Magic act: dairy drinks category report 2020

Pulling a rabbit out of a hat may be impressive in the world of magic. But in the case of dairy drinks, it will take more than that to win over shoppers. Because they are looking for products that have more than one trick up their sleeve.

Simply offering health benefits, an energy boost or a creamy taste is no longer enough. According to Kantar data, a growing number of consumers are turning to dairy drinks for health, enjoyment and practicality. The ­number of occasions chosen for health reasons rose 10.1% last year, while enjoyment and practicality occasions increased 4.1% and 2.6% respectively [Kantar 52 w/e 29 December 2019].

It’s something the major dairy drinks players are noticing. “Typically, you’d buy into soft drink subcategories for one overriding need. If it’s water, it’s hydration. If it’s an energy product, it’s fulfilling that need,” says Arla head of beverages Adam Hacking, who oversees the manufacture of its Starbucks RTD coffees.

“There isn’t one core reason people are buying iced coffee. You could potentially argue there are two to three needs: indulgence, caffeine content and perhaps a functional one.”

In some cases, shoppers are looking for two seemingly contradictory benefits in one product, such as health and indulgence.

It’s certainly a tough brief. But, as Starbucks has proven, getting it right can earn rewards. It’s overtaken Yazoo as the top flavoured milk brand, with sales up 16.8% to £63.6m [Nielsen 52 w/e 28 December 2019].

“You could argue there are two or three needs that lead people to buy iced coffee”

So aside from Starbucks, who is nailing these multiple need states? Which tricks are proving most popular with consumers? And ultimately, are dairy drinks managing to magic up growth as a result?

On the face of it, the dairy drinks market is pretty flat. In fact, volumes have dropped slightly by 0.6% [Kantar]. But other market figures show the real opportunity. Values have reached £642.7m, thanks to a 3% rise in the average price per litre of dairy drinks. According to Kantar, premium products are a major driver of this growth.

This is where the multiple need states come in. To justify a higher price, products have to make more than one compelling claim. Take the category’s rising star kefir, which helped boost the value of the yoghurt drinks market by 35% to £43.2m.

Health, of course, was the main driver here. Kantar data shows that’s an increasingly powerful proposition - compared to the previous year, there were 5.6 million more dairy drink servings chosen for health reasons.

Plus, it helps that kefir’s particular area of focus - gut health - is gaining ever more consumer attention. Indeed, 45% of consumers cite gut health as the most important health factor when purchasing a drinking yoghurt, according to a survey of 1,116 Brits by Streetbees for The Grocer.

Own label threat to flavoured milk leaders: top 10 dairy drink brands by value

• Leading flavoured milk brands are losing value, and fast. Frijj is down 16.2%, Weetabix has shipped 11.4%, and Mars is down 10.6% as own label increases its share.
• The growth of own label could be a threat to brands who aren’t moving with trends, warns Nielsen client analyst Vanessa Pollard. “It is through core SKUs that private label enters the category and tempts shoppers to switch from brands to private-label equivalents.”
• The branded exception is Yazoo, which has enjoyed a sales boost both in value (up 6.5% to £62m) and volumes (up 6.8%). Nevertheless, it has lost its top spot in flavoured milk to Starbucks, which has grown 16.8% to £63.6m.
• Being a familiar name in dairy drinks is not a certainty for success, warns Pollard. “Those legacy brands who have continued to deliver a basic core range of products with little refreshment in the portfolio are losing out,” she says.
• The iced coffee category is being driven by the entrance of brands like Monster Energy, which “helps expand the reach of the RTD sector into the mainstream,” Pollard says.
• Top 10 brands with coffee flavoured options all registered growth in both value and volume.
• In yoghurt drinks, the top three – Actimel, Benecol and Yakult – all lost ground as kefir brand Biotiful Dairy saw its value rise 32.4%, while outpacing Yop and Yakult in terms of volume growth (48.9%).

