The 10 key growth trends in dairy nutrition
Every two years, New Nutrition Business publishes a detailed update of the key trends for the dairy industry. Dairy companies are today faced with some good opportunities for profitable growth at good margins – if they can connect to the key trends. Here is a snapshot of some of them:
Key trend 2: Up with fat, down with sugar
Science increasingly underscores that dairy is one of nature’s “naturally functional” whole foods. For 30 years, health professionals demonised dairy for its saturated fat content – creating the market for low-fat dairy products.
Dairy fat’s connection to risk of cardiovascular disease has been firmly debunked by an ever-growing body of science. For example, one recently-published study looked at the milk and dairy consumption of more than 20,000 people using a biomarker – a far more reliable method than using people’s recall. They found, “No association between milk intake and cardiovascular risk.” (Scientific Reports, 2016 )
As a result of new science about dairy’s health benefits, in some markets the most health-informed consumers are buying more full-fat products while sales of low-fat are flat or falling. In the US market, for example, the volume of whole milk sold at retail grew 5.5% in 2016 and the volume of zero/low-fat milk fell by 5.1% (IRI).
There are some yogurt brands that have given up offering low-fat variants and successfully focus on the taste advantage of “made with whole milk.”
In most markets, it will take 20 years before consumers understand that full-fat is a healthy option, but the trend is clear. In Europe, the change will be the slowest owing to the irrational reluctance of many health authorities to accept even overwhelming science that gives a different picture from their existing beliefs. That means that European dairies must work all the harder. There are two steps dairy companies must take:
- Begin by targeting your lower-sugar, higher-fat products only at the most-informed consumers, who are already learning that dairy fat is not bad and start educating people about the benefits of full-fat vs low-fat.
- Challenge health professionals and dietary advisers who persist with the low-fat dairy message.
Hand-in-hand with the rebirth of dairy fat is the demonisation of sugar. In many markets, consumer concerns about sugar are already having an impact on sales of low-fat yogurts. For example, in the UK:
- The Yeo Valley brand, which has a 5% market share, reports that 40% of its sales are from unflavoured, plain variety (which has 6.5g of sugar per 100g) and attributes this to consumers choosing foods with no added sugar. The brand’s sales grew by 11.7% in 2015.
- Sales of Danone’s flagship Activia brand, probiotic for digestive health, fell 14.9% in 2015, as consumers turned away from fruit-flavoured single-serve yogurts (Activia is almost entirely fruit-flavoured with around 13g of sugar per 100g), motivated in large part by concerns about sugar.
To deliver low-fat dairy products, product developers often had no choice but to raise sugar levels in order to maintain palatability. Wise companies will simply lower sugar levels and increase fat and avoid the taste and cost problems of using sweeteners.
Key trend 3: Say cheese!
Cheese is one of the biggest beneficiaries of the science-based re-birth of dairy: There are no negatives associated with cheese from the fat or sodium and it actually confers some health benefits. Snacking is the biggest growth opportunity for cheese and a few companies are already getting more sales at higher margins by focusing on snacking. These brands enjoy better margins and surging sales by offering cheese in composite snacks – with nuts and dried fruit. For example, Sargento Balanced Breaks cheese snacks achieved $67 million (€60 million) in retail sales in the US in its first year, making it one of the 10 most-successful new products launched in America in 2015.
Meanwhile, Kraft Foods Oscar Mayer introduced a simple and protein-packed product line in 2014 called P3, which includes meat, cheese and nut portions. Sales of $101 million (€91.7 million) in the year to June 2016 (IRI), a 60% increase over 2015, were achieved despite premium pricing.
In fact, single-serve and snackified products have to be part of every company’s strategy (key trend 1). This is one of the strongest ways to get better prices and better margins. Single-serve on-the-go products are better aligned to modern lifestyles than the traditional family-oriented bulk packs, which have previously been the focus of many dairies’ manufacturing-led, commodity-based strategies.
Key trend 5: Digestive wellness
Digestive health is a major “wellness” issue for many consumers – at any one time 30% of people are troubled by bloating, gas, diarrhea or constipation. It has been a growth driver in many categories for over 20 years – most notably probiotic yogurts. Companies have treated digestive wellness and the free-from markets (meaning gluten and lactose-free) as separate. But they are in fact the same market since gluten-free and dairy-free/lactose-free connect very strongly to digestive health.
When people reduce dairy or lactose, they report that they “feel the benefit” – one of the most important reasons for anyone to buy a healthier product. The opportunity for dairy is to connect to the digestive trend without getting tied in knots about EFSA’s health claims restrictions on probiotics.
Key trend 6: Non-dairy
It may seem strange to include non-dairy among dairy trends. But like it or not it’s there, both as a threat and an opportunity. Can there by anyone in Europe who wants to stand back and see 12% of the liquid milk market transfer to almond and coconut milks, as has happened in the US?
Non-dairy plant milks successfully use the message of better digestive health as a way of positioning themselves against dairy. Much of the negativity about dairy that is eroding dairy in some markets arises from consumers seeking digestive wellness and associating it with dairy-free.
All dairy companies must decide how to respond to non-dairy. In many cases that will mean entering the market. In 2016 both Danone and Coca-Cola became major players in “non-dairy dairy” through acquisition. Danone is now one of the worlds’ top-10 dairy companies and also the world’s biggest player in the non-dairy milks market. Dairy companies who think they can ignore non-dairy – and farmer-owned co-operatives are at greatest risk of such denial – are at risk of writing their own suicide note.
Key trend 8: Premiumisation
Premiumisation is a key opportunity for dairy companies. As consumer beliefs about health fragment massively, the niches collectively are eating up the mass market, starting in the wealthiest countries. Premium niche brands are achieving good growth even as commodity brands stagnate.
A portfolio of low-volume, high-value niche brands is the way ahead for profitability in almost every case. Begin by addressing the lifestyle consumer who is willing to pay a premium for a healthier product.
The high-volume commodity focus of many dairies is a mistake, unless you are the one or two players who can dominate the low-cost part of the market using price – but even then you will be under constant erosion from private label and your volume may be flat or declining.
Key trend 4: Protein
Protein continues to be a growth opportunity, particularly in Asia and the Middle East, where the market for such products is at Day 1. Consumers see protein as a benefit, and the most health-aware know of protein’s connection to healthy weight and body composition. Protein is slowly taking over as the ingredient most associated with weight management.
There is plenty of evidence that in strategy we all have two choices: become the highest-volume, least-cost producer, or become a margin focused specialist.
Any company that cannot be the biggest must become a specialist of some sort. The key trends signpost some of the ways to get there.
