Growing the plant-based niche
Image: Kraft Heinz
In the US market, Kraft Heinz is plunging into plant-based cheese in a category in which the company is dominant. It’s rolling out a plant-based version of its Philadelphia brand, which has a 65% share of the US cream cheese market, and later will launch plant-based processed cheese slices. Can Kraft revive the fortunes of the much-hyped but underperforming plant-based cheese alternative market?
Despite anything you might read in the media, the reality is that plant-based cheese is everywhere a small niche which has stayed small despite seven years of marketing. And in the markets in which the niche has grown furthest, such as the US and UK, sales actually fell in 2022.
Media and consultants love to cite high percentage growth rates for the plant-based cheese market. But those are high percentages from a small number. In the US, the category, plant-based cheeses of all kinds, both hard and soft, grew by an impressive 41% from 2018 to 2021, but this represents a just 1% share of the US cheese market. Meanwhile, in 2022, sales of plant-based fell, by 3% to $220 million (€202.4m), while the dairy cheese market, by contrast, grew by around 3%, to $21.2 billion (€19.5bn).
The doubling in size of plant-based in the years 2018-21, it is now becoming clear, is a common characteristic of plant-based segments in almost every country. The best example so far is what happened with plant-based meat, with an initial surge of consumer interest driven by the combination of media attention, the health halo of plant-based and the novelty factor.
But about three years was a long enough period of time for a decent percentage people to try the products and decide that they did not like the taste and texture. Plant-based cheese has followed the same arc.
Kraft Heinz made this exact point when announcing its launch of its plant-based Philadelphia cheese: “Less than half of consumers that try plant-based spreads are repeat customers, indicating that current options aren’t meeting the evolving preferences of cream cheese lovers.”
The element of food explorers driving this segment can be seen in how newer brands cannibalised the established ones as consumers decided to try out new brands in the hope that they might taste better. Violife, for example, saw its sales grow by 100%, to over $46 million (€42.3m), as consumers switched brands. So Delicious, owned by Danone, also delivered an impressive performance. But even these successes were not enough to prevent the shrinkage of the category.
Unsurprisingly, Kraft Heinz is emphasising the effort it has made to ensure its plant-based cream cheese delivers on taste and texture. Based on oats, almonds and coconut oil, Kraft emphasises that it is made with “simple ingredients and no added flavours or dyes” and that the product is free-from dairy, lactose and gluten. If it has achieved something good, then the product will also benefit from all the other factors Kraft has on its side, including the huge brand trust that the Philadelphia brand has in America, where it has a 65% share of the $1.13 billion (€1.04bn) spreadable cream cheese market.
However, pricing will be a challenge. Plant-based Philadelphia is priced at a 45% premium to regular dairy Philadelphia. That is likely to keep the plant-based variant as low volume business.
Kraft is wisely making its other step into plant-based in another segment in which it has dominance. America’s market for pre-sliced processed cheese is worth $1.85 billion (€1.7bn), and Kraft has a 56% market share. The company says it is planning to launch plant-based slices, which are to be called Kraft NotCheese Slices. It’s a joint venture with NotCo, a Chilean-based company that claims to use artificial intelligence (AI) to create superior plant-based products (see NNB April 2019). As with cream cheese, Kraft’s marketing, distribution and manufacturing muscle mean it will be able to make a serious attempt at creating success.
Can the entry of a major player turn around the plant-based cheese niche? If anyone can make plant-based cheese work, that company is Kraft Heinz, thanks to its combination of brand power, marketing, retailing, technical and manufacturing know-how.
Still a niche
However, plant-based cheese will remain a niche even if Kraft is successful. Cheese won’t achieve what plant-based milks have, which is a 16% value share and 9% volume share, simply because plant milk’s big selling point is the health benefit of better digestive wellness. People can enjoy a milk-like beverage in their coffee or their smoothie with none of the digestive discomfort associated with cows’ milk. However, that benefit is not an important factor in cheese. Lactose is usually at a low level and people who are sensitive to lactose can mostly consume cheese. Plant-based cheese growth is going to have to rely on taste and the now-tarnished health halo of plant-based. When selling at a 45% price premium, even achieving a 5% share this decade will not be easy.