Across the dairy industry, success stories run rampant. Yogurt has transitioned from a chalky health food to a phenomenon embraced by consumers from toddlers to senior citizens. Dozens of varieties of cheese and cheese blends provide consumers with tasty and convenient ways to bolster their protein consumption. And milk stands poised on the brink of a major comeback, thanks in large part to innovation in both flavor and packaging — not to mention significant progress in the school realm.

Unfortunately, say processors, that hasn’t been the case with cream cheese.

“The cream cheese category is stagnant,” says Jon Gutnecht, president and chief executive officer, Franklin Foods Inc., Enosburg Falls, Va. “It’s like ice cream was before Ben & Jerry’s showed up. It’s a vanilla category.”

Gutnecht’s sentiments are bolstered by data from Chicago-based Information Resources Inc. (IRI) for the 52-week period ending August 13, 2006.  Overall, sales of cream cheese fell 3.0 percent in dollars and 2.2 percent in units across supermarkets, drug stores and mass merchandisers, excluding Wal-Mart. Sales of brick cream cheese fared the worst, falling 4.4 percent in dollars and 3.5 percent in units, while soft cream cheese sales fell 2.0 percent and 0.4 percent, respectively. The only bright spot was in the area of whipped cream cheese, where sales surged 59.1 percent in dollars and 69.9 percent in units.

According to Gutnecht, part of the problem lies in the fact that the category is facing the same challenge that cottage cheese makers have been lamenting for the past several years: the product’s primary users are reaching their twilight years. Consequently, Franklin Foods has focused its R&D efforts on making cream cheese more relevant to younger consumers. Thus, the company’s trademarked tagline: Reinventing Cream Cheese.

“Our goal is to start making it more attractive to the younger generation,” Gutnecht explains. “Recognizing that the yogurt category drew kids in with Go-Gurts and all those different flavors, we found a way to combine yogurt with cream cheese.”

The resulting product, Hahn’s Yogurt Cream Cheese, is naturally lower in fat, cholesterol, calories and sodium than regular cream cheese. Sold in 7-ounce cups and 8-ounce bars, it contains zero trans fats and boasts the goodness of live and active cultures.

Gutnecht says the company “made a mistake” when it initially rolled out the product in 2004. Taking a more “traditional route,” Franklin Foods concentrated its R&D efforts on savory flavors, such as onion and chives, and vegetables. Much to its surprise, however, strawberry turned out to be the best-selling flavor. What’s more, consumers began asking for other sweet varieties, like blueberry.

“Because it’s yogurt cream cheese, people don’t expect there to be veggies or onion or chives in it,” Gutnecht says. “They think there’s going to be sweet stuff.”

As a result of that early consumer feedback, the company has now concentrated its efforts on sweet flavors, like strawberry, blueberry and honey-nut, as well as an assortment of “kid flavors” which should be available sometime in 2007.

Bringing sweet flavors to cream cheese has also been the focus of Northfield, Ill.-based Kraft Foods Inc. The company’s most recent additions to its Philadelphia Cream Cheese line include Philadelphia Jammin’ Swirls in Strawberry and Blueberry flavors and Philadelphia Swirls in Triple Berries ‘N Cream, Brown Sugar ‘N Cinnamon Spice, Peaches ‘N Cream and Garlic ‘N Herb.

TOP 10 INDIVIDUAL SOFT CREAM CHEESE BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$424.9	-2.0%	192.2	-0.4%
Kraft Philadelphia	241.7	4.6	100.3	7.4
Private Label	89.0	-3.5	50.0	-1.1
Kraft Philadelphia Flavors	25.4	-31.9	12.4	-29.6
Kraft Philadelphia Lite	23.9	-2.8	11.4	-0.7
Kraft	10.9	0.1	5.1	-1.1
Temp Tee	10.7	-1.3	4.1	-0.8
Belgioioso	4.4	18.5	1.0	16.4
Tofutti	2.7	11.1	1.0	9.2
Crystal Farms	1.9	-10.0	1.2	-11.2
Hahn’s	1.6	-5.8	2.2	7.2
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending August 13, 2006. SOURCE: Information Resources Inc.