A ‘sweet spot’

Still, that’s not enough on its own. Natasha Bowes, whose Biotiful Dairy brand has shot up 32.4% to £13m [Nielsen], says kefir’s success is down to offering multiple benefits. “Kefir has hit the sweet spot of what the consumer is looking for. It brings natural health, quality of taste and convenience,” she says. “It delivers on a lot of benefits in one. Our research shows people are prepared to pay more if more than one box is ticked in terms of benefits.”

The Collective’s co-founder Amelia Harvey also hammers home the need for several selling points. After all, the gut health claim holds the most sway among affluent empty nesters over the age of 55, who form kefir’s core shopper bracket. To tempt other demographics, it needs to work harder.

“It is not enough to only offer the benefit of live cultures within dairy drinks,” says Harvey. “As the gut health trend continues to gather momentum, brands must offer benefits beyond gut health. Offering tasty and exciting flavours is a way that we are bringing in a new consumer to the category.”

Harvey points to The Collective’s “twist” on its kefirs with ingredients such as turmeric, famed for its anti-inflammatory properties, as a way of adding an extra dimension. It seems to be doing the trick. The Collective’s yoghurt drinks have shot up 132.6% to £4.6m on the back of its multifaceted kefirs.

“Kefir has hit the sweet spot of what consumers are looking for: it delivers on a lot”

On the flipside, being a one-trick pony can prove a costly mistake. Just look at drinks that have typically relied on health as a selling point. The original probiotic brands are locked in a downward spiral that has only continued this year. Actimel, Benecol and Yakult have fallen 2.3%, 5.8% and 2.8% in value respectively [Nielsen]. They have pushed the functional dairy drinks market down 3.3% to £249.2m [Kantar].

Arguably, these drinks simply aren’t meeting the needs of modern consumers in the same way as new-wave probiotics such as kefir. “Functional drinks with health-led messaging need to understand the changing meanings and perceptions of ‘health’ and update their packs and messaging accordingly,” says Katrina Russell, project director at Sign Salad, which describes itself as a cultural insight agency.

“Health is no longer about putting trust in expert jargon, or abstract statistics. It’s about attaining wellbeing more holistically. They need to emphasise that they’re more: a moment to savour innovative flavours; to boost the mind; replenish skin cells; and so on. Functional drinks shouldn’t make people feel like they’re ‘just’ functioning.”

Plus, kefir has another selling point over its rivals. Russell points out that kefir has a “compelling provenance story” that traces back to age-old fermentation methods in the Caucasus Mountains. This element of culture is something that increasingly appeals to ­consumers, says Russell, who cites the ‘hygge’ trend from Scandinavia.

Yakult certainly seems to recognise the value of such a selling point. It’s turning to some savvy marketing to reverse its 4.4% volume decline [Nielsen]. Throughout 2020, it is set to invest £3.5m in a multichannel ‘Science not magic’ campaign aimed at adding flesh to the bones of its backstory. Crucially, it highlights that the drink was invented by a Japanese scientist.

“With many consumers still unsure where Yakult was created, we are promoting its Japanese heritage and scientific background as well as pushing wellbeing to the forefront,” says its UK & Ireland MD Hiroaki Yoshimura.

“Wellness and wellbeing for Yakult go hand in hand with the company’s Japanese roots: a culture known for longevity, scientific innovations and creative health solutions.”

That’s not the only way traditional probiotic drinks are fighting back. Danone is looking to drive growth by tapping another trend: plant-based. In 2018, the giant announced plans to launch vegan versions of its best-known dairy brands. While its yoghurt brand Activia is first in line for a makeover, a plant-based Actimel isn’t out of the question.

It could be a savvy move. Although Kantar’s read of dairy alternatives says they have edged up just 0.8% in value, that figure is only take-home sales and doesn’t include yoghurt drink brands. According to Nielsen’s figures, which include on-the-go sales, there is much more impressive growth to be had. See dairy-free brand Biomel, which has stormed into the top 10 yoghurt drinks: over the past year, it has nearly tripled sales of its nut milk shots to just shy of £2.6m.

