cream so far.
But we think that Rosa Brothers might have a harder time competing in
the ice cream market against the likes of Ben and Jerry's and Haagan Dazs.
>> It's harder to differentiate yourself in terms of packaging with ice cream
than with milk.
There are already established competitors in that space.
So I think that's the fun story to follow over the next few
years about Rosa Brothers is what's gonna happen with the ice cream side of it.
>> So let me ask the final, final question.
If we drive by back,
if we [LAUGH], if we're ever stupid enough to rent an RV again.
>> [LAUGH].
>> [LAUGH] And drive out this way, if we drive down K street or wherever you
are in downtown Tulare, five to ten years from now, what are we gonna see?
>> I think it's gonna look exactly the same but
some of those buildings along K street that don't have any signs,
will probably be additional warehousing and additional facilities for us.
>> And in my Palo Alto grocery store,
am I gonna see Rosa Brothers by five to ten years from now?
>> Yes.
>> All right, we have that on tape [LAUGH].
>> [LAUGH].
[MUSIC]
[LAUGH].
We've had fun hanging out with the Rosa Brothers, but
now it's time to say goodbye and get back on the road [SOUND].
[MUSIC]
We're headed south to Adelanto, California.
A small city on the edge of the Mojave Desert.
Where we're hoping to find American manufacturing alive and
well in a place you might least expect it.
[MUSIC]