The many challenges of commercialising ‘animal-free’ dairy
Image: Chobani The successes of Greek yogurt, skyr and others, are all about making traditional dairy products available in a convenient way
In the US, Bel Brands is rolling out nationally a cream cheese spread based on non-animal dairy protein, produced by precision fermentation. Nestlé will soon test-market a milk, made with animal-free protein, in San Francisco. In the Netherlands, DSM and Fonterra will jointly build a factory to produce dairy protein by fermentation. These developments have dairy companies wondering what it means for their category.
Animal-free dairy proteins derived from fermentation have benefited from over $5 billion in investment backing the development of the technology. Over 40 companies are striving to bring this process to market. For regulatory reasons, the consumer market tests are happening in US. Foods based on fermented protein are not yet allowed in Europe.
However, whatever sums are invested, no-matter how clever the technology, the final decision always rests with the consumer. And while it’s clear that animal-free dairy has a place, it’s going to be a smaller place than its backers think.
Here are some factors to consider in thinking about the commercialisation of animal-free dairy technology:
1. Taste & texture
The single most important success factor. Whatever else consumers may be thinking about, they want to choose foods that taste good. So far, and unlike plant-based cheeses and meats, the few products based on animal-free proteins seem to score well, with tastes and texture comparable with the original.
2. What’s the benefit for the consumer?
Once you look at what benefits these products could bring to the consumer, it becomes more challenging.
Animal-free. Contrary to everything you read in the media, most people are still happily eating foods that contain animal ingredients, and they love dairy protein, as testified by growing supermarket sales for dairy protein. Just 3%-4% of the European population are practising vegans, and their numbers are not increasing. And while 25% of the population say they are reducing their meat consumption, that’s meat, not dairy. Consumers who want animal-free already have choices, such as plant-based products. But even these, despite 15 years of marketing, have only niche status. Measured by volume, plant milks (the most successful category) have a 9% share of the US liquid milk market. Plant-based cheese has just a 1% share and in many markets sales fell in 2022.
More sustainable. Sustainability means different things to different groups of consumers. Most people want to go on enjoying animal proteins and dairy producers are working to make that possible, whether that’s moving to regenerative agriculture, reducing carbon emissions, improving animal welfare or using recyclable packaging. And this what people want.
Dairy industry sustainability actions create ‘permission to indulge’, enabling people to go on enjoying their favourite dairy foods with a clear conscience. An example is the surge in demand for products labelled ‘grass-fed’. It’s a message that is read by consumers as: “better for animal welfare, better for the planet, better for my health.”
For example, Hu Kitchen, the world’s most-successful vegan chocolate brand and part of Mondelez, has dropped being vegan and added milk chocolate to its range, using dairy from grass-fed cows. This widens the appeal of the brand to the majority of consumers who enjoy dairy. It reveals the reality of consumer preferences. The ‘animal-free dairy’ message is not the competitive advantage they it might have been five years ago.
Lactose-free. Animal-free dairy is again late to the party. Consumers who want lactose-free are already well-served by plant milks, some which, such as oat, exceed people’s taste expectations. Real dairy has also done a good job of catching up and offering the lactose-free benefit. In Spain, for example, lactose-free dairy outsells plant milks. In the US, sales of lactose-free dairy are growing faster than plant milks, led by the Fairlife brand, and will overtake plant milks in two to three years. Clearly many consumers want animal milk if it doesn’t give any of them any digestive issues, and many prefer it over plant milks because they perceive it as a simpler and more natural product.
And just to really make life difficult, non-animal dairy must carry a dairy allergy warning in the US, so similar are its proteins to those of real dairy. If someone had decided to find a way to deliberately make things difficult, they could not have found a better way.
3. People don’t eat technology
Technology is vital. It is what makes our industry possible. But it does this while being invisible to the consumer. That makes sense. Humans do not eat technology. Painful as it is for many scientists, consumers do not care about your technology, only about “what am I getting?” In fact, the lesson of food history of the last 25 years is that talking about technology in food is a turn-off for most people. The functional food frenzy 20 years ago of adding cholesterol-lowering plant sterols to everything and the GMO debacle remind us that people prefer not to be confronted with added science in their foods.
New markets are most often created by reinventing traditional foods. It is the skill of new product development teams in re-making old foods – adapting taste or texture or making them more convenient for new consumers – which has driven the biggest successes in our industry. The dairy industry excels at this. The successes of Greek yogurt, skyr and others, are all about making traditional dairy products available in a convenient way.
4. Food culture & provenance
Food culture trumps technology. It connects to identity and family and cannot be shifted easily. A picture of a Jersey cow can motivate people to like dairy. But there are no stories and images of animal-free dairy, and marketers will be hard-pressed to match the positive emotional associations that many people have with such an image.
5. Competitive landscape
Animal-free dairy is competing for the attention of the animal-free consumer with plant-based. Two concepts will be fighting for same segment of the market.
In that fight, some consumers will be drawn to animal-free message, others will be put off by the allergen label and the ‘techie’ nature of the product. Animal-free will also be competing with real dairy, which is getting its sustainability act together and giving consumers what they want to hear.
If the plan is for fermented dairy proteins to succeed on a niche basis, say 5% market share of a few categories by 2030 (which is way, way better than plant-based has managed after seven years of vigorous marketing and NPD), that seems credible and possible.
Animal-free proteins could become a niche business in parts of the US and in the Netherlands and Germany, which have a poor food culture and, like the US, have a high percentage of ultra-processed foods in their diet. In much of the rest of Europe these products will be rejected, just as GMOs were, because they run counter to food culture.
If animal-free dairy is to be transformative it must be able to:
- supply all those fractions of dairy that create value, such as lactoferrin for immunity, and also demonstrate scientifically that they work as well as the fractions from real dairy
- or compete with commodity proteins in applications such as cream cheese and ice cream.
In both of the above cases, animal-free dairy will need to do so at lower cost than animal dairy. If anyone thinks that being more sustainable and animal-free is enough to take this technology beyond niche status, they are in for a surprise.