dairy in western europe - emlyon in... · overall dairy in western europe has grown by just under a...

DAIRY IN WESTERN EUROPE

January 2017

INTRODUCTION

REGIONAL OVERVIEW

LEADING COMPANIES AND BRANDS

COUNTRY SNAPSHOTS

APPENDIX

© Euromonitor International PASSPORT 3PACKAGED FOOD: DAIRY IN WESTERN EUROPE

Disclaimer

Much of the information in this

briefing is of a statistical nature and,

while every attempt has been made

to ensure accuracy and reliability,

Euromonitor International cannot be

held responsible for omissions or

errors.

Figures in tables and analyses are

calculated from unrounded data and

may not sum. Analyses found in the

briefings may not totally reflect the

companies’ opinions, reader

discretion is advised.

2016 is the first year in over a

decade when Western Europe

loses its leading position in

dairy to Asia Pacific, due to

price pressures across

distribution channels and

consumers switching to

alternative (novel) foods.

However, dairy is set to make a

comeback in Western Europe as

its health position is being

reinforced and product

innovation is centred on

“snackifying” the dairy offer to

compete with on-the-go

products and be more versatile.

Scope

INTRODUCTION

INTRODUCTION

REGIONAL OVERVIEW


COUNTRY SNAPSHOTS

APPENDIX


2016 is the first year in over a decade when Western Europe loses its leading position in dairy to Asia Pacific, due to continued decline in the West and rapid growth in the East, where dairy is becoming increasingly accepted in daily diets.

In Western Europe, per capita expenditure on dairy is already one of the highest and as such has reached a ceiling for growth. Consumers instead are either switching to other foodstuffs for a more varied diet or looking for cheaper alternatives as dairy is a daily commodity where consumers can make significant savings by switching to private label alternatives.

That said, dairy is set to see a resurgence in Europe as the food is being repositioned as a healthy, natural, nutritious and convenient snack, something resonating well with health-orientated consumers.

Western Europe loses leading position to Asia Pacific for first time

REGIONAL OVERVIEW


Between 2009 and 2016, dairy in

Western Europe has seen continued

retail value decline with a negative

CAGR of 1%. This is a lagged response

to the financial crisis back in 2009 when

cash-strapped consumers switched to

cheaper brands or private label.

However as the economy recovered,

not all consumers switched back to their

favourite brands and more consumers

continued to shop via discounters,

whose share increased dramatically.

This is putting pressure on brands to

add value to their dairy offerings in order

to maintain share of the market where

little new sales are generated. Yet

things are about to change as dairy is

expected to see a resurgence with a

forecast 0.4% CAGR over 2016-2021

due to the food’s healthy composition.

Protein, calcium and vitamin D are

naturally occurring in dairy, something

prized by health-conscious consumers.

Dairy expected to improve in the future

REGIONAL OVERVIEW


Cheese is by far the biggest value driver in dairy for all markets, with the exception of Spain and Ireland.

France, Germany and Italy, in particular, are cheese-loving nations yet in Italy it has seen a strong decline over the years. Despite the fact that cheese is an important part of the Mediterranean diet, Italian consumers have criticised cheese for its high fat content and calorie count. In addition, the price paid for cheese continued to decline as consumers switched to the discounter channel. This is a trend seen across a number of Western European markets.

At the same time, France and Germany saw a resurgence with the comeback of unpackaged cheese due to consumers seeking natural, high-quality foods with authentic flavours.

Cheese is the most dominant dairy food across most markets

REGIONAL OVERVIEW


In Scandinavian countries in

particular, other dairy has driven dairy

growth over 2011-2016. The category

continued to benefit from the booming

popularity of healthy snacks or in-

between meal alternatives, mainly in

the form of various quark variants.

Furthermore, other dairy is a relatively

diverse category where, for example,

shelf stable dairy desserts managed

to capitalise on the growing health

and wellness trend of high-protein

pudding. Similarly, quark is

considered a naturally healthy high-

protein option, suitable for

consumption when exercising, as an

on-the-go snack, in-between meal or

even as a breakfast option.

