Dairy Market Analysis

Part
01
of four
Part
01

Private Label Entry Case Studies

Amazon's private-label milk and coconut water and Target's private label food and grocery brand are two case studies surrounding a private label introducing a product to the food and beverage grocery space.

AMAZON LAUNCHES PRIVATE LABEL MILK & COCONUT WATER

OVERVIEW:
  • According to TJI research, Amazon has added private label dairy and beverage offerings to its grocery lineup, wherein the new dairy products, including a variety of milk, has been launched under its Happy Belly brand and a new coconut water product under its Solimo brand.
WHAT TRIGGERED THE LAUNCH:
  • Amazon intends for expansion into its private label beverage segment. Hence, it has been continuing to launch private label milk along with previously launched 24 varieties of private label cheese under its Happy Belly brand and other numbers of beverage products under the brand including waters, teas, sports drinks, and “vitamin jellies”.
  • Also, "Amazon’s performance with private label grocery brands has received mixed reviews, and its offerings up to this point have been fairly limited despite a lot of trial and error". Hence, this is also considered as a reason for the company to make deliberate efforts in making a mark in the private label dairy and beverage offerings to its grocery lineup.
NATIONAL BRAND:
  • At present, Amazon new private-label coconut water will retail at $24.99 for a 24-pack of cartons at 11.2 ounces each and will be sold alongside coconut water national brands such as Vita Coco, Naked and O.N.E. (owned by PepsiCo).
  • VITA COCO: Vita Coco is #1 best-selling coconut water brand on Amazon based on its popularity and sales. The product had gained 4-star rating from more than 3000+ reviews and is priced at $18 for Amazon prime members.
  • The brand was launch back in 2003 in the US and has a strong market with a great fan following by superstars such as Madonna, Matthew McConaughey, and Rihanna.
  • Amazon new Happy Belly milk and dairy items are lactose free (1%, 2%, whole milk, half & half) along with whipping cream and toppings and its competitive positioning says “If you like Lactaid, we invite you to try Happy Belly”, “If you like Reddi Wip, we invite you to try Happy Belly”.
  • Amazon newly launched private label Happy Belly half-and-half milk has been positioned with the national brand such as Carnation, Land o' lakes, Organic Valley, and others.
  • CARNATION by Nestle: Carnation by Nestle is a #1 Amazon best-seller in milk and cream, half-and-half category based on its popularity and sales wherein the product is 3-stars rated from more than 400+ reviews and priced for $11.99.
  • Carnation by Nestle is a trusted heritage brand in the market for the past 100 years. It also has a gourmet brand which offers cakes, pies, milkshakes, and smoothies.
TYPICAL/LOGICAL POINT OF ENTRY:
  • Through the launch of Solimo Coconut Water under its private-label expansion in the beverage category, Amazon intends to disrupt the US coconut water market which is estimated to be $2 billion per year. Also, the company intends to expand the Solimo brand into more beverage categories lately.
  • "The Happy Belly brand milk and dairy products are the first non-whole foods private label milk and dairy offering from Amazon, according to TJI." By making it available to only customers of AmazonFresh, the company intends to strengthen its grocery beverage category.
  • According to the report from Coresight Research, just 2% of Amazon’s private label offerings are in food and beverage, and through new milk and coconut water offerings, the company aims to provide a boost in private-label sales by selling beverages that are a go-to for many consumers.

