Surging inflation is driving positive retail current value growth for dairy products and alternatives in 2022, although there has been a marginal drop in retail volume. The growth is due to significant increases recorded in retail selling prices in the industry over the last 12 months, with a variety of contributing factors, especially the rising price of milk. In addition, plant-based dairy continues to drive growth as consumers associate these alternatives with being healthy. Product innovation around functionality, sustainability and elevated experiences will provide additional room for growth. Five key trends are to shape global dairy products and alternatives to 2027.
Inflationary pressures force shifts in company strategies and consumers’ purchasing behaviour
Driven initially by surging consumer demand in the wake of COVID-19, milk inflation is being aggravated by rising input costs. Following already strong growth in 2021, farmers face increasing costs to produce dairy, including fertilisers, feed and fuel, supply chain bottlenecks and growing transportation costs.
One way for consumers to cope with inflation is by seeking private label. Turkey has been experiencing significant inflation for over a decade, with this trend linked to the growing share of private label within dairy products and alternatives. Growing demand since the pandemic and the subsequent economic fallout are boosting sales of existing private label products and encouraging chained supermarkets such as Migros and Carrefour to invest in new launches to meet this surge in demand. In 2022, the share of private label is set to reach close to 30%.
Source: Euromonitor International Passport Dairy Products and Alternatives and Inflation Data
Plant-based dairy poses healthy growth, led by plant-based cheese
Plant-based dairy is set to achieve healthy growth of 9.4% in 2022 in current terms. Plant-based cheese is the main driver of this trend with 21% growth in 2022 in current terms, albeit from a low base as it is still in the early stages of its development. Major players such as Groupe Bel and Upfield are expanding their distribution and launching new variants of plant-based cheese in 2022. However, there are challenges for plant-based cheese, as many of these products have some type of vegetable oil as a key ingredient , which is another reason for the category’s value growth. All types of oil are experiencing a significant increase in price due to shortages because of the war in Ukraine, leading to a significant increase in the average unit price.
Source: Euromonitor International Passport Dairy Products and Alternatives
Functionality remains a focus for innovation, with new frontiers targeting need states
Consumer interest in fortified dairy products and alternatives with functional claims is increasing, as many people are looking to supplement their diets with immune-boosting nutrients and to improve gut health. At the same time, consumers are increasingly attracted by functional products positioned, aid sleep improve their mood to cope with ongoing and relax, stress and anxiety. In addition, there is dynamic innovation in the need states space using different functional ingredients, with botanicals being one of the most popular. So Delicious Dairy Free, a business owned by Danone North America, launched a new line of yogurt alternatives in 2022, featuring vibrant botanical extracts that aim to make it easier to indulge in mindful microbreaks throughout the day.
Rising awareness of the wider health benefits of a healthy gut that go beyond digestion, in connection with the gut-brain axis, is also boosting interest in this space.
Sustainability remains central to long-term strategies in the dairy industry
Environmental concerns over the future of the planet are changing the perspectives on dairy products and alternatives. Players with dairy products and ingredients are continuously working to improve their long-term sustainability credentials, from tackling carbon neutrality to food waste. For instance, milk company Neutral claims to be the first carbon neutral food company in the US by measuring, reducing and offsetting its carbon footprint. In addition, the ingredient player IFF has developed a new range of bioprotective cultures called HOLDBAC, to maintain the quality of fresh dairy products at the end of their formal shelf life, so that they continue to look, taste and feel fresh.
Home-centric experiences persist post-pandemic
The recovery from pandemic-related shocks in consumer foodservice volume across products and alternatives continues in 2022. However, volume sales dairy remain lower than pre-pandemic levels and consumers’ incomes continue to be squeezed due to the inflationary environment. As consumers are engaging in fewer out-of-home activities than pre-pandemic, and are reducing lifestyle expenses, dairy products and alternatives positioned for elevated consumption experiences within the home are growing. For instance, Kikkoman promotes new eating occasions and experiences for its soy drinks in Japan. By freezing its soy milk cartons, the product can be consumed as an ice cream, or as a sweet pudding by adding gelatine and placing it in the refrigerator.
To dive deeper into these trends, please refer to the upcoming report: World Market for Dairy Products and Alternatives.