Looks like the growth opportunity in processed cheese might require shredding it and putting it in a bag. Processed shredded cheese grew substantially in 2004, although it was from a small base. This, according to recent data from Information Resources Inc.

Quarterly unit sales were below 1 million units in 2003, but have stayed at or above that benchmark ever since. Sales actually dropped off a bit in the first quarter this year, compared to what appears to have been a record quarter in the first period of 2004. These numbers are for food, drugstore, and warehouse stores but do not include Wal Mart.

Meanwhile processed slices, which represent a market that’s about 100 times the size of processed shreds, have been losing ground in terms of unit sales for six straight quarters. Dollar sales are up compared to 2003, but that may just be a result of higher commodity prices being passed on rather than added value and profits. The loss of unit sales, however was less dramatic during the last two quarters of 2004.

Overall sales of natural cheese have posted some remarkable gains in the last few years, but there were signs of price sensitivity in 2004. As dollar sales went up, unit sales lost some momentum. While 2 to 3% growth isn't bad, cheesemakers must be yearning for the 7 to 9% increases of a year earlier.

Look for new numbers in the August and September issues to see what happens there.

Natural shredded cheese still offers some growth potential, as evidenced by a look at the top 10 brands and at the top line figures through May for the category. A nice combination of convenience and natural goodness have made this a winning category. Still dollar sales are increasing more dramatically than unit sales for the entire category. But the top 10 is a competitive bunch, and brands like Kraft and Crystal Farms are showing double digit growth in unit sales as they elbow into the market. Others like Borden and Sorrento are taking a bit of a hit.