The February 2010 issue of Competitive Edge, a newsletter produced by Barrington, Ill.-based Willard Bishop, highlights a $1 billion opportunity for the grocery industry in, of all places, the dairy department.

"It's time to modernize dairy and capitalize on some of the best household penetration and ROI numbers in the entire store," said Paul Weitzel, Willard Bishop partner, drawing on extensive research by Dairy Management Inc. (DMI).

Currently, Weitzel said, most retailers do not treat the dairy department like a true "department," making it look and feel more like a center store "category" than the fresh food leader it is. To remedy the situation and maximize dairy department profitability, he suggested that retailers consider giving the dairy department more space.

Expanding the footprint dedicated to the dairy department enables a retailer to make room for the additional variety associated with new products; create new, shopper-relevant sections for emerging segments such as health and wellness; and optimize the potential returns from sales space amongst competing areas of the store to drive stronger results for the store," he said.

Weitzel also suggests that retailers take steps to enhance shopper engagement. He notes that shoppers spend 19 percent less time shopping the top-three dairy departments than they do shopping for bottled water, which suggests that most dairy purchases are automatic, with little consideration given to items not on the shopping list.

"Improving visual cues and calling out various products and/or sections can help slow the shopper down," Weitzel said. "The key to success is employing messaging that addresses shopper lifestyle and usage needs as well as the shopping mission."

According to Weitzel, the reinvention of the dairy department should include the following best practices: