Growing yogurt through innovation
August 19, 2008
by Allison Sebolt
Different phases of innovation define periods of category growth
If consumers haven’t already noticed expanded offerings in the yogurt section of the grocery store, they likely will soon. As the fastest growing product in the dairy category, retailers are devoting more space and attention to yogurt with expanding offerings. So what has been driving the growth of yogurt?
"Innovation in a word is really a major driver for the category’s growth," said Michael Neuwirth, senior director of public relations for The Dannon Co., White Plains, N.Y.
Mr. Neuwirth said this innovation comes in actual product offerings as well as expanding merchandising space for yogurt on the retail side.
"We are investing substantially with retailers in expansion of the square footage devoted to yogurt retailing simply because the category is outpacing the shelf allocation," he said. "We have to evolve how people can buy the product to accommodate the fact that more people are interested in buying the product."
He said the category historically has been defined by big growth spurts based on product innovation. Such innovations in the past have included putting fruit on the bottom of a yogurt, reformulations to low-fat and light varieties, a focus on children’s products and the introduction of functional products.
"All of these innovations added new sets of consumers because the products addressed evolving needs," Mr. Neuwirth said.
He said the next big innovation for the market will be more functional products, which he defined as products clinically proven based on proprietary ingredients to have a benefit beyond basic nutrition and good taste. Dannon has had tremendous success with functional yogurt with probiotics, which started with the Activia line in 2006. Activia achieved over $130 million in sales during the first year on the market. Yoplait, General Mills, Inc., Minneapolis, also has its Yo-Plus line, which contains both probiotics and prebiotics.
"Consumers are increasingly more interested in foods that help promote health and wellness; probiotics have become a driving force behind the growth of the yogurt category," Mr. Neuwirth said. "While a specific functional health benefit might interest consumers to purchase the product the first time, that product must also taste good for them to enjoy it and continue buying it."
Mr. Neuwirth said the functional trend will expand to include other ingredients such as DHA omega-3 fatty acids. But he believes there will continue to be a place for probiotics.
"I would not jump to say the probiotic innovation phase is near its maturity, it’s still in its infancy in terms of type of products available," Mr. Neuwirth said.
When it comes to other forces driving the market, Shannon Daily, brand manager for YoCrunch, Breyers, also said consumer’s desire for more healthful products and the fact retailers are in turn growing their shelf space on average with the category are bigmanufacturers are driving the market from a price-point perspective.
"The marketplace is pretty competitive on price, and consumers are more apt to try the product when it is price promoted, and that’s been happening at some pretty deep discounts lately," Ms. Daily said.
Mr. Neuwirth also noted the general demand for convenience foods, the rise in snacking and continued consumer interest in better-for-you foods also is driving the big picture of yogurt category growth.
Growth by numbers
According to Information Resources, Inc., a Chicago-based research firm, sales in the yogurt category in channels excluding Wal-Mart Stores, Inc. for the year ended July 13 were $3,674,739,000, up 9% from the previous year. Yoplait Original and Yoplait Light, along with Dannon Light & Fit and Dannon Activia, were among the most popular brand varieties.
Mr. Neuwirth said yogurt is growing at a rate almost double that of refrigerated grocery shelf space with a 6.3% annual yogurt growth rate versus a 3.9% annual shelf space growth rate.
As the fastest growing product in the dairy category, U.S. yogurt consumption has grown 33% during the past five years and doubled every 7.2 years, but Mr. Neuwirth said there is still a tremendous opportunity for continued growth.
According to Mintel’s Global New Products Database, there were 265 new yogurt products launched in 2007, up from 244 in 2006 and 189 in 2005. Through Aug. 5 of this year, there have been 150 new yogurt product introductions.
Ms. Daily said yogurt consumption in Europe is much higher than in the United States, but U.S. consumers are catching on. She said the European consumer consumes on average about 35 lbs of yogurt per year while the U.S. consumer eats about
7 lbs. But this has been slowly increasing.
"Many European countries consume four to six times more yogurt per capita than the U.S.," Mr. Neuwirth said. "Dannon has invested heavily in the growth of yogurt consumption in the U.S., a category which is driven by product innovations such as probiotics, or ‘healthy’ bacteria that provide specific functional health benefits. Dannon’s marketing investment has encouraged the growth of probiotics in the U.S. by educating consumers about their benefits."
It’s all about variety
Both Ms. Daily and Mr. Neuwirth easily summarized popular yogurt flavors in one word — strawberry.
"Strawberry is hands down the No. 1 flavor time and time again," Ms. Daily said.
Aside from the all-time favorite, in its various lines Yoplait has unique new flavors such as mango and guava and has placed an emphasis on dessert flavors such as key lime pie, banana crème pie, apple turnover, Boston crème pie, strawberry cheesecake.
Mr. Neuwirth noted the United States is a country that enjoys berry flavors, but other flavors are more popular in other parts of the world. For example, citrus flavors are more popular in Spain.
Ms. Daily and Mr. Neuwirth both said the primary consumption occasion for yogurt is as a snack as opposed to a treat. Mr. Neuwirth said the evidence for this is the indulgence segment of the category is small and not the fastest growing.
The largest segment in yogurt is the light segment, and Mr. Neuwirth anticipates it will continue to be so.
Just as the trend toward natural products exists in the general food market, there has been interest in natural yogurts as well. Rachel’s — which in the United States is part of WhiteWave Foods, a subsidiary of Dean Foods — has all-natural and low-fat products in flavors such as vanilla chai, pomegranate acai and berry jasmine. YoCrunch also has a Naturals line with berry flavors. Horizon and Stoneyfield Farm offer organic yogurts to meet that niche.
Future areas of focus
Mintel noted one growth strategy for the yogurt market is to encourage more men to eat yogurt, which may be done by developing heartier yogurts with big chunks of fruit and a wide brim for bigger bites. Mintel said another strategy would be to develop campaigns focused on encouraging people to get a "daily dose" of yogurt.
Mintel also said concerns with sugar made 2007 a difficult year for yogurt drinks with the biggest impact seen in the market for yogurt products marketed to children. Sales of the "for kids" segment declined almost 16% from 2005 to 2007 in channels excluding Wal-Mart Stores. However, Yoplait and Dannon came out with reduced sugar varieties of children’s yogurt drinks in 2007.
One of the newest drinkable products for children is Danimals from Dannon, and one established drinkable product for all ages is DanActive, also from Dannon. Smoothies are another form of drinkable products. Yoplait has a smoothie line in regular and light varieties.
With more smoothies and yogurt drinks available at food service, consumers are seeing less of a need to buy such products in packaged form, Mintel said. In addition, other products from energy bars to cottage cheese are introducing options fortified with probiotics, making for more competition for consumers seeing probiotics.
"Yogurt drink makers and marketers should consider the possibility that, after several years of strong growth and greater visibility, quite simply, the novelty of yogurt drinks has worn out," Mintel said. "This notion suggests a need to reinvigorate sales with added conveniences, indulgences or health-related benefits."
Mintel said Hispanic consumers are the most likely demographic to drink yogurt products and said the growing number of Hispanic consumers suggest a need for more yogurt drinks in flavors this group might enjoy. To this end, Mr. Neuwirth said Dannon has introduced Danup specifically for the Hispanic demographic.
"In a more challenging economy, consumers look to get the best value from the products they buy, and yogurt is a great option, especially if the product offers a proprietary benefit," Mr. Neuwirth said.