Fermented dairy drinks under pressure
Although a successful and fast-growing dairy sector, fermented dairy drinks could fall behind other healthy dairy products, as Euromonitor reports.
In 2003, fermented dairy drinks formed the tenth-largest sector in the dairy market, having increased from eleventh place in 1998. A dynamic category, fermented dairy drinks grew at six times the rate of total dairy growth between 1998 and 2003. This was slower only than the small soy milk category, as well as yoghurt and flavoured milk drinks which have seen considerable product development and marketing support over the review period.
By far the largest market for fermented milk drinks is Japan, where the leading brand Yakult is the reference product for the entire category, having been available in Japan for more than 50 years. The next most significant markets are South Korea and Brazil, followed by a number of Western European markets including France, Germany and Italy. In fact, Western Europe has increased in importance, becoming the second largest region for fermented dairy drinks ahead of Latin America, which held that position at the beginning of the review period.
In 2002, Danone's Actimel, the second largest brand globally, became the first fermented dairy drink to be launched in the US.
Soy and probiotics eating into fermented sales
But it isn't all good news for fermented dairy drinks. Forecast growth is relatively slow compared to other 'health' dairy sectors like soy milk, which is forecast to grow nearly 40% between 2003 and 2008. Another dynamic category will be yoghurt, principally driven by the development of both eating and drinking versions of probiotic yoghurt.
Essentially, the sector has lost its unique health positioning over the review period and is now unable to distinguish itself from the roar of functional and pseudo-functional claims coming from all sides of the dairy industry, particularly probiotic, soy and even sour milk drinks.
In Japan, soy milk growth has been buoyed by the affinity between soy products and Japan's food culture, in addition to significant product developments including flavoured varieties and increased availability in single 250ml cartons in convenience stores. The product has thus tapped into key food trends surrounding convenience and portability, taste and general health.
In the US, soy milk is also coming into the mainstream through the development of refrigerated rather than UHT varieties, and the product is making overt (although clinically unproven) health claims including risk reduction for various cancers and heart disease.
In both Japan and the US, probiotic drinking yoghurts too are booming on the basis of their portability, snack appeal and health claims which match those of fermented dairy drinks; offering improvement to digestive health and a boost to the immune system.
Should Danone acquire Yakult?
So can fermented dairy drinks successfully compete with other healthy dairy products? Typically sold in multipacks of 65ml bottles, this is neither a beverage nor a snack product. Moreover it is difficult for consumers to understand the difference between the bacteria that differentiate fermented and probiotic products, and the generic health claims of soy milk, leaving fermented dairy drinks at a considerable disadvantage. Certainly in Japan the product's significance is waning. In the US it is unclear whether the only player, Actimel, will gain significant sales in the face of alternative health claims, while in Western Europe the sector is still showing significant growth but probiotic products are forecast to grow even faster.
In this context Danone's increase of its share in Yakult earlier this year from 5% to 19%, and rumours of an imminent acquisition may appear odd. However, not only would this make Danone the largest dairy company ahead of Nestlé, it would also give it a significant platform from which to develop Asian operations, where Danone is currently marginal. Of particular interest to Danone, in addition to leadership of fermented dairy drinks in every region, would be Yakult's probiotic drinking yoghurts Will and Metchnikoff and the company's strong distribution system.
In terms of both the Japanese and US markets, soy milk should also be a key focus for Danone. Whether this is via Yakult in Japan or through an acquisition like Eden Foods in the US remains to be seen. What is clear, however, is that all of these functional or health dairy markets have significant growth potential as long as companies also tap into consumer desire for taste, fun and convenience too.
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