The dairy products and alternatives industry is projected to record a 6% increase in retail value sales over 2023 (current terms and year-on-year exchange rates), driven primarily by inflationary pressures. Beyond inflation, the industry is influenced by other key trends, including health and functionality (especially concerning gut health and consumer needs), innovation in the plant-based segment, sustainability initiatives and an emphasis on enhancing dairy experiences for consumer engagement.
Input costs spur specific value and affordability
The dairy industry has been hit hard by inflation in 2022 and 2023. Rising input costs have led to lower profits for dairy farmers and higher prices for consumers. The challenge to producers has been how to implement pricing strategies - including necessary price adjustments that may need to be passed on to consumers - while simultaneously maintaining competitiveness. In such instances, emphasising specific value, such as sustainability or functionality, and ideally multifunctionality (such as promoting both gut health and increased energy) becomes imperative. Conversely, in different scenarios, offering value-for-money options must be thoughtfully explored to meet the diverse demands of customers.
Next-gen functionalities, emphasising gut health
The dairy industry is continually evolving. In 2023, there has been a strong emphasis on health-focused functionalities, particularly through the addition of high-quality protein, probiotics and prebiotics. This evolution allows dairy products to serve as versatile vehicles for delivering a wide range of benefits. For example, probiotics and prebiotics, traditionally associated with digestive and immune health, are increasingly integrated into dairy formulations to promote a balanced gut microbiome, potentially influencing cognitive functions such as mood, stress management and mental clarity.
Yoghurt stands out as the category with the highest global penetration of probiotics, and is set to achieve a 3.4% CAGR over 2023-2028
Source: Euromonitor International
Additionally, there is an increasing adoption of probiotics in milk, desserts and plant-based milk alternatives.
Japanese dairy player, Meiji, provides an interesting example of probiotics for mental wellbeing. The company revamped the positioning of its flagship LG21 yoghurt brand in 2022 towards alleviating stress-related stomach discomfort, earning certification from Japan's Food with Functional Claims body. With this new offering, the brand now targets mental wellbeing beyond traditional digestive and immune benefits.
Plant-based dairy: Improved taste and natural ingredients
In 2023, the plant-based dairy market has reached a substantial value of USD21.2 billion.
Plant-based milks stand out as the largest segment, contributing USD18.7 billion. On the other hand, plant-based yoghurt and cheese remain relatively niche markets
Source: Euromonitor International
Going forward, manufacturers in the plant-based dairy space should expand their non-soy milk offerings, invest in taste enhancements, especially for plant-based cheese, and consider geographical expansion to tap into growing emerging markets.
A notable launch in the space is US brand Three Trees, debuting an organic barista milk in July 2023. This claims to be unique in the US by being free of oils, gums and stabilisers. It also offers 4g of protein and prebiotic chicory root fibre.
Advancing sustainability amid climate challenges
The dairy industry plays a major role in climate change. Sustainable practices, technology adoption and efficient resource use offer pathways for dairy industry sustainability. An interesting example is Bovaer, a feed additive designed to reduce methane emissions. In March 2023, a large-scale pilot involving 158 Dutch dairy farms using Bovaer was successfully completed. This initiative was conducted in collaboration between Royal FrieslandCampina, DSM and Agrifirm, and demonstrated Bovaer's ability to lower methane emissions without adverse effects on animal health or milk production.
Sustainability efforts extend beyond reducing carbon emissions. Embracing local sourcing, free-range practices and holistic certifications such as B-Corp are key elements of a comprehensive sustainable approach. Euromonitor International’s Sustainability Tracker shows that plant-based dairy and baby food products feature a more extensive range of sustainability-related claims than traditional dairy.
Enhancing experience through indulgence, new occasions, and convenience
Significant trends in the dairy industry revolve around indulgence and targeting new eating occasions, ultimately providing consumers with new experiences that align with their evolving lifestyles. It is worth highlighting the significance of self-indulgence, especially during times of stress and burnout. There could be interesting opportunities with rich, creamy, and appealing flavours, providing consumers with an immersive sensory experience. Additionally, convenience and on-the-go formats are essential components of propositions with higher specific value, particularly targeting time-strapped consumers.
Regarding new occasions, an interesting case comes from China, where yoghurt consumption has traditionally been limited to breakfast and snacks, but is facing competition from milk, milk tea, desserts, and more. To combat declining demand, yoghurt brands are exploring new usage occasions such as incorporating yoghurt into salad dressings and spreading it on toast or bagels. The case for new convenient formats is exemplified by dairy products available in on-the-go formats, such as KIN Dairy’s first yoghurt stick launched in Indonesia.
Learn more about the latest dairy trends in our report, World Market for Dairy Products and Alternatives
Editor’s note: This article was published in October 2022 and has been updated in December 2023.