A new Rabobank report examining how more consumers are going dairy-free at the same time as the sector is exploding with innovation, says that now is the time for the dairy industry to reflect on the success of alternative dairy products and to consider applying those lessons.
Rabobank’s new report entitled “Dare Not to Dairy – How the Industry Can Respond to the Rise of Dairy-Free,” says that although dairy alternatives have competed in the dairy space for decades, competition has intensified as dairy alternatives broaden in types, styles and categories of product.
Global retail sales growth for dairy alternatives has increased annually over the last ten years with more consumers opting for dairy-free choices, particularly concerning fluid “milk” that is added to coffee and cereals.
And this has been catalyzed with biotechnology entering the arena, brewing milk proteins through bio-fermentation.
One example is Perfect Day, a start-up specializing in the production of environmentally-friendly and nutritious sources of protein – without the use of animals.
The Silicon Valley-based innovator is collaborating with food companies and food investors to bring its proteins to market and has raised US$24.7 million in funding and received its first patent for the use of animal-free dairy proteins in food applications.
Another example came in February when Goldman Sachs Group Inc. was among a consortium who invested US$65 million in Ripple Foods Inc., a start-up beverage company that creates milk-like beverages from yellow peas.
The investment is Ripple’s largest to date and brings the two-year-old company’s total funding to US$110 million.
The global market for alternative dairy drinks is expected to reach US$16.3bn in this year alone, according to Innova Market Insights data, a dramatic increase from US$7.4 billion in 2010. Changing consumer perceptions – what can dairy learn from dairy alternatives?
The report says that nutrition, price, and flavor tend to favor dairy, but changing consumer perceptions around health, lifestyle choices, curiosity, and perceived sustainability are increasingly drawing more people to select “dairy-free” products.
“Rabobank supports the knowledge and information side of the discussion, by writing reports like this. We work with our clients (through financing and advisory) as they adjust, whether staying on course within dairy or exploring outside investments. We also support the innovation and startup world through platforms like Foodbytes and Terra,” Rabobank’s Executive Director for Dairy, Tom Bailey tells FoodIngredientsFirst.
“It’s important for dairy to engage on an emotional level with consumers; the straight facts of dairy’s superiority are not enough alone to change behavior.”
“Innovation is also significant. Some of the new dairy beverages have done very well. In some cases, the new dairy beverages are growing faster than the dairy alternatives, so innovation is critical.”
Bailey believes that the global demand outlook for dairy remains very positive and that there is much more dairy innovation on the horizon, as well as challenges like the declining sales of fluid milk.
“The commodity export side of our industry will remain important. But in developed markets like the US and EU, the dairy categories have some challenges that are important to address, such as the falling sales of fluid milk and the rise of alternatives,” he adds.
“A lot is happening in the space. Every other month there seems to be another new dairy alternative that is making waves,” he adds.
“Global demand for dairy is expected to grow by 2.5 percent for years to come, with demand for non-fluid categories offsetting weak fluid milk sales.”
Bailey stresses that while it’s not essential to diversify into dairy alternatives, it would be wise for the dairy industry to at least learn one thing from the success of dairy alternatives – “putting the consumer first and trading in the old grass-to-glass model for glass-to-grass.”
The challenge for dairy lies mostly in fluid milk, says the report, with results over the last five years favoring dairy players who have invested in milk alternatives across the supply chain – from planting almond trees to buying brands.
The investments in dairy alternatives have shown returns above standalone dairy.