“Functional drinks with health messaging need to understand changing meanings of ‘health’”

Biomel co-founder Steven Hegarty believes plant-based credentials have been crucial to its success. “We believe there is a huge opportunity to unlock category growth by addressing growing demand at the intersection of two of the fastest-growing consumer trends: gut health and dairy reduction,” he says.

But it’s more than just slapping a dairy-free label on a bottle. For Hegarty, Biomel is an antidote to the “traditional players” and multinationals in the category who “lack relevance, excitement and do a poor job in satisfying modern consumer needs”.

That’s why fellow co-founder Janett Lazano isn’t convinced the giants could reap the same rewards from a plant-based product. “Consumers will never find in Müller or Danone what they find in Biomel,” she says. “We’re passionate about our consumers and able to connect on a deeper level. Our values are naturally aligned with them, whereas the traditional players lack authenticity.”

Indeed, the fastest-growing players in yoghurt drinks - Biomel, Biotiful and The Collective - are not the giants. Still, that aversion to bigger brands doesn’t seem to be playing out in other areas of the dairy drinks market. Take iced coffee. The big brand power of Starbucks has helped it deliver a stellar £9.1m gain in the past year to top £63m. That is undoubtedly helped by its huge presence in the out-of-home arena. Costa also clearly sees potential in this area, having launched a trio of RTDs back in June.

In some ways, these brands are at a natural advantage. They have already built up a reputation for coffee expertise in the out-of-home arena, where they are used to talking about the origin of beans and roasting processes.

Arla’s Hacking believes this kind of language will become increasingly prevalent in the iced coffee arena. “There’ll be lots more communication just as you see in coffee houses about where coffee beans are coming from,” he says.

“I’d expect to see some producers standing quite tall around the provenance of the product and the quality of the milk and what is or what isn’t being added to the products.”

Plus, Hacking points out that coffee shop brands such as Starbucks are more able to jump on the latest trends. “If you’re seeing a flavouring or some sort of functional benefit working in a coffee house and it’s absolutely flying, then it’s going to make it much easier to make that transition into different formats,” he says.

Still, Starbucks isn’t necessarily at the forefront of all trends on the shelves. In its coffee shops, consumers can order all sorts of dairy-free alternatives, ranging from a coconut latte to an almond milk mocha. But in Tesco, there is a choice of just seven Starbucks SKUs, all of which contain dairy.

Here, Alpro is leading the way in dairy-free. Its Caffè iced coffee range, launched in 2018, helped it generate a 6.2% increase in flavoured milk sales to £13.6m.

The brand is confident the iced coffee market will continue to grow thanks to the UK’s “massive” coffee culture. Which, in turn, will create space for more players with diverse propositions to enter.

“The iced coffee market is fuelled by a younger group of on-the-go urban consumers”

“The market is fuelled by a younger group of urban consumers who are on the go. In the coming years, it will become a regular purchase for that group, a fixed part of their shopping routine,” says Alpro’s UK & Ireland marketing director David Jiscoot.

“The beauty of plant-based is we have an unlimited source of plants which we can use to either dial up taste, health or sustainability. For example, if you have a coconut iced coffee, it’s clearly a taste driver. On the other hand, if you look at almond, it’s a bit better on the calorie count.”

It’s fitting that he should mention calorie count. Because it has traditionally been a bit of a sore spot in the iced coffee market. Many RTDs have come under fire for their high sugar and calorie content: a Starbucks Caramel Macchiato, for example, contains more than 550 calories and 18.9g of sugar per 220ml serving.

It’s a hit that consumers are willing to take in coffee shops. And previously, consumers would overlook sugar in the name of taste in the retail aisles too. After all, ‘enjoy the taste’ is the main motivation in dairy drink sales - accounting for nearly two thirds of all ­occasions over the past year, according to Kantar.