As a result, yoghurt and sour milk

products saw a decline in most

markets as consumers opted for

quark alternatives, demonstrating the

substitute nature of dairy products.

Other dairy such as quark creates resurgence in dairy

REGIONAL OVERVIEW


Strong decline for drinking yoghurt and Italy takes a hit

REGIONAL OVERVIEW


Value growth of milk takes a hit due to falling milk prices

REGIONAL OVERVIEW


Overall dairy in Western Europe has grown by just under a percentage point over 2011-2016, with just over US$3 billion in absolute growth. This in fact translates to just 3% of global growth, while the region represents over a quarter of total sales in 2016.

One factor hampering growth, especially over the last two years, is falling milk prices, which has been the root of the cause for dairy companies to either adjust their 2016 sales forecasts or have reduced sales targets in the first place. With the lifting of milk quotas in 2015, dairy companies started to ramp up production, offset by declining demand in emerging markets, this has pushed milk prices down.

At the same time, Russia’s prolonged import ban on dairy products coming from the EU has left many goods without a destination market and a sudden need to send perishable dairy goods elsewhere, which has also put downward pressure on milk prices.

In terms of particular dairy markets, Italy has seen the strongest decline in dairy sales followed by the UK. As already discussed in previous slides, the strong decline in Italy is driven by unpackaged hard cheese losing favour among Italian consumers. For the UK however, the strong decline is driven by plummeting milk sales.

A continuing price war among supermarkets placed further pressure on UK dairy farmers, who are facing challenging times as a result of this development. Dramatic promotions, such as retailer Wm Morrison Supermarkets offering 12 pints for just £2.00, placed significant pressure on dairy farmers and was therefore heavily criticised by the National Farmers Union. Other retailers, such as Tesco, also cut their milk prices to keep up with the competition, triggering a downward spiral for milk prices. The UK's leading grocery retailers lead the drinking milk products category; together these players account for 57% of overall value sales. However, in an effort to attract shoppers through even sharper price cuts selling milk at below-cost prices, these players saw their value shares decline in 2016.

Price pressure the main reason for declining sales in dairy

REGIONAL OVERVIEW


Maturity of dairy market will hamper future growth

REGIONAL OVERVIEW


With the exception of Belgium and Norway, all markets in Western Europe state market maturity as a strong driver for likely dairy decline over 2016-2021. Indeed, per capita expenditure on dairy is the highest in the world, barring Australasia at US$234 a year. North America and Eastern Europe follow at US$204 and US$111, respectively.

That said, with dairy’s profile changing to be considered as a healthy snack addition to consumers’ diets in developed markets, opportunities arise for novel categories such as Kefir, Quark and fromage frais.

In order to capture dairy consumers in Western Europe, growth can be sought in somewhat new emerging

categories beyond yoghurt. Greek yoghurt caught on in the US as a natural, vitamin-rich novel product, as

consumption levels of yoghurt were low. Dairy manufacturers in Europe could look at other dairy categories

with low consumption levels, such as fromage frais and quark, as well as sour milk products, to entice

consumers to try new products with the nutritional benefits of dairy.

In the past few years, there has been a rapid increase in the popularity of so-called “ancient grains” in the food market. A key element of the popularity of these grains is the stories that surround them. In a way this represents a revolt against processed food. People might be more interested in trying these grains because of their place of origin and history. Kefir is a fermented milk drink made with kefir “grains” (a yeast/bacterial fermentation starter) with origins in the north Caucasus Mountains, and could be the next great “ancient” sour milk drink or one with interesting origins. With per capita consumption of sour milk drinks far below other dairy categories in many developed dairy markets, kefir has the potential to be an exciting new drink for consumers looking for novel foods

For the same reason, Ayran can be the next value driver in Western Europe (also tracked under sour milk products). It is positioned as a great source of hydration and offers the nutritional benefits of calcium and bacteria to help with digestion. While it is currently only known in Middle Eastern diets, it could find ground in Western Europe and directly compete with the popular coconut water drinks.

