Are dairy processors up to the task?

Consumers have a lot of choices about what to eat and where to eat it. Is your company in position to maintain (or increase) your “share of stomach?” This issue is devoted to the state of the dairy industry. Our writers talked with dairy executives and market watchers, and we analyzed retail sales data and dairy production statistics. Read the 2015 Dairy Foods State of the Industry Report here. These are my thoughts.

Milk. Whole-fat milk is in favor. Retail sales are rising, while skim milk sales are failing. For years, dairies were taking things out of milk, like fat, lactose and added sugars (in flavored milks). Perhaps the market is recognizing that the real deal (with nothing added and nothing removed) can be real good for you.

Dairies are becoming strategic about introducing new products. Single-serve bottles are perfect for the on-the-go lifestyle. Smaller packages suit the needs of smaller households that can’t consume an entire gallon jug of milk before it spoils.

Milk and added flavors are made for each other. Dairies create limited-time offers with flavors like pumpkin spice or birthday cake. These high-priced beverages (which can top $12 on a per-gallon basis) represent additional sales for dairies.

What’s not to like? The added sugars in these flavored milks work against the natural wholesomeness of plain dairy beverages. It’s the consumer’s choice to make. Still, tread carefully. The industry does not need a sugar tax on sugary milks.

Cheese. Cheese omelets, cheese burgers, macaroni and cheese, and cheese pizza. Cheese is a central ingredient in breakfasts, lunches and dinners. The opportunity today is to fill in the gaps: cheese as a between-meals snack. Cheesemakers are responding with individually wrapped 1-ounce or less portions that can be tossed into a purse or briefcase and be eaten in the car or at a desk.

Cheesemakers are in the enviable position of turning a by-product into a revenue stream. Whey derivatives are in demand from food processors, and the industry is developing uses for the protein and the lactose.

What could de-rail cheese? Concerns over sodium and fat. Though the cheese-buying public might not care, public health agencies and health professionals could (and are) raising those issues.

Yogurt. Like cheese, yogurt is finding new dayparts to conquer. Remember the orange juice slogan from years back: It isn’t just for breakfast anymore? Neither is yogurt. This dairy food is a snack, a lunch, a dessert and an ingredient in sauces and dips. Drinkable yogurts are expanding the market, especially among children. Adult versions include kefir. The category can play on its healthy halo; yogurts are ideal for delivering protein and probiotics.  But that halo can be tarnished by added sugars; a serving can be more sugary than a candy bar.

Yogurt production is increasing, but the rate of growth has slowed dramatically. There is a lot of potential left in yogurt, and the U.S. industry needs to continue to market this healthy food. The United States has a long way to go to catch up to Europeans’ annual consumption.

Ice Cream. What’s good for the consumer is lousy for the manufacturer. Retail prices of ice cream plummeted this year.  Dollar sales increased 2.5% but unit sales increased just 0.1%. Manufacturers are getting by on price increases. Other frozen categories are struggling, too: novelties, frozen yogurt, and sorbets and sherbets. One analyst found that nearly one in five Americans buy less ice cream because they consider it to be unhealthy. When it comes to dessert choices, fruit and yogurt are winning the share of stomach.

Nondairy Beverages. Almond milk sales increased 16%, with unit sales increasing 15%. Compare the nutritional benefits of plant-based beverages to dairy milk, and the cow wins every time. But consumers like almond, cashew, soy and rice milks. Manufacturers are creating line extensions with creamers, horchatas and coffee blends. Dairies are losing share of stomach to this category. Milk sales are still larger (on a dollar basis) than nondairy beverages (compare the milk tables to the beverage table). But the juice/tea/lemonade category is growing.

Ingredients. Watch your step as you cross this minefield on your way to Clean Label Land. Don’t trip over high-fructose corn syrup, genetically modified organisms, artificial colors and artificial growth hormones. Every little thing that goes into your food product is scrutinized by consumers, the nutrition community, animal-rights activists and even environmentalists. If you are using chemical-sounding ingredients, be prepared to defend their use. If you are going “all natural,” be prepared to defend your choice of words.

So what’s the outlook? There is plenty of milk. The products made from it can be healthy and affordable. Dairy processors continue to innovate with flavors and formats.  In summary, the state of the dairy industry is good.

Internal affairs

Sarah Kennedy has been promoted to managing editor. Sarah joined the magazine in 2012 as an associate editor. Since then, she has taken on an increasing share of responsibilities in the production of Dairy Foods, dairyfoods.com, Dairy Products Innovations and our social media channels. Her initiatives have strengthened each of these editorial products.