“Philadelphia Swirls represented an opportunity for us to invigorate the category by implementing a unique technology that produces cream cheese with a two-colored, pinwheel-swirl appearance,” says Ericka Wietecha, senior brand manager. “The swirls not only make it look great, they make spreading more fun for everyone.”

In recognition of “emerging flavor trends,” Kraft also bolstered its original Philadelphia Cream Cheese lineup with the addition of salmon, roasted garlic, jalapeño and garden vegetable varieties. In September, the company launched Philadelphia Ready to Eat Cheesecake Filling.

Recognizing the growth in the Hispanic market, Swiss Valley Farms, Davenport, Iowa, added a Chipotle Ranch variety to its line of refrigerated dairy dips, while Pete Kondrup, general manager of Westby County Creamery, Westby, Wis., says his company has a Jalapeño Cheddar Dip in the works that could reach store shelves yet this year.

Likewise, Allen Lydick, director of sales for Lake City, Ga.-based Gordo’s Cheese Dips, says his company is “toying with a chipotle” variety that could come out next year. Although Gordo’s heat-and-serve products are sold as “The New Taste of Old Mexico,” Lydick isn’t under any delusions when it comes to just who is buying the dips.

“It’s the Anglo-American who goes shopping in the Mexican food aisle and thinks this is authentic Mexican food when it’s really not,” Lydick says.

Currently, Gordo’s Cheese Dips are sold in four varieties: Mild, Hot, Salsa and Plain White, which Lydick describes as “basically white American cheese.”

Also recognizing the burgeoning Hispanic market, Franklin Foods offers a Chipotle Chile Salsa flavor in its line of All Season’s Kitchen Cream Cheese Dips. According to Gutnecht, cream cheese provides a much better dip base than sour cream, particularly during the hot summer months.

“Sour cream flops so quickly,” he says. “Cream cheese maintains its integrity and works quite well, especially in those picnic environments.” The All Season’s Kitchen line of cream cheese dips also includes Roasted Garlic Salsa, Jalapeño Cheddar and Salsa varieties.

All Franklin Foods products are made using milk from cows not treated with artificial growth hormones. Up to this point, the company has not gone out of its way to promote that fact. However, that’s about to change, according to Gutnecht, who says “consumers just don’t want the growth hormones” in the foods and beverages they consume.

The growing awareness of what goes into their food has also led more consumers to seek out organic products, according to Caragh McLaughlin, marketing director for Horizon Organic, part of Broomfield, Colo.-based WhiteWave Foods, which itself is a division of Dallas-based Dean Foods Co.

(Horizon continues to defend itself against claims by the Finland, Mass.-based Organic Consumers Association (OCA) that the company relies heavily on what critics brand “factory farms.” Hoping to set the record straight, McLaughlin asserts that 80 percent of Horizon’s milk supply comes from family farmers, while the balance comes from two company-owned farms in Idaho and Maryland.)

As more consumers adopt organic milk, they are beginning to seek other organic options in the dairy case, as well, McLaughlin says. Consequently, sales of Horizon soft cream cheese have soared — up 60.7 percent in dollars and 54.9 percent in units, according to IRI. With organic milk already in short supply, Horizon had to make the tough decision either to get out of the sour cream and cream cheese business or dedicate a certain percentage of that coveted organic milk specifically for the production of those products. Fortunately, for their consumers, they chose to do the latter.

“It’s definitely a challenge, but as have been able to continue to meet the demand,”  McLaughlin says. “The [sour cream and cream cheese] business is so relatively small that the milk that goes into it doesn’t make a dent one way or the other, so we’d rather continue to supply those products and make them available.”