TARGET LAUNCHES PRIVATE LABEL FOOD & GROCERY BRAND

OVERVIEW:
  • Target is making its largest foray into a private food label by launching a food and grocery brand Good & Gather which will have around 2,000 goods ranging from pasta and meat to milk and eggs. The products will not have artificial flavors, synthetic colors, artificial sweeteners or high fructose corn syrup.
WHAT TRIGGERED THE LAUNCH:
  • Target intends to energize its grocery sales and aims to overtake the market share in the segment by launching the food and grocery brand Good & Gather wherein, "It’s also part of a broader effort to expand in house brands, such as the children’s clothing label Cat & Jack and men’s clothing brand Goodfellow & Co. By the end of 2019, Target will have more than 25 exclusive brands.
  • Target said, "it expects Good & Gather will be a multibillion-dollar brand by 2020 and the largest of its private labels". Also, at present, nearly 75% of Target shoppers in stores are adding at least one food item to their baskets. It also offers one-stop-shop for its consumer needs which is its biggest strength.
  • With the launch of Good & Gather grocery products, Target will be phasing out two food brands, Archer Farms and Simply Balanced. It will also scale down the number of items it sells under Market Pantry, which makes basic goods like sandwich bread, cooking oils, sauces, and canned vegetables.
NATIONAL BRAND:
  • The national brands in comparison to which Target has launched its food and grocery brand Good & Gather include Frito-Lay chips, Chobani yogurt, and Cheerios cereal in snack category and others in grocery and beverage section.
  • With the addition of Good & Gather to Target stores, it is also intended that the company will slightly increase the amount of shelf space it devotes to private-label products versus national ones eventually leading to increased penetration of Target 's store-owned brands in the grocery category.
  • FRITO-LAY: National brands in the grocery segment of Target such as Frito-Lay in snack category are old well-established brands in the US which are in the market since 1932 and today, it is one of the favorite snack food company in America.
  • CHOBANI: National award-winning brand Chobani offering yogurts through Target stores is a well-established brand since 2005 in the US and is America’s favorite Greek yogurt.
TYPICAL/LOGICAL POINT OF ENTRY:
  • According to the Food Marketing Institute in partnership with IRI report, "Private brands in grocery stores are showing more momentum than manufacturer brands". Also, Target’s investment in a new private-label grocery brand is part of the wave has been an effort of the company to grow its grocery segment which is still a weaker foray of its offering giving only 20% to its business.
  • "Target’s grocery business has had seven consecutive quarters of positive same-store sales growth, according to Lundquist, with six quarters of market share gains". At this moment, the company is trying to build the business momentum and make the most of its investment by launching the food and grocery brand and making a stronger penetration of store-owned brands in the grocery category.
Part
02
of four
Part
02

Ethical Concerns in Dairy

In the United States, the extent to which ethical concerns impact dairy and non-dairy consumption can be seen in the percentage of consumers who cite animal cruelty as their reason for avoiding dairy, the impact of animal abuse exposés on grocers and consumers, and the ethical/environmental dilemma posed by dairy alternatives. Twenty percent of consumers avoid dairy because of concerns relating to animal rights and animal cruelty. Videos of suffering calves have prompted grocers to pull dairy products off shelves and consumers to switch to dairy substitutes.

ANIMAL RIGHTS/CRUELTY ISSUES — A REASON FOR DAIRY AVOIDANCE

  • Issues relating to animal rights or animal cruelty are one of the reasons consumers in the United States avoid dairy. Twenty percent of consumers in the country avoid dairy because of animal rights or cruelty issues.
  • Animal rights or cruelty issues are the sixth most common reason for dairy avoidance. They rank behind lactose intolerance (35%), dairy sensitivity or allergy (28%), growth hormone avoidance (24%), saturated fat consumption reduction (24%), and aging-related reasons, but they rank ahead of antibiotic avoidance (18%) and environmental reasons (15%).
  • Animal rights or cruelty issues as a reason for dairy avoidance are more common among younger consumers than among older consumers. Older consumers are more inclined to cite health or nutrition as their reason for avoiding dairy.
  • Millennials and Gen Zers are more inclined to cite animal welfare as their reason for purchasing dairy alternatives. As opposed to 19% of Gen Xers, 14% of Boomers, and 8% of the Silent Generation, 40% of Millennials and 35% of Gen Zers cite animal welfare concerns as their reason for purchasing dairy alternatives.
  • Animal welfare concerns are contributing to the growth of the dairy alternatives category. Since 2012, sales of non-dairy milk in the country have continuously increased, while sales of dairy milk have continuously decreased.

