State of the industry: Dairy
Big players in dairy foods are employing varied tactics to stay competitive with local brands.

CHICAGO — With fat no longer perceived in a negative light and protein a sought after nutrient by many consumers, dairy foods — inherently concentrated sources of the two nutrients — are in a good place. The challenge for many larger processors is to keep their big brands relevant to today’s consumers.

Minneapolis-based General Mills, Inc. feels the pain with its more than 50-year-old Yoplait brand. Once the leader in the U.S. yogurt market, the franchise was hit hard by Chobani and failed to respond fast enough with on-trend innovations, like its greatest rival: Dannon, a business unit of Danone S.A.

“We continue to see challenging trends on our U.S. yogurt business, driven primarily by significant declines on our Yoplait Light and Greek 100 product lines,” said Kendall Powell, chairman and chief executive officer of General Mills, during a Sept. 21 conference call with financial analysts. “Consumers of traditional light yogurts are pivoting away from this segment in favor of products that provide more (satiety) like Greek yogurts.”

Mr. Powell said there is significant competition in the yogurt business and that Yoplait’s products have become less differentiated.

“So we’re looking to change that by rolling out a significant product improvement over the next few months,” he said. The plan is to innovate, renovate and produce good messaging.

This is exemplified by some recent introductions under other General Mills yogurt brands. For example, Liberte, which was acquired in December 2010, is now available in a premium whole milk formulation in a clear plastic triangular container. Worldly flavors designed to appeal to today’s adventurous consumers include Baja Strawberry, Ecuadorian Mango, French Lavender and Philippine Coconut. The Annie’s brand, which General Mills acquired in September 2014, is now competing in the children’s yogurt segment with whole milk flavors in tubes, single-serve cups and multi-serve containers.

Other yogurt manufacturers are following suit and rolling out whole milk options. That is because whole fat is where the action is in refrigerated yogurt, according to data from Chicago-based Information Resources Inc. and provided to Dairy Management Inc., Rosemont, Ill. From Jan. 1 to Aug. 7, whole-fat yogurt experienced a 16% increase in volume sales, representing 10% share of total yogurt volume sales. Reduced-fat yogurt was down 16%, with 0.7% volume share; low-fat was down 0.2%, with 48% share; and fat-free was down 5%, with 41% share. Thus far in 2016, retail yogurt volume sales are down slightly from 2015’s all-time high, with Greek yogurt and multi-serve tubs driving the growth.

Greek yogurt now holds a 38% volume share and grew nearly 4% year-to-date thru Aug. 7. Non-Greek, on the other hand, with 62% share, declined nearly 4%. Aside from Greek, multi-serve tubs (+6%) also are driving a significant amount of volume growth.

Yogurt drinks experienced noteworthy growth during this period, with volume sales up 9%. The growth is forecast to continue.

It appears that U.S. consumers finally have embraced yogurt drinks, the preferred yogurt format in Asia and a format that is well established in Europe, according to Mintel International. The market research company reports dollar sales of yogurt drinks increased 62% from 2011 to 2015. Mintel predicts that by the end of the year, dollar sales will have grown 11%, as compared to 2015, making this the second straight year of double-digit gains.

“While boom times ushered in by the novelty of Greek yogurt are fading, the yogurt category’s draw of convenient health, and the recent expansion of flavors and formats, helps retain interest and preserve participation in the market,” said Beth Bloom, senior analyst, U.S. food and drink at Mintel. “Yogurt drinks are becoming increasingly popular among U.S. consumers, and as adoption of the yogurt drinks segment grows, so too does innovation. It’s one of the few food and drink spaces where launch activity sees brand-new products outpacing simple variations on form.”

Similar to what’s going on in cup yogurt, whole fat is popular in the drinkable format. Specifically, Mintel research indicates full-fat options are popular among millennials as they are the most likely demographic to purchase whole-fat yogurt/yogurt drinks, compared to all consumers.

“Full-fat varieties are seeing strong sales growth at natural channels, while non-fat options struggle, pointing to a growing acceptance of fat in food,” Ms. Bloom said. “As consumers appear increasingly interested in functional benefits from their food and drinks, communicating how yogurt and yogurt drinks can contribute to these health needs will be a means of standing apart from the crowd.”

This is exemplified by recently introduced drinkable yogurts from Stuyvesant, N.Y.-based Maple Hill Creamery. The company now offers 12-oz whole milk varieties in coffee, mango peach and strawberry flavors.

“Milk naturally delivers 8 grams of protein per 8-oz serving,” said Cindy Sorensen, vice-president of business development for Midwest Dairy Association, St. Paul, Minn. “We are seeing processors developing new product introductions that are building on the growing protein trend. One major benefit to adding protein to our diets is that it provides satiety, which helps with weight management, reduces snacking, builds muscle and provides energy.”