But as consumers get ever more demanding, taste isn’t enough on its own. They are increasingly looking for propositions that tick both the health and indulgence boxes.

Crediton Dairy, the manufacturer of Arctic Iced Coffee, says that is particularly true of millennial customers. Its core demographic is “a pre-family, below-34 age group”, which is in search of a “healthier alternative” to traditional fizzy drinks.

“Instead of students, for example, using energy drinks to help get them through studying, they’re now turning to a milk-based caffeine product,” says Arctic’s brand manager, Jo Taylor. That’s why Arctic offers options such as its low-fat cold brew coffee range, which even includes an added protein option.

Crediton isn’t stopping there. Because for younger consumers, these demands aren’t limited to virtuous nutritional content. They also want virtuous brand values, according to Abigail Kelly, head of marketing & insight at Crediton Dairy.

“Provenance as well as accountability and looking more deeply behind a brand to find out what they stand for: these are getting more and more pronounced as generations come through,” she says. Kelly adds that Arctic has switched to Rainforest Alliance-approved coffee beans and will this month swap the black cap on its cartons for a white ‘bio-based’ plastic cap to allay consumer concerns over coloured plastics.

Breakfast boom: dairy drinks value sales

• Breakfast is still very much the boom time for dairy drinks, accounting for 30% of the category’s consumption.
• In fact, they were consumed on 11.5 million more occasions at the morning meal than last year, notes Kantar client executive for dairy Nishita Pattni.
• “Functionality is key to dairy drink occasions, with ‘a quick bite’ and ‘fuel’ being among the top three occasion types for this category, accounting for 22% and 13% of occasions respectively,” she says.
• The largest amount of growth within the category comes from yoghurt drinks, thanks to kefir NPD and innovations within the ‘breakfast in a bottle’ sector.
• Yoghurt drinks have seen a 35% increase in value to £43.2m, with volumes jumping 26.9% to 19.2 million litres.
• Branded dominates yoghurt drinks, but own-label NPD has performed well, particularly at Tesco and the discounters, explains Pattni.

Source: Kantar 52 w/e 29 December 2019

Government intervention

Consumer attitudes are a clear driving force behind such moves. But there is also another force demanding change for the better, at least in the case of added sugar. That is the Public Health England target that calls on dairy drinks to remove 20% of their sugar content by 2021. Although it’s just a voluntary target, it has sparked a wave of sugar reduction efforts. No one wants to get left behind, especially amid the talk of extending the sugar levy to dairy drinks.

One brand embracing the target is Yazoo, which has reduced the levels of added sugar in its milks by 20% a year ahead of the PHE deadline. Still, Dan Chesbrough, business controller at brand owner FrieslandCampina UK, says that can create problems of its own.

“When parents see ‘no added sugar’, they pick up the bottle and see what’s been added instead,” he explains. “In our product, nothing else has been added.”

“Can we create flavoured milks that are acceptable taste-wise and lower in sugar?”

Crediton’s Kelly also sees it as tricky. “The challenge for the category is: can we create flavoured milks that are acceptable taste-wise to children and are lower in sugar, maybe with one fruit portion of the 5 a day to get you into a position where you up the ante on the positive messages dairy can bring?”

Kelly points out dairy drinks already benefit from positive associations in the minds of consumers. “While they know flavoured milk contains sugar, the fact it’s got good nutrition and is better than a sugary carbonated alternative means they’re reasonably happy to give it to children,” she says.

Her point about sugary carbonates is a pertinent one. Because traditionally, dairy drinks have struggled to compete. Fizzy drinks have long enjoyed pride of place in retailer stocking decisions, featuring in high-footfall areas such as food to go. Now dairy drinks are venturing further into these areas, where they can more readily present themselves as an alternative to carbonates.

How are shoppers buying into dairy drinks?

