One category that could be an unexpected winner from Covid-19 is yoghurt. It has been easy to view the category, much like milk, as commoditised and declining, with sizeable private-label penetration and modest margins. However, recently there are reasons to be more sanguine.
Market leader Danone was seeing its European yoghurt unit declining by almost 10% per annum a few years ago, with big brands like Activia under severe pressure. By the end of 2019, it had managed to get Europe back to almost flat, with its big brands stabilised, helped by better innovation and more contemporary branding that has started to deliver improved traction with consumers.
Yoghurt markets like France and Spain are back into growth for the first time in seven years, confounding critics who predicted structural decline. In the UK, since May last year the yoghurt category was declining modestly at 2%, but since March has been growing over 5%, with the big players up double digits. Few are suggesting yoghurt is as attractive as coffee or petfood, but we are seeing some interesting signs of life, particularly in the plant-based, indulgent and functional sub-sectors.
The general consensus is that Covid-19 has provided a short-term boost to the category. Certainly, lockdown coupled with many schools being closed has meant more yoghurt occasions at lunchtime, but even as lockdown eases, it could continue to benefit. Before Covid-19, consumer interest in fermented food was exploding – one only needed to look at the stellar growth rates of the kefir or kombucha categories.
The pandemic has accelerated an interest in immunity, not least because gastrointestinal symptoms have been common in Covid-19 patients. Given 60%-70% of the immune system is in the gut, yoghurts and particularly functional yoghurts are likely to benefit. The concept of food as medicine is certainly moving up the pecking order of consumer priorities.
With government determined to up the ante against high sugar, salt and fat foods, yoghurt could be a beneficiary given how minimally processed it is. It’s still true that some yoghurts have too much sugar, but progress has been made. Some of the benefits of yoghurts seem to have been overlooked, especially how rich it is in protein and calcium, as well as its role in weight management, digestive health, reducing inflammation and helping stave off diabetes and osteoporosis.
The big growth engine will be plant-based yoghurts. Danone has recently created a plant-based acceleration team whose job it is to accelerate the growth of brands like Alpro, but also to launch plant-based versions of its biggest brands such as Activia and Danette. It has an objective to treble its plant-based sales to €5bn by 2025. Consumers, especially ‘flexitarians’, want more choice and often see plant-based and non-plant-based as complementary rather than one or the other. This is good news for the manufacturers as plant-based options bring in new consumers, new moments of consumption and are less cannibalistic than one might imagine. All of this helps reduce the risk of commoditisation and allows for better margins, given higher price points for plant-based alternatives.
There are also big moves in sustainability from the market leaders. Danone is investing heavily to phase out all polystyrene packaging (which it currently uses in 25 billion yoghurt cups per year) by 2025, starting with Alpro in 2021. It is looking at different solutions, including paper cups, plant-based cartons and recycled PET and glass bottles.
More broadly, it is becoming increasingly clear that the future of the dairy industry will be more circular, with sustainable regenerative agriculture that prioritises less chemical, fertiliser and water usage. Maybe it’s time for the sceptics to reassess the yoghurt category’s attractions.
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