Beverage giant Coca-Cola thinks consumers will pay up for a premium milk product, even though they're drinking less milk every year. Photo source: Fairlife.

Coca-Cola (NYSE:KO) owns nearly two dozen billion-dollar brands, everything from its original soda recipe to Fuze tea, but believing it can grow its new premium milk drink into one too shows it's engaging in some pie-in-the-sky thinking.

A fair assessment
The beverage giant introduced its protein- and calcium-fortified Fairlife milk drink a little over a year ago, during which time it's reportedly generated some $90 million in sales. Analysts say Fairlife gave the broad specialty milk category -- which includes products like lactose-free milk, milk from grass-fed cows, ultra-filtered milk, and milk from cows fed organic feed and not treated with most drugs -- a big jolt last year, helping the segment grow 21% from 2014, though that's likely because it started from a very small base.

The USDA reports Americans continue to drink less milk every year. In 2014 (the latest data available), the U.S. consumed 159 pounds of fluid milk per person, a 3.6% drop from the prior year and almost 15% less than a decade ago, but some 36% less than in 1975.

Even so, the U.S. continues to produce more milk than ever. Last year 208.6 billion pounds of milk were produced, 1.6% more than in 2014, and the USDA estimates another 1.4% more, or 211.6 billion pounds will be produced this year. While the discrepancy between why dairy farmers are producing more when people are drinking less is a combination of government policy paying them to continue producing more and a still growing export market, the continuous domestic erosion of consumption levels suggests Coca-Cola is going to have a hard time meeting its Fairlife goals.

Milking the cow dry
Dean Foods
(NYSE:DF) is the largest dairy processor and it reported that net revenues tumbled 14.5% in 2015 as fluid milk sales continue to fall. It said fourth-quarter sales dropped 1.1% in the period, a performance it notes "marks the best category performance at retail going back through at least 2011."

Because milk is truly just a commodity, as consumers likely don't distinguish one brand as being any better than another, Dean Foods is still trying to differentiate itself by developing the DairyPure brand that will cover all of its white milk sales. Soon it will face a new competitor in Wal-Mart (NYSE:WMT), which is entering the dairy processing business with a new state-of-the-art facility that's supposed to be the largest in the industry. By becoming more vertically integrated in milk processing, Wal-Mart believes it can reduce costs further and pass along the savings to consumers.

We may have reached peak protein as the proliferation of products fortified with the dietary staple has reached a saturation point. Image  source: General Mills.

It's against this backdrop that Coca-Cola thinks it can offer a higher-priced product that people are drinking less of. Fairlife not only costs more than organic milk, but it's about twice the price of regular milk. Yeah, good luck with that.

A premium experience
Still, unlike regular white milk you buy at the supermarket, Fairlife contains 50% more protein, half the sugar, and it's lactose-free. Although the U.S. has had a love affair with protein that's kept beef prices at record levels, they've since backed off those peaks. Choice boneless sirloin steak, for example, which hit $8.86 per pound last September, eased to $8.28 per pound last month. Even the average price for ground beef, which rose to $4.71 per pound in February 2015 has come down to $4.38 per pound.

While the protein fad led to bacon everything, including ice cream flavors, as well as making cereals like Cheerios protein-fortified, there's undoubtedly a ceiling being reached. Fairlife is betting on consumers willingness to pay up for a value-added product, but even one of the more popular segments of the non-traditional milk market, organic, ran into stagnation last year.

For Coca-Cola to believe Fairlife can transform into a billion-dollar brand is just cow-over-the-moon-type thinking.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.