The US dairy category needs to be thought of in broader terms. Undergoing dynamic change, it now includes plant-based and animal-free dairy alternatives, as well as traditional animal-based dairy.

Today, these segments, regardless of legal definitions of what dairy is or isn’t, all comprise the dairy category. Brands across these segments are all competing for the same retail shelf space, which is what really matters because 90% of all grocery sales in the US still happen at brick-and-mortar stores.

Traditional dairy (animal-based) and the insurgency (all the alternative-dairy versions) are in the process of transforming what not too long ago was a boring and relatively static category into a dynamic and highly-competitive one.

In other words, dairy’s no longer your grandfather’s, or even your father’s, category anymore. Instead, it’s looking to be more like your hip, flexitarian, millennial cousin who drinks oat milk but also loves goat’s cheese and high-fat ice cream made with milk from grass-fed cows – and may even switch between animal-free cream cheese and good old Philadelphia Cream Cheese, made from cow’s milk.

The progress of ‘traditional’ dairy

Four years ago, I offered a roadmap for animal-based dairy that, if followed, would lead to greater prosperity, including helping to stave off the plant-based dairy insurgency, which was gaining ground (and, although to a lesser extent than in 2017, continues to do so). Since then, I’ve watched closely as traditional, animal-based dairy has made positive strides in that direction.

Most impressive has been butter. Brands focusing on premium quality, many from other countries, have proliferated, gained space in retailers’ dairy cases and are selling well. Kerrygold, the premium butter from Ireland, for example, is now the number two-selling butter brand in the US and has near-100% retail distribution.

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Numerous US brands and dairy cooperatives have launched premium butter brands as well, and most have gained impressive retail shelf-space. Consumers have accepted brands’ flight-to-quality when it comes to butter.

Animal-based ice cream continues to impress. It seems a new brand is launched every month, including brands with significant differentiation and interesting new flavors. If you walk the frozen food aisle of any US supermarket, you’ll see that ice cream brands made from animal milk still dominate the frozen dessert section.

Traditional dairy-based cheese also is on a roll, with quality in terms of brands and varieties improving in recent few years. Whole milk and high-fat are in. Consumers want delicious taste when it comes to cheese and the plant-based alternatives have yet to satisfy this consumer prerogative in any significant way when it comes to taking share in the cheese category.

There have also been advances in fluid milk. Again, premiumisation – full-fat whole milk, including organic and milk from grass-fed cows – is leading that charge. While low-priced, store-brand, fluid milk still leads the category in terms of dollar sales, the premium brands, including those introduced by retailers under their own brands, are what’s driving new sales and creating excitement in the category.

The plant-based fluid milk insurgency continues but at a slower pace – growth of about 9% annually compared to 15%-20% in past years. Oat milk poses the biggest competitive threat to traditional fluid milk right now in terms of taking share.

The patchy performance of plant-based dairy

Without question plant-based dairy brands and products have had the biggest impact on the overall dairy category over the last decade, although they’ve been around far longer than that. Over the last ten years, though the category, from fluid milk and yogurt to cheese and ice cream, has truly come into its own, both in terms of retailer acceptance as well as consumer acceptance.

Most impressive is the fluid-milk segment, which continues to see a proliferation of new plant-based milk styles, from oat milk to newer entrants like cashew milk, walnut milk and potato milk. Almond and soy milk still hold the top spots in the segment but oat milk is moving up fast. It’s also become the plant-based milk of choice for those consumers who’ve switched from animal-based milk for either dietary, taste or ethical reasons.

Plant-based cheese, ice cream and yogurt are growing in sales but don’t pose a major challenge to animal-based dairy in the same way plant-based milk does. Of the three, plant-based yogurt brands have made the biggest inroads. Plant-based ice cream doesn’t pose a major challenge to traditional dairy ice cream in my analysis. In fact, I’ve had a number of category managers at natural and specialty foods retailers tell me recently most of the plant-based ice cream they carry isn’t performing that well compared to its traditional dairy counterparts. Those category managers are putting less of a focus on plant-based alternatives and more focus on devoting space to animal milk-based ice cream in their planograms.

Plant-based dairy brands are mainly responsible for bringing excitement to what was for years a boring, fairly static, category. However, traditional dairy is fighting back, focusing more on innovation than it has in the last two decades. Competition is good for categories and, in this case, it’s going to be good for both segments because it will further spur brand and product innovation.

Jury out on animal-free dairy

Animal-free dairy is the newest insurgent in the US dairy case. Using precision fermentation technology, companies like Perfect Day, Nature’s Fynd and Change Foods are producing what they say are bio-identical dairy proteins to whey or casein without the use of animals.

Among the retail branded products introduced so far include Brave Robot ice cream, which is owned by the CPG subsidiary of Perfect Day, and Nature’s Fynd Cream Cheese. Additionally, food giant General Mills said last month it’s introducing a vegan cheese brand called Bold Cultr, using animal-free whey produced by Perfect Day.

The companies and brands in the animal-free dairy space are flush with investment money from venture capital firms (in October, Perfect Day announced a round of funding worth US$350m and, in July, Nature’s Fynd announced a $350m Series C funding round, which took the company’s total financing to more than $500m) and look set to make a huge splash in the dairy category in 2022. Nature’s Fynd, which also makes meat alternatives, appears confident in its prospects, telling Just Food recently it is investing in its production.

However, it’s far too early to say whether animal-free is the new plant-based because of critical questions around scale, pricing and the jury of consumer acceptance remains out. Nevertheless, animal-free has already started creating excitement in the category and brand-owners are building listings.

Don’t ignore dairy

Traditional animal-based dairy is making a comeback in the US. Legacy and start-up brands are innovating once again. However, the meek don’t maintain market share, so there’s much more innovation needed because plant-based and animal-free businesses are innovative, bold and determined.

Plant-based dairy, although still part of the insurgency, has achieved mainstream status in terms of retailers and consumers. Milk, yogurt, cheese and ice cream made from nuts is no longer a joke, except to those in the traditional dairy business who still don’t get it. Plant-based dairy will continue to grow share, even if at a slower rate than in the past.

Animal-free dairy is the hot new kid on the block and, like all newcomers, must prove itself to retailers and consumers.

Dairy might not be sexy yet but it’s hot, and it’s now one of the most dynamic and competitive categories in the US packaged foods sector, which is enough for it to be near the top of your “must pay attention to” list for the new year.

Just Food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. He is available for consultation at: victorrmartino415@gmail.com and https://twitter.com/VictorMartino01.