Butter and milk consumption is on the decline as UK consumers strive to eat more healthily, but luxury ice-cream is still on the menu.

New research from Datamonitor finds that despite set backs such as foot and mouth disease, the future of the UK dairy industry looks bright with the market value set to grow from a value of £7.5bn (US$11.8bn) in 2001 to £8bn in 2006. Competition from alternative breakfast and cereal bars, and the increasing availability of dairy-free milk products, will lead to natural cheese overtaking liquid milk as the leading dairy sector by 2006.

Meanwhile, the consumption of fats and spreads will decrease as awareness of healthy eating continues. Despite this shift towards healthy eating, and indeed the British weather, the UK ice-cream market is one of the largest in Europe with consumption per head set to grow to 2006. Attempts by manufacturers to introduce healthier water and yoghurt based ice creams, and low-fat alternatives, have as yet been unsuccessful; British consumers are staying faithful to the taste and texture of dairy ice cream, with luxury brands such as Häagen-Dazs continuing to grow in popularity.

Less milk, more cheese

The liquid milk market has suffered a recent decline, falling to a value of £2.1bn in 2001. The predicted value of the market in 2006 is £1.7bn. In value terms, fresh milk is the leading category in the liquid milk market, although volume figures are declining for both fresh and long life milk. In 2001, the market reached a volume of 4.3bn litres. This is set to decline further to reach a volume of 3.9 bn litres in 2006.

The decline in the consumption of milk can be attributed to several factors including increased awareness of healthy eating and the shift towards alternative breakfast products such as cereal bars. In addition the increasing number of dairy-free milk products now available, such as soya milk, are affecting the market. As a result, natural cheese will overtake liquid milk as the leading sector in the UK dairy market by 2006.
 
No butter, we're British

As in most other Western European countries, the market for fats and spreads in the United Kingdom has contracted steadily in recent years. This is a typical symptom of a mature market, where competition between incumbents is intense, leading to significant price reductions. The growing popularity of supermarket own brands - particularly in 'basic' or 'staple' food sectors - has led to an erosion of the share held by branded goods.

In volume terms, the market declined to a volume of 298.8 million kg in 2001, with a compound annual growth rate (CAGR) of -1.9% over the 1996-2001 period. Both expenditure and consumption in the fats and spreads market are decreasing as a trend towards healthy eating continues. Expenditure will decrease further from £11.20 per head in 2001 to £9.30 per head in 2006. Consumption follows the same pattern, decreasing from 5.0kg per person in 2001 to 4.5kg in 2006.

Butter currently accounts for half the fats and spreads market, followed by dairy spreads and margarine. Low fat spreads occupy the smallest sector of the market. Negative publicity surrounding the low fat sector may have reduced their current appeal.

Over nine litres of ice-cream per head consumed in the UK each year and this figure is growing. Despite the weather, the UK ice-cream market is one of the largest in Europe, and in 2001 grew to reach a value of £1.4bn. Furthermore, the market is expected to expand over the next five years, being forecast to reach a value of £1.7bn in 2006. Volume sales of ice cream are set to rise steadily through to 2006, reaching a volume of 673.3 million litres, up from 549.3 million litres in 2001. This represents a CAGR of 4.1% over the 2002-2006 period. Consumption will increase from 9.2 litres per person in 2001 to 11.3 litres by 2006.

Yoghurt gaining popularity

The yoghurt market has risen in recent years to a 2001 value of £700m. This increase is predicted to continue though the rate of growth will decline. In 2006 the market is forecast to reach a value of £800m. The yoghurt market will see consistent growth in volume sales over the next few years. Volume sales will increase from 340.1 million kg in 2001 to 390.3m kg in 2006, representing a CAGR of 2.8% over the 2002-2006 period. Consumption will rise from 5.7kg per capita in 2001 to 6.6kg in 2006.

Lawrence Gould, consumer analyst at Datamonitor comments: "Faced by a very mature market, dairy producers have to concentrate their efforts on higher added-value products. Indulgent products such as luxury ice-creams or products that appeal to the increasing number of health-conscious consumers, for instance low-fat yoghurts, offer the greatest opportunities for growth."