As attempts are made to confound low product awareness in the European functional dairy foods markets, sizeable advertising and sales promotion programmes are being employed by major manufacturers in a bid to educate the consumer. Whilst competition is intensifying, manufacturers are attempting to generate greater brand and product awareness. In reality, the dynamic nature of the market is underpinning the importance of forging both solid relationships and sound strategic alliances throughout the supply chain.

The market in question is set for an impressive period of growth, as revenues are forecasted to rise from US$2.35 billion in 1999 to US$5.73 billion by 2006. These retail sales based figures depict an attractive compound annual growth rate of 13.6 per cent for the forecast period. Frost & Sullivan, the international marketing consulting company, present these key findings in their new strategic report entitled the 'European Probiotic and Prebiotic Functional Dairy Foods Markets'.

High advertising expenditure and sales promotions tend to show the practical means by which market participants are attempting to promote consumer education. Essentially, manufacturers must contend with the tough challenges associated with bringing new products to the market. High failure rates are a noticeable characteristic of new product launches, thereby underlining the key role product positioning and branding is having within the market.

In relation to revenues and unit shipments Scandinavia is the largest market in Europe. The Scandinavian market is characterised by a high per capita consumption of dairy products, both functional and non-functional. In terms of revenue share, Germany and Iberia respectively, make up the top three countries in Europe. Although, other European countries should see individual market shares rise as their relevant markets flourish.

Analysis of the market structure shows Danone, Nestlé, and Arla taking a 43.5 per cent share of the market in 1999. Key international brands include Danone's Actimel and Nestlé's LC1 Go. The European dairy industry as a whole is undergoing vast consolidation, however, recognised disparities hold true for the localised and European-wide functional dairy foods markets. Frost & Sullivan Research Analyst Wendy Shaw, comments:

'At a country level the market is highly concentrated. This is due to the traditional structure of the dairy industry, which mainly consists of localised players. There are very few players, which can be described as European wide. In the majority of regions the development of probiotic and prebiotic dairy products has been by the largest dairies who already dominate their national market.'

Manufacturers are strengthening their position within the marketplace via the development of relationships with key distributors. In turn, strategic alliances are becoming increasingly important, enabling companies to enter the market equipped with knowledge and know-how. Furthermore, such moves permit the sharing of financial burdens and core competencies, creating a highly effective structure. Indeed, both the opportunities and challenges outlined exemplify the need for organisations to strengthen their strategic understanding and planning within the market. Wendy Shaw summarises:

'Dairy manufacturers must consider how best to react to increasing competition in the functional food industry and how to adapt to the changing trends in a fast moving consumer market. The market environment is complex with conditions varying at both a geographic and a product level'

Frost & Sullivan is an international marketing consulting company headquartered in Silicon Valley, California. The Frost & Sullivan Chemicals business unit monitors the Chemicals market for trends, measurements and growth rates. This study is utilised to update a series of online research such as The European Market for Organic Dairy Markets - #3630-88 and U.S. Nutraceuticals and Functional Foods Markets - #5119-39. This is complemented by support for industry participants with custom consulting needs.