Culture clash

by Keith Nunes
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Cultured dairy products, a market segment that features staples such as cottage cheese, cream cheese and sour cream, is experiencing new found growth through the growing yogurt market. During the past five years, sales of cream cheese, cottage cheese and sour cream have remained steady, declined and modestly increased, respectively. Yogurt sales, in terms of dollar and unit volumes, on the other hand, have skyrocketed.

According to ACNielsen’s Strategic Planner, which includes data from U.S. food, drug and mass merchandisers, excluding Wal-Mart Stores, Inc., dollar sales of yogurt increased to $3,143,934,146 for the 52-week period ended Oct. 7, 2006, from $2,491,694,027 for the 52-week period ended Oct. 12, 2002. In comparison, sales of cream cheese for the same period increased to $820,532,168 from $811,209,049 in 2002.

The growth is part of a trend that has been developing since 1990. According to the U.S. Department of Agriculture, production of all yogurt products has almost tripled from 1990 to 2005, increasing 1.055 million lbs to 2.989 million lbs, or 183%, during the 15-year period.

And the future of the U.S. yogurt market appears bright, according to Packaged Facts, the New York - based division of MarketResearch.com, Inc. According to the research group’s report, Cultured Dairy Products in the U.S., probiotic shots, the single-serve dairy drinks featuring probiotics, combined with growth in yogurts supplemented with fiber, omega-3 fatty acids and vitamins, are primed to help push the cultured dairy market upward of $15 billion by 2010. Relatively new to the U.S. market, sales of the nutritional products are set to grow by 97.4% over a five-year period.

Yet probiotic shots alone are currently a relatively small component of the market, which is dominated by other drinkable and non-drinkable yogurts. With cultured dairy sales ringing in at $9.6 billion in 2005 — $4.8 billion coming from non-drinkable single and multipack cup and tube yogurts — Packaged Facts projected cultured fluids, such as drinkable yogurts, smoothies, shots, and kefir will experience a rapid rise in sales over the next four years.

Convenient packaging, portion control, and new flavors have been identified as drivers for growth in the market, according to Packaged Facts. However, it is the health and wellness trend that offers the wealth of both functional and emotional benefits to drive innovation and sales growth.

"In the last five years, yogurt production has increased 49% and sales have benefited most from the increased marketing of health benefits, such as digestive and immune strengthening," said Don Montuori, the publisher of Packaged Facts. "While the market has reached a certain level of maturity, there is still potential for growth with the expectation that U.S. consumption rates will approach those of Europe, which are currently four to five times higher."

The latest yogurt introduction that has garnered the most attention in the U.S. was the launch of Activia by The Dannon Co., a subsidiary of Groupe Danone, Paris, earlier this year. Activia is the first probiotic yogurt proven to help regulate a person’s digestive system in two weeks, when part of a healthy and balanced diet.

Activia is already one of Groupe Danone’s best-selling yogurt products globally, generating € 650 million in 2004 sales in more than 20 countries, primarily Europe and Asia. Globally, the brand achieved compounded annual sales growth of 24% between 2000 and 2004, according to the company. The brand was first introduced in 1987 in France.

During Danone’s second-quarter conference call, held in early August, Antoine Giscard d’Estaing, executive vice-president of finance, strategy and information systems, said that by June Activia had around a 4.5% share of the U.S. yogurt market.

"It is, by itself, a very strong brand in the U.S. market for dairy," he said. "More importantly, the repeat rate is very good, roughly around 35% to 40%. It is much better than what people expected in the early stages (of the launch)."

Other health-oriented product launches include Stonyfield Farm’s Yo-Baby Plus Fruit and Cereal with DHA omega-3 fatty acids, and Wells’ Dairy, Inc.’s partnership with Weight Watchers International to sell a line of branded yogurts and smoothies for the weight loss sector.

General Mills, Inc., Minneapolis, and The Dannon Co., are the leaders in the non-drinkable yogurt market, according to Information Resources, Inc., Chicago. In 2005, General Mills had approximately $1.1 billion in tracked sales while Dannon had more than $883 million. Stonyfield Farm was a distant third with sales of $199 million.

Stephen W. Sanger, chairman and chief executive officer of General Mills, said health news is driving growth in his company’s yogurt business.

"Sales for Yoplait yogurt have been growing at a double-digit clip in recent years," he said during the Morgan Stanley Global Consumer & Retail Conference earlier this month. "Our lower calorie light varieties have been leading that growth driven by great advertising that resonates with women — who are dieting ahead of the bikini season. We also launched several new flavors of Light, Thick and Creamy Yoplait earlier this year, which are adding incremental sales to our Light franchise.

"In July we introduced Yoplait Kids yogurt. Now this line has 25% less sugar than the leading kid yogurts and contains no artificial sweeteners. Moms tell us that is a winning combination and early sales for this line have been very encouraging."

Market drivers converge
According to Packaged Facts, single-serve and products featuring smaller portion sizes will be a factor in the cultured dairy category as three trends converge — convenience, portion-control and health and wellness. The report’s authors noted single-serve yogurt drinks are competing with other beverage categories that offer single-serve choices like bottled water, sodas, energy drinks and juices.

Packaged Facts also estimated the U.S. market for natural/organic foods and beverages totaled approximately $28.3 billion in 2005, up 11.9% from $25.3 billion in 2004. As more consumers look to add organic dairy foods to their diet, cultured dairy foods processors will seek to capitalize on the growing segment.

Consumer groups that will be key to market growth for cultured dairy products include children, women, baby boomers and Hispanics.

Hispanics are a particularly interesting target market for yogurt manufacturers, said Packaged Facts. The population in the U.S. has reached 47.7 million and will grow by roughly 1 million each year through 2010. Hispanic consumers have shown a higher-than average propensity to purchase yogurt products.

Women also are more likely to purchase cultured dairy products and edged out men as consumers of lower-fat and fat-free products. Age also has an impact on usage patterns, according to Packaged Facts. Products that struggle with an old-fashion image, like cottage cheese, for example, have had usage drop off dramatically among younger consumers while yogurt has been embraced.

However, the key market driver in the category will be the continued introduction of new and innovative products, ingredients and flavors, especially products that address health, convenience and taste.

Innovation may play out in several ways, said Packaged Facts. Single serve will continue to be an important option for consumers and it has a much higher price point, which benefits marketers.

But, according to Packaged Facts, it is health and wellness that offers the most opportunity to drive sales growth. Many cultured dairy products are well placed to be part of the answer to health and wellness problems such as obesity, type 2 diabetes, heart disease and certain cancers. There are also other areas to develop in such as vitamin-fortified, reduced-cholesterol, reduced sodium, decaf/caffeine-free, sugar free and organic.

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