Finding emerging categories in a mature dairy market

REGIONAL OVERVIEW


Discounters becoming the preferred choice in many markets

REGIONAL OVERVIEW


Discounters Aldi and Lidl have made headlines over recent years as UK supermarkets such as Tesco,

Morrisons and Asda are losing out as consumers opt to shop in cheaper discounters. This price war has

caused food prices to fall significantly and left retailers having to rethink their business strategies.

UK supermarket Tesco made deep cuts in its product range by slashing the number of SKUs of brands as

well as delistings in order to offer a cleaner offer to consumers as well as give more share to its private

label products. Brands falling victim to such cuts included Lactalis’s Rachel’s (yoghurt) and ABF’s Kingsmill

(bread).

For dairy manufacturers, this poses a threat as many dairy goods such as milk and cheese are seen as a

commodity good and therefore can be used as a promotional product to tempt consumers to the retailer;

they hold a prominent place in consumers’ shopping baskets. For example, given that just under 70% of UK

cheese was sold through supermarkets/hypermarkets in 2016, having a brand delisted at one of the UK’s

big four chains can have a serious impact on a manufacturer’s distribution network.

In France discounters also continue to steal share from supermarkets. Lidl recorded double-digit value

sales growth in both 2015 and 2016 to capture a value share of 51% in the discounters channel in 2016.

Lidl’s willingness to draw a line under its previous hard discounter strategy by opening refurbished outlets

and offering more A-brands appeared to bear fruit over 2015/2016. This policy was communicated via a

strong multimedia campaign, with Lidl being the heaviest spender among grocery retailers in France in

terms of television and internet advertising.

Lidl changing its hard discounter image for quality a threat to others

REGIONAL OVERVIEW

INTRODUCTION

REGIONAL OVERVIEW


COUNTRY SNAPSHOTS

APPENDIX


In terms of competition, dairy markets are consolidated, either by the top five players or by private label.

However, in almost all markets, the top five companies are losing share rapidly in favour of private label and 6-10 ranked companies, which is causing a significant shake-up in the dairy market.

As there is increasing scepticism regarding the overly processed nature of products manufactured by so-called “big food”, smaller brands have gained popularity in Western Europe.

At the same time, due to the commoditised nature of foods such as milk and cheese, brand recognition is very low, making private label products very attractive to consumers as long as quality is maintained.

Big players lose out to private label and smaller brands



Lactalis owes its leading position as a result of its acquisitive nature in the last few years, with Rachel’s yoghurt in the UK being one of the latest additions.

At the same time, Danone, Unilever and Royal FrieslandCampina, all see their shares decline over the last few years. At the time of writing, Danone announced its intent to revise down its 2016 full-year performance, mainly due to declining sales in Spain.

Arla Foods Amba and Tine SA, on the other hand, both saw their market shares increase due to continued new product launches such as Tine Styrk and Tine YT in Norway and Arla Organic Farm Milk and Arla Protein in the UK.

WhiteWave continues to witness growth through its plant-based milk drinks.

Usual suspects dominate region’s competitive landscape…



Dairy avoidance is a trend that is becoming more prevalent in developed markets where consumers associate dairy consumption with poor digestion. WhiteWave is successfully targeting this consumer group, and the UK is by far its largest market in Western Europe, followed by Belgium, Germany and the Netherlands.

Lactalis, on the other hand, is the most established dairy company, with its joint venture with Nestlé securing a wide distribution network. While the company has a strong base, innovative new product launches have taken a backseat and the company’s growth is hampered by the success of smaller brands that are quicker to respond to market trends such as de Zuivelhoeve in the Netherlands.

…but smaller companies are gaining ground



The top six brands have defended their leading position over the years, with private label claiming category leadership in a market where brand recognition is very low.

This makes it even more impressive that Galbani, the cheese brand of Lactalis, managed to climb the rankings and is now number six as of 2016. Cheese in fact has the lowest brand recognition across dairy and yet the brand managed to improve its position across other better-placed categories. This shows that Lactalis has really prioritised the brand since it acquired Galbani and aims to turn it into a truly global brand.