VIDEOS AND IMAGES OF ANIMAL ABUSE — A CONTRIBUTING FACTOR

  • Videos and images of animal abuse have recently surfaced, and an article published by the Chicago Tribune notes that "the images of suffering cows could be the final straw that pushes some people toward dairy alternatives now that there are so many to choose from."
  • This is despite the comment of Caleb Bryant, a senior beverage analyst at Mintel, that he doubts that the dairy industry, as a whole, will be significantly impacted by the publication of these videos and images. According to Bryant, digestive health is the main reason behind dairy alternative consumption.
  • Perhaps the most prominent of these videos and images was the undercover video of animal abuse at Fair Oaks Farms in Indiana. Fair Oaks Farms, a large dairy supplier, has been touting animal welfare in its marketing materials, yet a video of its calves being kicked, dragged, and hit by workers has surfaced. Both Fair Oaks and its client Fairlife have been affected by the release of this video.
  • Graphic images in this video, which were captured in 2018 by Animal Recovery Mission (ARM), an animal rights group, prompted grocers in the Midwest to pull Fairlife Dairy products from shelves. According to ARM, "calves were stabbed and beaten with steel rebars, hit in the mouth and face with hard plastic milking bottles, kneed in the spine, burned in the face with hot branding irons, subjected to extreme temperatures, provided with improper nutrition, and denied medical attention."
  • Jewel-Osco, Tony's Fresh, Family Express, and Casey's were among the grocers that stopped offering or carrying Fairlife products.
  • One consumer, Gary Hebding, said the video prompted him to switch from cow's milk to almond milk. According to Hebding, "you can't really abuse almonds too much."
  • Natural Prairie Dairy is another dairy farm exposed by ARM for animal abuse. As a result of the exposé, Kroger has suspended its sourcing of raw milk from Natural Prairie, while Albertsons has released a statement indicating it will ascertain next steps after a thorough review of independent audit reports.

HEAVY WATER USE OF ALMOND FARMS — AN ETHICAL DILEMMA

  • According to an article published by The Huffington Post, making an ethical choice between dairy (e.g., cow's milk) and non-dairy (e.g., almond milk) is not as simple as most people think. Most people think that almond milk is more environment-friendly than cow's milk, but both types of milk have a considerable impact on the environment.
  • It is well-known that cows release large amounts of methane, one of the potent greenhouse gases. Not as obvious is the fact that almond farms consume large amounts of water.
  • Though the carbon footprint of almond milk can be 10 times smaller than that of dairy milk, almond milk has its own downside too.
  • California faces an ethical dilemma because almond farms are heavy water users. Also, the state accounts for 80% of the world's almond production, yet 70% of the state's almond production is exported overseas.
  • Heavy water use in a state that has drought problems raises concerns and invites criticism. Dennis Baldocchi, a University of California professor, asks if almonds can be "grown elsewhere more cheaply and with less water."

ETHICAL CONCERNS AND THE ROLE THEY PLAY

  • According to an article published by Forbes, ethical issues are now playing a bigger role in how people eat. They are one of the reasons the demand for plant-based alternatives is growing.
  • News media and documentaries such as Eating Animals have raised awareness of the actual conditions dairy cows live in.
  • People now realize that their idea of dairy cows living peaceful and happy lives on open pastures is very far from reality.
  • Instances of constant impregnation, tail docking, and indoor confinement in dairy farms are now being revealed.
  • Vegetarians find it concerning that, on dairy farms, male calves are butchered for veal, and heifers that have a 20-year lifespan are often slaughtered when they are only 5 years old.
  • Thirty-nine percent of consumers in the country are taking concrete steps toward a plant-based diet because of ethical, health, and environmental reasons.
  • Consumers are now willing to pay more for dairy alternatives because of these reasons. They now buy dairy alternatives even if these substitutes cost twice as much as dairy.

RESEARCH STRATEGY

In finding the extent to which ethical concerns affect the consumption of dairy and non-dairy, we referred to credible sources that cover the following topics: (a) what drives, prompts, or motivates people to switch to non-dairy, (b) how people react to news of animal abuse, suffering, inhumane treatment, or cruelty, (c) how people decide or choose between dairy and non-dairy, and (d) how people weigh dairy and non-dairy options in terms of environmental impact. Covering these topics were articles published by The Huffington Post, Forbes, Plant Based News, Chicago Tribune, Today, Food Dive, and FoodNavigator — USA and a report published by Cargill.
Part
03
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Part
03

Additive and Processing Concerns

The extent to which additive and processing concerns are driving shifts to substitutes for all dairy categories is minimal compared to other growth drivers such as increasing health and sustainability concert, rising milk allergy, growth in veganism, among others. While additives and processing are major concerns for consumers of dairy products, many dairy alternatives also have additives and are equally processed. Below, you will find more details.