• The boom in iced coffee NPD might not have everyone convinced, the results of Shopper Intelligence’s study suggest. Just 5% of participants who saw iced coffee went on to buy it.
• Only 21% spotted where the iced coffees were stocked. This was due to the subcategory’s “recessive positioning stretched across the shelves” according to Insight Traction partner Jeremy Garlick.
• Just 9% of consumers engaged with iced coffee products, though this was above average for the dairy drinks category as a whole (7%).
• “We may think of iced coffee as a well-established category but the data proves that most shoppers are yet to be won over,” says Garlick. “Some don’t see it at all, others are not compelled to buy into cold coffees. Therefore, lots of growth opportunity remains.”
• The more mature sub-categories of milkshakes and yoghurt drinks “have full bays to themselves” Garlick says. “But, again, there is room to more effectively attract attention and secure the purchase. Only 14% of those who saw the category bought it.”

On the go

FrieslandCampina, which has recently ventured into iced coffees, sees this as a huge advantage. “Retailers’ execution of the dairy drink category is starting to improve and on the back of that, there’s a continued holistic benefit [for the category],” says Chesbrough.

“Historically, you may have seen some of these products being stocked in a back-of-the-store milk chiller. Whereas they’re now being collectively agreed upon as being more of an on-the-go solution. As a result of that, they’re starting to take more space in traditional front-of-store soft drinks fixtures.”

This space could capture the sizeable number of shoppers who are picking up a dairy drink as something new, rather than as a habit. According to Kantar figures, around 17% of dairy drink occasions over the past year were motivated by consumers who ‘fancied a change’.

Even outside of the food-to-go fixture, there are opportunities in merchandising. Last month, Sainsbury’s launched a permanent gut health fixture which, for its first three months, will carry Biotiful Dairy’s branding as well as messaging on the benefits of gut health. Founder Bowes believes this could boost kefir as a whole. She envisages more single-serve SKUs penetrating the front-of-store area with “bigger pack formats” at the fixture in the dairy aisle.

Starbucks sees similar opportunities in the iced coffee market. Hacking believes brands will soon explore the formats currently seen in soft drinks, such as bigger pack sizes for in-home as well as multipacks.

It could prove worth exploring. Because in the case of dairy drinks, it always pays to have more tricks up your sleeve.

Innovations in dairy drinks 2020

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Yop Tropical | Launch date: March 2020 | Manufacturer: General Mills | Relaunching this month, Yop drinking yoghurt is seeking to re-engage with teenagers – four out of five of whom are not getting enough vitamin D, according to the brand. Current variants Raspberry and Strawberry will be joined by Tropical. It came out in Yop’s research as a “go-to flavour” for its target audience, said General Mills marketing manager Joanna Goodman. It will be available in a new, smaller bottle aimed at lunchbox and grab-and-go occasions (rsp: £1.99/4x180g).

Source: Yop

Barista Coffee Co | Launch date: October 2019 | Manufacturer: FrieslandCampina | FrieslandCampina’s first foray into iced coffee RTDs is designed to undercut the likes of Starbucks and Costa with its £1 price point. Coming in three 250ml variants – Double-Shot Espresso, Café Latte and Caramel Latte – the “premium-tasting” Barista Coffee Co is principally aimed at discounters, wholesalers and c-stores.

Source: Barista Coffee Co

Boost Iced Coffee | Launch date: March 2020 | Manufacturer: Boost Drinks | Energy drink brand Boost made its iced coffee debut this month with two variants. Silky Smooth Caffe Latte and Full-Bodied Double Espresso With Milk (PMP: £1/250ml) landed in the convenience channel. Boost founder and MD Simon Gray has hinted more NPD could be on the way, given the cold coffee market’s big growth.

Source: Boost Drinks

Jörd | Launch date: Autumn 2020 | Manufacturer: Arla | Officially announced this month, Jörd will be Arla’s first plant-based drinks range. A regular oat-based variant will be joined by oat & barley and oat & hemp options. More details are expected later this year. The brand’s name references Jörd, the mother of Thor. She’s Norse mythology’s personification of “Mother Earth” says Arla.

Source: Arla

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