Global retail sales of dairy alternatives such as soy milk have soared at an annual rate of 8 percent over the last 10 years, reaching $18 billion in 2017. While that growth is expected to slow to about 5 percent over the next decade, it’s still enviable compared to the 2.5 percent growth expected for traditional dairy.
That has RaboResearch analysts asking whether the conventional dairy industry should diversify into dairy alternatives — or at least learn from their marketing playbooks.
In their new report “Dare not to dairy? What the rise of dairy-free alternatives means for dairy and how the dairy industry can respond,” the analysts lay out the success of alternatives and opportunities and challenges for conventional dairy.
The challenge for dairy lies mostly in fluid milk sales, where, according to Euromonitor, retail sales in the U.S. and western Europe declined at an annual rate of 3 percent and 5 percent, respectively, in the five years leading up to 2017, the analysts said.
“Global dairy companies such as Danone, Nestle, Dean, Lactalis and countless start-ups are already leveraging opportunities in the alternative dairy markets,” they said.
Traditional dairy players have many ways in which they can respond to the rise of dairy alternatives, and there are some key decisions to be made, the analysts said.
The first for dairy cooperatives is that many producers want to grow milk supply, and it is the responsibility of the co-op to find a home for their milk.
“The idea of investing in a non-dairy activity which may cannibalize dairy products is a conundrum for many players in the dairy industry,” they said.
Nevertheless, entering the dairy alternative market could provide farmer-members with the opportunity to diversify their farming operations and income streams.
Product innovation offers another, possibly less controversial, opportunity. Many possibilities are available, including the potential to develop products that combine the positive attributes of dairy and the functionality of plant-based ingredients.
Most dairy strategies tend to focus on reducing costs, being more efficient and conducting dairy-centric research and development.
Meanwhile, companies involved in the alternative market use differentiation as a major strategy and capitalize on the headwinds facing conventional dairy products.
Value-added strategies are more profitable than volume-based strategies. They pair well with dairy alternatives and can leverage synergies in processing and research and development.
“The time is right for the dairy industry to reflect on the success of alternative dairy products and to consider applying those lessons to dairy. The key to this is understanding the consumer,” the analysts said.
Marketers of dairy alternatives have been far more successful at connecting and communicating with consumers on a more emotional level than traditional dairy marketers, who try to convince consumers with facts.
While it’s not essential to diversify into dairy alternatives, it would be wise to at least learn one thing from the success of dairy alternatives, which is putting the consumer first.
The model has inverted from “grass to glass” to “glass to grass” with consumers driving trends, Tom Bailey, a RaboResearch senior analyst, told Capital Press.
“Consumers are very active in their purchasing decisions and the supply is having to be responsive to these quick changes,” he said.
Those changing trends are responsible for soy milk’s popularity yesterday, almond milk’s popularity today, oat milk’s potential for tomorrow and the butter-is-back fad, he said.