ADDITIVES AND PROCESSING CONCERNS ROLE IN DRIVING DAIRY SUBSTITUTES CONSUMPTION

  • A research paper from the University of Virginia lists the factors driving the increased demand for dairy alternatives as allergy concerns, lactose intolerance, adherence to a vegan/plant-based diet, concerns over saturated fat levels, antibiotic use in dairy farming, and hormone content. Concerns about additives and processing were not listed as key concerns.
  • Another research paper that studied the emergence of alternative dairy products notes that "cow milk allergy, lactose intolerance, calorie concern and prevalence of hypercholesterolemia, more preference to vegan diets has influenced consumers towards choosing cow milk alternatives." Again, additives and processing concerns do not feature on the list.
  • A report by Grandview Research also cites the increase in milk allergies, growing demand for unsweetened dairy, rising nutritional values such as demand for low calories and high vitamins and proteins, and increasing preference for vegan diet. Again, neither concerns about additive or processing featured as top growth drivers for milk substitute.
  • Report Buyer released market research on the dairy substitutes market, noting that the market will reach $38 billion by 2024 growing at a CAGR of 14% between 2018 and 2024. The report identified the growing adoption of vegan diets, healthier eating habits, weight management, environmental protection, and animal welfare are key drivers of the dairy substitutes market.
  • Mordor Intelligence forecasts that the milk substitutes market will reach $23.35 billion in 2024 growing at a CAGR of 9.85% between 2019 and 2024. The report identifies the key market drivers as increasing consumer interest in health and sustainability.
  • The reason processing and additives concerns are not key drivers of the dairy substitute market is that although consumers are concerned about additives and processing, the same concerns are also present in milk substitutes as they also contain additives which are used to stabilize and emulsify the product, and they are also processed which robs the end product of some vital nutrient. Hence, consumers that are mainly concerned about additives and processing in dairy products tend to stay away from processed foods in general which includes dairy substitutes.
  • The additives allowed in milk powders are highly "regulated by the Codex Alimentarius Commission—Milk and Milk Products. The Codex standard stipulates that only milk and cream may be allowed in milk powders; though the protein content can be altered by adding lactose."
  • While people are concerned that additives in dairy products can be carcinogenic and research has shown that additives in dairy products increase cancer risks even when added within the regulated limits, these additives are also added to milk alternatives to help stabilize the product.
  • Hence, while additives and processing concerns are part of the reasons dairy consumption has declined by 13% in the US, its impact on driving the shift to dairy substitutes is limited given that the substitutes also contain additives and are processed.

RESEARCH STrATEGY

To ascertain to what extent additive and processing concerns are driving shifts to substitutes for all dairy categories, we analyzed the top market drivers for the dairy substitute market. We looked at various research reports that dealt with the key drivers in the growing dairy substitute market. After analyzing several research reports and we didn't find any report that listed additive and processing concerns as a key driver in the industry, we concluded that additive and processing concerns are not key drivers. Further research suggested that the reason they are not key drivers is likely because additive and processing concerns are also issues for dairy substitutes.
Part
04
of four
Part
04

Flavor in Dairy

Insights surrounding how dairy products in the United States are moving into different flavor trends include the resurgence of cake flavors and cookie flavors, the increased pairing of caramel and chocolate with other flavors, and the rise of subtle flavors, savory flavors, ethnic flavors, spicy-sweet flavors, alcohol-infused flavors, botanical flavors, and breakfast flavors. Flavor trends in the country's dairy market are being driven by millennials who consider eating an experience and an adventure. Millennials seek new dairy flavors beyond the usual chocolate and vanilla.

FLAVOR TRENDS BEING DRIVEN BY MILLENNIALS

  • Flavor trends in the dairy market are mostly driven by millennials who believe "eating is all about the experience."
  • Ethnic and spicy flavors are emerging because ethnic flavors offer consumers an opportunity to experience other cultures while spicy flavors offer consumers a challenge or an opportunity to step out of their comfort zones.
  • Consumers are becoming more adventurous when it comes to food and are therefore seeking new dairy flavors. Even older consumers are looking to try new flavors.
  • New dairy flavors are emerging because of changes in the way consumers eat as well. As more and more consumers shift toward snacking, dairy products adjust in terms of portion size and flavor.
  • Spicy and savory yogurts, for example, have emerged because "these flavors take dairy out of the breakfast daypart and into the anytime snacking occasion."
  • Asian, Latin, and Mediterranean flavors have also entered the dairy market because consumers, especially millennials, are becoming more interested in flavors originating from other parts of the world.

