The great white hope

The European dairy market encompasses many and various products, some of which are quite specific to individual countries (quark, cheddar cheese, petits suisses, pap and vla). Generally, dairy products fall under the following headings:

• Drinking milk (including flavoured)
• Cream
• Condensed milk
• Butter
• Yoghurt and fermented milks (including probiotics and yoghurt drinks)
• Dairy and milk-based desserts
• Ice cream

Other products sometimes included under the dairy category are whey, casein and milk powders, and yellow fats. As well as being sold through the retail and foodservice channels, most dairy products are important food ingredients.

The dairy market can also be divided into "commodity" and added value. In the context of this article, European means the 15 original members of the EU.

The dairy sector provides one of the most important food components in the European diet, accounting for 16% of all food consumed and, at a total value of €111bn, 16% of consumer food expenditure. It is also a sector of contrasts. At an average 77kg per person, drinking milk is one of the largest volume segments after fresh fruit and fresh vegetables but at a retail value of €18bn it is worth less than chocolate confectionery. European milk consumption is also in long-term decline.

By comparison, the dairy-based probiotic drinks market is highly value-added and one of the most dynamic food sectors, having doubled in sales in some countries over the last five years.

Despite the obvious successes of probiotics, flavoured milks, spreadable and low-fat butters, yoghurts and desserts, volume consumption of dairy as a whole is static. Due to the successes of the value- added segments though, the value of the sector has been growing at an average of 1% per year.

The European dairy market (as measured) totals 48.5Mt and is dominated by drinking milk at 30Mt. Cheese is the next largest segment by volume, followed by yoghurt and fermented milks. However, when comparing volume with value, a completely different picture emerges. Cheese becomes the largest segment by value, followed by drinking milk and yoghurt (including other fermented products).

Drinking milk, cream, condensed milk

These are generally considered to sit at the commodity end of the dairy spectrum with relatively large markets but static to declining volumes. A general decline in the consumption of plain drinking milk has corresponded with an increased demand for flavoured milk drinks and for cream, especially as an ingredient in premium ice creams, cakes and desserts.

Such a trend towards higher value items is expected to continue to reflect both consumer and retailer demand, along with support and development by the dairy industry itself. As far as new developments are concerned, the focus will continue to fall on milk drinks, organic and fortified milks and alternatives to cow's milk. However, flavoured milk drinks are already finding it difficult to compete with other soft drinks.

Cheese

The increase in multiple retailing has been to the detriment of the specialist shop selling fresh and local cheeses throughout Europe. While multiple retailers do have fresh cheese counters, the superstore market tends to favour vacuum, or modified atmosphere, pre-packs. The demand for greater convenience, coupled with a need for the industry to add value, has seen a rapid increase in the sub-sectors of shredded or grated cheese and cheese slices and modified atmosphere packs have been used here to great advantage.

Prospects for overall growth in cheese consumption are considered to be steady but there are opportunities for the use of fresh and processed cheese as an ingredient in prepared products and as a snack or snack base.

As the above comments suggest, whilst many brands are associated with this sector, the variation between countries in terms of product types is immense. Only a few brands and products, for example Kraft Philadelphia and Bel, are international.

Yoghurts and desserts

After decades of expansion, the yoghurt market is now slowing and, in some cases, registering small declines. This is all about competition. There are now so many products competing on the dairy shelf. Simplistically, if consumers are choosing to purchase more desserts, then they purchase fewer yoghurts.

One exception has been the rapid growth of probiotic yoghurts and drinks. The main European probiotic brands are fermented dairy drinks from Danone, Yakult, Müller and Nestlé

Whilst these are positioned as functional drinks, the spoonable probiotic products tend to take a general health and taste positioning. This is demonstrated by the launch of Müller Vitality, for example, which is a low-fat probiotic yogurt.

The development of new probiotic products has not always met with success and some notable brands have been withdrawn from the market in recent years. However, the probiotic dairy market continues to develop well after a slow start.

These developments have forced some manufacturers of yoghurt to choose between the luxury dessert and a more overtly healthy route with many developments taking place in both. The former are using more premium ingredients, often with higher fat contents whereas the latter is focused on aspects such as low-fat, "bio", probiotic, synbiotic or incorporating healthy additions, such as vitamins, omega-3 fatty acids, green tea or blueberries.

Meanwhile, yoghurt itself is becoming increasingly used as a healthy addition to other foods such as snacks, cereal bars and breakfast cereals. Indeed, yoghurt is being increasingly developed and promoted as a snack and as a light meal in its own right.

Ice cream

The ice cream market underwent something of a revolution in the 1990s with the development of the snack sector although this sector is now showing signs of over-promotion and saturation. Consumption is set to continue to grow overall (excluding seasonal fluctuations) but at a low level, whilst market fragmentation, shorter product life-cycles and the need to establish novelty values and develop new sub-sectors will continue to place demands on manufacturers and their suppliers.

For the ice cream processing industry, it is likely that manufacturers will continually look to the use of new, novel ingredients, ingredient combinations, shapes, characterisations and packaging in order to enhance consumer appeal and to segment the market.

In addition, a health sub-sector is expected to develop, bringing increased demand for sweeteners, speciality fats, fat substitutes and bulking agents.

Whilst many large brands, such as Danone, Yoplait and Müller, (yoghurts and desserts) and Nestlé and Unilever (ice cream), are associated with this sector, there are considerable differences in preference between countries, making overall comparisons difficult.

However, there have been successful attempts at international branding in ice cream and it will have to be considered whether such products need to have "international" flavours. In most countries, the main flavours remain vanilla, chocolate and berry.

Key trends in ice cream include: health; snacking; impulse; novelty; new ingredients and flavour combinations; organic; and low calorie.

The future for dairy in Europe is varied. Despite the inexorable decline in milk consumption, there are good prospects for certain dairy products. These prospects are closely linked to the main market drivers: health, convenience and indulgence.

In terms of health, dairy products in Europe tend to have a positive image and this can continue to be further exploited by the use of special cultures and healthy inclusions or simply by using dairy as a "base". Convenience can continue to be developed both through the way dairy products are packaged and through the development of new products and convenient formats.

Dairy plays a key part in the indulgence sector of the market, especially where butter or cream are used as important components. Examples include premium ice creams, cakes, pastries and ready meals.

Although average value growth for the European dairy sector is only 0.7% per year it may be seen that there are wide variations between segments and countries. To put this performance in context, the total food market is expected to grow by 1% per year in real terms over the next five years which makes dairy an underperforming sector of the food market.

The key elements responsible for suppressing the dairy sector include slow population growth with static to declining populations expected in the key dairy markets of Germany and Italy; continued declines in the main sector of drinking milk; a slowing down of the yoghurt segment; continued pressure from health lobbies to reduce intake of saturated fats; competition from other foods (soft drinks, snacks, cereal and breakfast bars) and a move towards consumption of convenience foods and eating on-the-move (where dairy products are less well represented).

Key areas for development include:

• Health: quality low-fat variants, probiotics, synbiotics, healthful additions, organic variants
• Convenience: the further development of more ready-prepared dairy products;
• Snacking: dairy in on-the-move

formats

• Indulgence: to continue to use and enhance the use of dairy in indulgent formats
• Ingredients: the further use of dairy as an ingredient in snacks and in prepared foods in general.

This article was taken from The Big Food Guide 2011 - European Food Markets, by RTS Resource. For a free sample brochure, contact Jamie Rice on +44 (0)1902 422282 or e-mail wnzvr.evpr@egf-erfbhepr.pbz​ http://www.rts-resource.com​