Plants on the march
Across Europe – and the US, South America and Australasia – the continuing rise of plant drinks is giving dairy executives cause for concern. Their rise coincides with a long continuing fall in retail prices for liquid milk, cheese and mass-market cultured dairy.
Most senior executives see plant ‘milks’ as an existential threat, but few have worked out a coherent response to the shift in consumer preferences that it represents.
In the US, one small dairy has seen the writing on the wall and taken steps to ensure it can continue as a business – even if it’s a very different business.
New York-based Elmhurst Dairy shut down its plant in late 2016 as milk sales fell and it struggled to make money. But rather than throw in the towel, the 90-year-old family-owned-and-operated company has decided to use its milk expertise to succeed in the non-dairy segment.
It has transformed itself into Elmhurst Milked, a non-dairy operation and the company unveiled its “milked nuts” line at Natural Products Expo West in California earlier this year. The four varieties of plant milks it produces are almond, cashew, hazelnut and walnut. Elmhurst Milked’s entire line is vegan, lactose-free, kosher and non-GMO certified.
If that degree of change sounds unlikely, just remember that much of what has happened to our industry over the last ten years would have been dismissed as unlikely – or even plain ridiculous – ten years ago.
And it’s not just small companies who are responding to the changing market – Danone, one of the world’s ten-biggest dairy companies, last year acquired White Wave, the market-leader in plant-based milks in both the US and Europe (where it operates under the Alpro brand), making Danone the world’s biggest producer of plant-based drinks and yogurts.
The previous owner of White Wave, Dean Foods, America’s biggest processor of liquid milk, might just have realized the strategic mistake it made back in 2012 when it decided to spin off White Wave in an IPO, which valued the business at $2.78 billion (€2.47bn).
Dean Foods exited what was already clearly one of the strongest growth opportunities in food and beverage, selling off a high margin growth business to focus instead on a declining low margin business. As strategies go, it wasn’t a great decision.
Faced with a decline in liquid milk volume, which has pushed down its share price, Dean Foods now seems to be looking for a way back in and has made an investment in flaxseed-based milk producer Good Karma Foods.
With their promise of being “easier to digest”, plant drinks appeal to consumers who associate liquid dairy milk with intestinal discomfort and a smaller group who are motivated by the idea that “plant-based” is somehow healthier.
The trend is most advanced in the US, where sales of almond ‘milk’ grew from close to zero in 2007 to almost $1 billion (€880m) in 2016, according to IRI data, and plant drinks of all kinds have a 12% value share of the liquid milk market. These drinks have also succeeded despite selling at a 100% premium to cows’ milk – which means their volume share is a more modest 6%.
In many markets, people have been giving up the habit of drinking a glass of milk – a change that was driven partly by the switch to low-fat milk which took away milk’s taste advantage and partly by the proliferation of better-tasting, refreshing, convenient and healthier-halo alternatives, from fruit smoothies to fruit-plus-vegetable smoothies, bottled water, coconut water and many, many others.
Even in Asia, where per capita consumption of liquid milk is a fraction of that in the west, the high rate of lactose intolerance in the general population is causing many people to limit their intake of liquid milk and look afresh at plant drinks, which are traditional beverages in many countries and whose sales are increasing as a result of products being modernised with more convenience, a better nutritional profile and better taste.
Some dairy executives argue that it’s necessary to reduce consumer confusion around the nutrition that dairy milk delivers, saying that the producers of planet-based ‘milks’ are using dairy’s wholesome reputation to sell their products, which contain different nutrients, most of which are added and not natural and intrinsic to the product.
That point of view shows a total failure to understand why people buy plant drinks: it’s because they don’t want the feeling of bloating or other digestive discomfort that they believe they get when they drink cows’ milk. Or they just prefer the taste.
The fact that plant ‘milks’ are industrial products, often composed of ten or more ingredients compared to cows’ milks’ one, illustrates how consumers desire for something that’s “natural” and has as few ingredients as possible is something they are willing to give a back seat to when they are looking for the tangible benefit of “easier to digest”. It’s a reminder that there are few absolutes in consumer behaviour and beliefs are complex and often appear contradictory. Telling them about how industrial plant drinks are isn’t going to change their mind.
Nor will any amount of marketing about the “better nutrition” of cows’ milk either address people’s digestive issue.
Sales of plant ‘milks’ will eventually plateau – they are not to everyone’s taste and the premium price – usually 100% per litre more than cow’s milk – also limits their appeal to the mass market consumer who doesn’t have a strong health or taste motivation.
The boring commodity of cows’ milk will become – like many other markets – a fragmented place, with a struggling, low price, low-margin, high-volume mass market and many profitable low volume opportunities. Smart dairies will offer flavoured milks, milks with coffee, single-serve milks, milks with digestive health benefits and even plant ‘milks’ – because some consumers are going to buy them anyway, so why surrender space in the chiller cabinet to a plant drink brand that someone else owns and let another company capture the value of the sale?
It will be hardest for volume-oriented farmer-owned dairies to adapt – after all farmer shareholders understand cows, they don’t understand what it takes to succeed in the store in a rapidly evolving consumer market, as they have amply proven over the past ten and more years.
Creatively-minded companies like Switzerland’s Emmi – with its focus on the value-added niche of goat’s milk products – and New Zealand’s Spring Sheep milk and Elmhurst Dairy, indicate some of the ways ahead for companies willing to be innovative. Faced with unstoppable change, sometimes innovation and risk-taking is the only path that’s available.