RESURGENCE OF CAKE AND COOKIE FLAVORS

  • Cake and cookie flavors are reportedly returning to the yogurt and ice cream categories. Products in these categories are increasingly incorporating these flavors.
  • This trend can be observed in recent dairy product introductions of Minneapolis-based General Mills, Oregon-based Alden's Organic, Massachusetts-based Yasso, and Vermont-based Ben & Jerry's.
  • The Girl Scout Cookie line of yogurt products that General Mills recently launched feature cookie flavors such as thin mints, peanut butter chocolate, and caramel coconut.
  • The clean label ice cream products that Alden's Organic recently launched feature flavors such as chocolate chip cookie dough and birthday cake.
  • The frozen yogurt pints that Yasso recently launched feature flavors such as cake and cookie dough.
  • The low-fat ice cream products that Ben & Jerry's recently launched feature flavors such as chocolate chip cookies, shortbread cookies, and chocolate chip peanut butter cookie dough.

PAIRING OF CARAMEL AND CHOCOLATE WITH OTHER FLAVORS

  • Caramel and chocolate are increasingly being matched with other flavors.
  • This trend can be observed in yogurt lines recently introduced by Yasso and New Hampshire-based Stonyfield Farm.
  • The new yogurt pint products that Yasso recently launched pair caramel and chocolate with coconut, and chocolate with coffee.
  • The whole milk yogurt line that Stonyfield Farm recently launched pairs caramel with vanilla, chocolate with raspberry, and chocolate with coffee.
  • According to Sarah Diedrich, "consumers are seeking more premium indulgent flavor profiles that expand outside of the traditional chocolate and vanilla."

RISE OF SUBTLE, SAVORY, ETHNIC, AND SPICY-SWEET FLAVORS

  • The incorporation of subtle flavors and minimal sweeteners is a flavor trend in the yogurt category.
  • This trend can be observed in the latest product launches of San Francisco-based New Nordic Dairy Company and New York-based Chobani.
  • Chobani's new Hint Of line of Greek yogurt products features subtle hints of mango, cherry, vanilla cinnamon, strawberry, and blueberry.
  • The New Nordic Dairy Company's Norr Skyr line of single-serve milk products features subtle hints of elderflower, gooseberry, black currant, matcha, and rosewater.
  • Recent product introductions in the butter, cheese, dip, and yogurt categories feature ethnic or savory flavor profiles.
  • In the cottage cheese category, for example, recent product launches feature savory flavors such as chive, cucumber dill, and toasted onion.
  • Ethnic regional flavors, such as labneh, paneer, and manchego, are emerging in the cheese category as well, as more and more consumers seek authenticity. Roger Mullins of Wisconsin-based First Choice Ingredients, "consumers continue to yearn for new culinary experiences, and these cheeses play an integral role in the cuisine of each region."
  • Product developers exploring savory flavors in dairy are looking into combining various peppers with other ingredients such as maple, citrus, or smoke. They are exploring mostly the development of spicy-sweet flavor profiles.
  • The emergence of spicy-sweet butter products such as spicy cinnamon butter attests to this trend. According to Philip Caputo of New York-based Virginia Dare, "combining the sweet and heat flavor profiles has been a popular trend in dairy — particularly with cottage and various blocks of cheese."
  • Even the flavored milk, ice cream, and yogurt categories are experiencing this sweet-heat flavor trend. Both millennials and Boomers like food with a "spicy kick." Novelty, tradition, and indulgence are important in the American diet.

RISE OF ALCOHOL-INFUSED, BOTANICAL, AND BREAKFAST FLAVORS

  • Trending flavor profiles in the ice cream category include alcohol-infused, botanical, and breakfast profiles.
  • The Spirits Collection of Virginia-based Haagen-Dazs, for example, features new ice cream flavors such as bourbon vanilla bean truffle, rum tres leches, and bourbon praline pecan. This line offers consumers "new, extraordinary ways to indulge."
  • According to Cary Frye of D.C.-based International Diary Foods Association, ice cream innovations presented at the Ice Cream Technology Conference wowed with "a mix of sweet and savory, combining liqueurs with candy crumbles and spices, and bakery flavors like cobbler, French toast, cookies, and pie crust."
Sources
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