Danone at the same time saw its ranking drop as it has not managed to turn around yoghurt sales in Western Europe.

Galbani to climb the ladder in a market of low brand recognition


INTRODUCTION

REGIONAL OVERVIEW


COUNTRY SNAPSHOTS

APPENDIX


France: Market context

COUNTRY SNAPSHOTS


France: Competitive and retail landscape

COUNTRY SNAPSHOTS


Germany: Market context

COUNTRY SNAPSHOTS


Germany: Competitive and retail landscape

COUNTRY SNAPSHOTS


UK: Market context

COUNTRY SNAPSHOTS


UK: Competitive and retail landscape

COUNTRY SNAPSHOTS


Spain: Market context

COUNTRY SNAPSHOTS


Spain: Competitive and retail landscape

COUNTRY SNAPSHOTS


Netherlands: Market context

COUNTRY SNAPSHOTS


Netherlands: Competitive and retail landscape

COUNTRY SNAPSHOTS


Switzerland: Market context

COUNTRY SNAPSHOTS


Switzerland: Competitive and retail landscape

COUNTRY SNAPSHOTS


Sweden: Market context

COUNTRY SNAPSHOTS


Sweden: Competitive and retail landscape

COUNTRY SNAPSHOTS


Belgium: Market context

COUNTRY SNAPSHOTS


Belgium: Competitive and retail landscape

COUNTRY SNAPSHOTS


Finland: Market context

COUNTRY SNAPSHOTS


Finland: Competitive and retail landscape

COUNTRY SNAPSHOTS


Turkey: Market context

COUNTRY SNAPSHOTS


Turkey: Competitive and retail landscape

COUNTRY SNAPSHOTS


Portugal: Market context

COUNTRY SNAPSHOTS


Portugal: Competitive and retail landscape

COUNTRY SNAPSHOTS


Greece: Market context

COUNTRY SNAPSHOTS


Greece: Competitive and retail landscape

COUNTRY SNAPSHOTS


Norway: Market context

COUNTRY SNAPSHOTS


Norway: Competitive and retail landscape

COUNTRY SNAPSHOTS


Denmark: Market context

COUNTRY SNAPSHOTS


Denmark: Competitive and retail landscape

COUNTRY SNAPSHOTS


Austria: Market context

COUNTRY SNAPSHOTS


Austria: Competitive and retail landscape

COUNTRY SNAPSHOTS


Ireland: Market context

COUNTRY SNAPSHOTS


Ireland: Competitive and retail landscape

COUNTRY SNAPSHOTS

INTRODUCTION

REGIONAL OVERVIEW


COUNTRY SNAPSHOTS

APPENDIX


The Industry Forecast Model is a new tool from Euromonitor International that integrates intuitive,

judgment-based forecasting with the quantitative techniques of an econometric Industry Demand Model.

The Industry Demand Model assesses the relationship between several historic quantifiable independent

variables (demand drivers) and historic retail volume sales for different markets that Euromonitor tracks.

In identifying these relationships, the model estimates elasticities for each statistically significant demand

driver, including income growth, changing retail prices, demographic trends and retail channel trends.

Multiplying these elasticities by corresponding year-on-year growth forecasts for each demand driver allows

the Forecast Model to build annualised retail volume and value forecasts for a market in a given year.

While estimated demand driver elasticities are constant, forecast demand driver growth can change over

time. For example, forecast GDP growth for a given year is regularly upgraded or downgraded in

Euromonitor International’s Macro Model to reflect changing economic and sociopolitical conditions.

In turn, changing only forecast growth for GDP in this example allows the Packaged Food Forecast Model

to create multiple retail forecasts that capture the impact of these changing macroeconomic conditions.

