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January 17, 2005

European food majors enthused by functional yoghurt market

The functional yoghurt market in Spain is currently attracting some of the country’s major food players. With sales forecast to grow 17% annually, there is plenty of room for growth, but companies are having to develop increasingly innovative products to compete, reports Ivan Castano from Madrid.

The functional yoghurt market in Spain is currently attracting some of the country’s major food players. With sales forecast to grow 17% annually, there is plenty of room for growth, but companies are having to develop increasingly innovative products to compete, reports Ivan Castano from Madrid.


Spanish dairy companies are looking at the functional yoghurts market with buen apetito. After all, the sector’s sales are forecast to grow 17% annually from €342m (US$461.2m) in 2004, outstripping growth in all other yoghurt categories, observers tell just-food.com. Drinkable – rather than spoonable – yoghurts make up the majority of the category in Spain, they say.


Spain is Europe’s fifth-biggest food market. European functional food sales are expected to total €5.2bn this year, up 62% from 1999, according to research from Rabobank. The continent’s probiotic dairy market is worth €1.3bn, with much of the growth coming from unspoonable products, says UK market consultant Leatherhead Research Association.


Spanish yoghurt output grew 13% in the first half of 2004, led by functional references, according to national dairy federation Fenil. “Nutraceutical yoghurt sales are growing a lot more than traditional yoghurts and we expect this trend to continue strongly in the future,” a Fenil official says. 


A fast-growing category


Sales “have grown 100% in the last three years,” notes Javier Echavarria, who heads the industrial and technological department at Central Lechera Asturiana, one of the country’s biggest dairy producers. “This is the fastest growing category, both in sales volumes and output value,” he says. “And we are looking for new innovative products to launch in the future.”


Corporacion Alimentaria Pena Santa, the Oviedo, Asturias-based holding of the Asturiana, Ato and Larsa milk and dairy brands, plans to invest heavily in the functional foods market, Echavarria adds.
 
In probiotic yoghurts alone, the company invested €120m between 2000 and 2005, four times more than over the prior five-year period. The category now accounts for 10% (in output value) of Asturiana’s yoghurt division, up from 5% in 2001.


In March, Asturiana launched Naturlinea, its fourth nutraceutical yoghurt brand, boasting the Tonalin fat-reducing agent. In liquid, spoonable and milkshake formats, Naturlinea is very successful in Spain, Echavarria notes, adding that Pena Santa is looking to grow the brand in Latin America by striking licensing deals in Brazil, Mexico and Peru.


Asturiana markets other functional liquid yoghurts under cholesterol-targeting brand Naturcol; antioxidant, energy-boosting and relaxing line Naturactiva; and its Bioplus banner containing gut-benefiting Bifidus active ingredients.


Market leader plots further expansion


France’s Dannon leads the Spanish fermented milks market with more than 50% of sales and an 80% foothold in liquid probiotics. The company sells its popular Actimel sports brand in Spain, one of its three biggest global markets, with annual sales totalling €1bn.


Dannon Spain would not comment about future expansion plans but analysts say that the group will continue growing aggressively in the Spanish functional yoghurts market and that it is preparing to launch new products in the future.


“They [Dannon] have 8-9% margins, their sales are rising and everything is looking beautiful” in Spain, says an industry analyst requesting anonymity. “Their strategy in mature markets like France and Spain is to get people to trade up and eat stuff that has active ingredients.”


Dannon typically allocates 3-4% of group sales to capital expenditures “and as functional yoghurts are likely to be a significant growth driver, the company will invest accordingly” in Spain, the analyst adds.


Apart form its top-selling multi-flavoured Actimel, which has become ubiquitous in Spanish supermarkets (European sales are seen growing 30% annually from about €700m last year), Dannon plans to launch new products in the future, a company insider says, adding that the functional yoghurt category “is doing quite well”.


The company recently introduced its Danacol cholesterol-reducing yoghurt (sold in natural and strawberry liquid flavours) in Spain. The product complements its broad Bio (Bifidus fortified) liquid banner for which it just launched a soya-tasting version. 


Spanish food major Ebro Puleva is also muscling in on the market. It recently launched two liquid yoghurts under its Omega 3 (cholesterol-targeting compound) functional portfolio: green tea and lemon and cereals. The yoghurts complement its oats and carrots, strawberry and raspberries, and natural-flavoured versions.


Not a priority for Puleva


Puleva is interested in launching new nutraceutical yoghurts, company insiders say, without revealing more details. However, this correspondent, a big fan of the oats and carrots brand, has observed that the beverage is a big seller; at least this seems to be the case at an El Corte Ingles supermarket (in Madrid’s Arguelles quarter) where the product is always unavailable against other well-stocked Puleva flavours.


Even though Puleva’s Omega 3 has made its splash in Spanish supermarket aisles, the business is not a priority for Puleva, which sees a brighter future in its functional milk franchise, analysts say.


“They don’t have a lot of experience [in functional yoghurts] and they see a lot of competition, particularly from Dannon,” notes David Pena, an analyst with Spain’s Caja Madrid broker, who covers Puleva.


To grow in functional milks, Puleva has restructured its dairy division to boost operating margins after years of disappointing sales. This year, the unit should deliver earnings before interest, tax, depreciation and amortisation (EBITDA) of €51.9m, up from €34.6m in 2000. Sales will fall to €497m, down from €512m in 2000.


Innovation needed


Puleva improved EBITDA margins by dropping a range of loss-making milk brands from its Lactimilk unit and launching higher-margin products under the Omega 3 banner, according to Pena. It also split its dairy division into two operating entities: mass-market milk provider Lactimilk and Puleva Food, which sells more upmarket products.


Puleva plans to add new functional references under Lactimilk (which sells the Ram milk brand) and introduce new value-added products under the Omega 3 category, Pena notes.


Meanwhile, Asturiana intends to grow its Naturlinea division and launch other products to continue to grow its probiotic yoghurt business, where it ranks second after Dannon (and generic brand makers) with 8% of the market. The company, which churns out 40,000 tonnes of yoghurt annually, will also expand in the functional milks business, albeit less aggressively.


Asturiana has been fighting Dannon’s supremacy by adding quirky products to its portfolio such as Vegetanea, a spoonable yoghurt line made from vegetable ingredients such as spinach and cucumbers.


“We launched Naturcol in April, which was long before they did,” Echavarria says. “The only way we are going to be able to compete is by introducing innovative products.”

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