Enter the giants

Validation of the high-growth health opportunity for dairy is coming from Coca-Cola and PepsiCo, says Julian Melletin.

It would surprise many people to learn that validation of the long-term, high-growth health opportunity for dairy is coming from Coca-Cola and PepsiCo, two companies better known for their carbonated sweetened beverages – a product type not associated with health and nutrition. But this is precisely what is happening.

Coca-Cola’s backing of the Dairy 2.0 trend – the renaissance of dairy as a healthy, wholesome food with natural benefits – has been thrown into the spotlight by its launch, in January 2015, of a new brand called Fairlife – an ultra-filtered milk that is high-protein (13g per 240ml), with 120 kcal per 240ml (25% fewer than regular milk) and is also lactose-free. And as a result of being lactose-free, it has half the sugars of regular milk. These elements of the product’s design connect it firmly to some of the key trends in our industry.

Coca-Cola has long had its eyes on an opportunity in dairy and has experimented with various brands for almost 15 years but this is the company’s first major attack on dairy.

PepsiCo already owns the Wim-Bill-Dann dairy business in Russia, has a joint venture with Almarai in Saudi Arabia and is attempting to build up
its presence in dairy in the US in a joint venture with Müller, the German dairy group.

“Nature’s health food” image boost

The PepsiCo and Coke ventures are risky; there
is no certainty of success. But the fact that these businesses have spotted the growth potential for dairy as “nature’s health food” illustrates the power of the strategy of Dairy 2.0.

Dairy benefits from being “naturally functional.” Many dairy foods (such as yogurt) are ranked in consumers’ minds alongside oats, almonds and other “naturally healthy” whole foods. This gives dairy a much stronger health marketing platform than many other categories in the supermarket. As a result it is credible in the mind
of the consumer to attach health messages to dairy – specifically messages that are perceived as a logical fit to dairy.

In addition, just like those other naturally functional food components, dairy is accumulating a growing body of research to support its benefits
– and these in turn, as they leak out into the media, are raising the positive profile of dairy among health-conscious consumers.

For 30 years health professionals have attempted to demonise dairy on the grounds of alleged
harm from its saturated fat content – producing a consumer obsession with low-fat dairy products in some countries, such as the US.

But the dietary recommendations that told people to limit consumption of dairy foods and only consume low-fat dairy had their foundations in inadequate science. A rising tide of significant studies is showing how baseless this advice is. Researchers are rolling back the negatives about dairy fat. The long-held view that dairy fat is connected to risk of cardiovascular disease has now been firmly debunked by a steady stream of good quality science, which suggests that dairy foods have a neutral or even beneficial effect on the risk of heart disease and diabetes.

One day we may see the obsession with low- or no-fat dairy products has been a huge mistake. Far from improving health, they could have contributed to some of the growing health problems of the last two decades.

It will be some time – perhaps 10 years – before dairy companies can communicate that dairy fat has cardiovascular and other benefits because
the “low fat paradigm” is so well-entrenched in consumers’ minds – particularly older consumers.

Shift in dairy strategy

The big shift in dairy strategy that has occurred over the last four-to-five years is from “Dairy 1.0” to “Dairy 2.0”. Coca-Cola’s launch of Fairlife is
a perfect example of this shift – had the company launched a dairy product 10 years ago – in the days of Dairy 1.0 – you can
bet the emphasis would have been on an added ingredient, such as plant sterols or marine omega-3s (fish oils). But today the emphasis is on protein and calcium, which are natural, intrinsic advantages of dairy, coupled with lactose-free and/or a lower sugar message.

In Dairy 2.0, dairy innovation is no longer focused on positioning dairy as a competitor with dietary supplements but on:

· Ingredients and benefits that are a more logical and “easy to accept” fit with dairy – in particular, protein.

· Ingredients and benefits that are “as natural as possible.”

· Lowering sugar content, often by using lactose-free technology

· New and more interesting product formats – usually in the form of companies reinventing “old formats” or taking traditional regional dairy products from one geography and launching them into new geographies where they are new and exciting, but adapted to suit the tastes of the new markets.

· Taste and texture, in particular re-establishing dairy’s strengths in the minds of the consumer. The recent surge in higher protein products is one element of this since protein significantly adds to a dairy product’s pleasurable mouthfeel.

Huge scope exists to create new brands – Coca-Cola’s Fairlife is a perfect example of a new Dairy 2.0 brand.

Arla Foods has also shown with its WingCo brand that there’s a premium-priced niche market in Europe for higher protein foods. Wing-Co is said to “shoot down hunger fast,” which is a clever way of communicating a satiety benefit without using a health claim. Launched in 2013 in the UK, this milk drink has 40% more protein than most other milk drinks (25g per 500g bottle). It retails in 500g bottles at €1.28. Backed by some clever marketing it achieved over €25 million in retail sales in its first year.

New markets for traditional products

There is also huge scope to re-position and reinvent traditional dairy foods for new markets and new consumers.

In a classic Dairy 2.0 strategy, UK based farmer-owned dairy First Milk has introduced UK consumers to quark – a soft cheese that is widely consumed in Germany but almost unknown in the UK.

Aside from its indulgent, creamy consistency, quark has many benefits, including naturally lower salt content, higher protein content and naturally low sugar content. It also has versatility as a standalone dessert or for use in cooking.

Sold under the Lake District Dairy brand it has attracted higher income, older, “foodie” consumers and exceeded sales expectations, becoming market leader in quark, growing the market by 37% and achieving higher repeat purchase rates than leading yogurt brands.

Dairy fat is good

Perhaps one of the biggest shifts is in relation to dairy fat. Low-fat diets for health, and as a result low-fat dairy, have been the iron orthodoxy for 30 years. But now that scientific orthodoxy has been overturned, with even the American Heart Association saying that it is downgrading low fat diets. As Dr. Darius Mozaffarian of Harvard School of Public Health was quoted as saying: “There is no evidence that low-fat dairy products are healthier than high-fat dairy.”

The change can be seen in falling sales of vegetable-based table spreads, with Unilever now rumoured to be putting its business up for sale.

Meanwhile, butter has started a slow bounce-back, which began with foodies increasingly using it in home cooking, solely on the basis of better taste. In the US in 2010 butter sales overtook those of vegetable spreads for the first time since the 1950s and have widened the gap every year since.

In 2014 consumption of butter is expected to be 2.54 kg per capita, while that of vegetable spreads has fallen below 1.5kg. 
According to Nielsen data, sales of vegetable spreads fell to $1.5 billion (€1.2 billion) in the year ended May 2014, while butter sales rose to more than $2.3 billion (€1.85 billion).

Sweden is leading the way in Europe in downgrading the low-fat dietary advice, but Europe will be slower to change. However, the change will come, and while older consumers will not shake off the bad dietary advice about low fat that they were brought up with, younger consumers – people who are today in their teens – will grow up with the paranoia about fat and this will lead a gradual shift back towards whole-food dairy, with its fat content intact.

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