Impact of Russia GDP Shock on Chocolate Confectionery Retail Volume Forecast in Russia

2015 real GDP %

growth forecast

Chocolate income

elasticity

Income effect on

chocolate growth

2015 chocolate %

volume growth

Baseline Forecast

(June 2014)+1.43 0.37 +0.53pp +1.41

Updated Forecast

(December 2014)-3.82 0.37 -1.41pp -0.55

About Euromonitor International’s Industry Forecast Model

APPENDIX: INDUSTRY FORECAST MODEL


The power of Euromonitor International’s forecasting methodology is that it blends statistical modelling with

local market observations reflecting local industry consensus. As such, retail market forecasts also rely on

the insights and expertise of Euromonitor’s global analyst network. Euromonitor analysts work closely with

the Industry Demand Model to ensure that it remains consistent with their empirical observations,

guaranteeing that quantitative and intuitive expectations fully complement each other.

Euromonitor analysts also capture all the demand drivers beyond the scope of the Industry Demand Model.

These “soft drivers” remain critical to future retail sales, but are either fundamentally unquantifiable or have

no globally comparable data with which to measure them.

Soft drivers are captured and measured exclusively by empirical research from Euromonitor analysts, and

their overall positive or negative impact is estimated on top of the results of the Industry Demand Model.

Soft drivers and the Industry Forecast Model


Demand Driver Elasticities:

From Industry Demand Model

Forecast Demand Driver Growth:

From Passport

Soft Demand Drivers:

From Country and Industry Research

Industry Forecast Model


To help understand and illustrate the impact of each demand driver to a market’s retail growth performance

and prospects, Euromonitor International employs a graphical tool called “growth decomposition”.

The fundamental idea behind growth decomposition is that a product category’s retail sales performance

and future prospects can be explained through changes in underlying demand factors.

As explained above, the impact of demand driver change to retail market sales can be calculated by

multiplying a demand driver’s observed elasticity by that demand driver rate of change over a period of

time. Multiplying demand driver elasticity by forecast demand driver growth yields the percentage points of

overall retail growth that that specific demand driver is contributing to the market forecast under review.

In addition, Euromonitor analysts estimate the impact of “soft drivers” to overall retail growth via their

empirical research. The relative impact and importance of “soft drivers” can be shown alongside that of the

measurable demand drivers identified by the Industry Demand Model.

In the growth decomposition visual below, the percentage points of growth that each demand driver is

contributing to overall market growth are illustrated in the coloured segments of the stacked bar charts.

Growth decomposition explained



By attributing a fraction of overall retail growth to each contributing demand driver, overall category growth

can be “decomposed”. In doing so, an extensive picture of underlying market fundamentals and processes

on a category-by-category and country-by-country basis can be provided.

Ultimately, growth decomposition allows Industry Forecast Model users to:

Identify different demand drivers that affect historic sales, and will likely impact future market prospects;

Evaluate the relative importance of different demand factors over time and then identify which factors

generate the highest deviations in historic - and ultimately future - consumption;

Illuminate the underlying market dynamics for each product category;

Measure and predict the effects of demand driver shocks, either expected or hypothetical;

Facilitate scenario analysis by generating understanding of which demand factors can be influenced by a

manufacturer or retailer and which are beyond their control.

Significance and applications for growth decomposition



Key applications for Industry Forecast Models


1

• Quarterly Forecast Restatements

• Regularly updated retail market forecasts to reflect latest macro expectations (ie, quarter-on-quarter real GDP growth revisions) for all markets.

2

• “What If?” Scenario Analysis

• See and compare how a hypothetical event (ie Eurozone recession, China Hard Landing, Grexit) stands to impact different market forecasts.

3

• Growth Decomposition and Demand Driver Elasticities

• Understand, compare and respond to the forces driving expected market growth across different product categories and countries.

4

• Assess Market Potential

• See the ceiling on retail volume or value sales and growth, regardless of a specific forecast scenario. How much more can that market really grow?

FOR FURTHER INSIGHT PLEASE CONTACTLianne van den Bos

Senior Food Analyst

[email protected]

[

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2016 Digital Consumer Index: Identifying The Next Digital Frontiers

Industry 4.0: The Future Impact of the Fourth Industrial Revolution


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