Sector Trend Analysis – Dairy trends in Western Europe

Contents

• Introduction
• Dairy consumption in Western Europe
• Sub-sector analysis
  • Butter and margarine
  • Cheese
  • Drinking milk products
  • Yogurt and sour milk
  • Other dairy products
• Health and wellness dairy
• Distribution channels and top brands
• Conclusion
• For more information
• Resources

Introduction

Western Europe is home to 500 million people and it is known for its high standards of living, with noticeably high income levels. It is the wealthiest region on the European continent, with a per capita Gross Domestic Product (GDP) that is more than four times as high as in Eastern Europe. The region's economy is closely linked to the performance of its key national markets – Germany, the United Kingdom (U.K.), France, Italy and Spain.

Western Europe was until recently the biggest consumer region of dairy products, but growth has been stagnant between 2013 and 2017. In 2016, for the first time Asia-Pacific recorded US$11 billion more in dairy retail sales than Western Europe. The Asian-Pacific region is also expected to keep growing faster, at a forecast compound annual growth rate (CAGR) of 8% from 2018 to 2022, while Western Europe may grow more modestly at 2% during that same period. Western Europe’s population is ageing rapidly, which may create challenges for dairy companies in the future.

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Region	%
Asia Pacific	26%
Western Europe	24%
North America	16%
Latin America	13%
Middle East and Africa	10%
Eastern Europe	9%
Australasia	2%

Source: Euromonitor International, 2018

European countries are also amongst the top importers of dairy. In 2016, the European Union (EU) imported US$ 32.1 billion worth of dairy. During that year, a share of US$ 2.8 million was reportedly imported from Canada, down from US$ 11.7 million in 2013, showing a declining trend at a -30% CAGR. Cheese and curd accounted for 98% of the dairy products that the EU imported from Canada, while a share of 96% of the total dairy supplied by Canada to the EU went to the U.K.

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Country	US$	CAGR* 2013-2017
Germany	6,143,235,515.00	-4%
Italy	3,507,384,049.00	-9%
China	3,371,462,839.00	-10%
France	3,245,736,087.00	-6%
U.K.	3,166,567,158.00	-6%
Belgium	3,129,621,420.00	-6%
Netherlands	2,888,115,577.00	-4%
U.S.A.	1,966,013,397.00	3%
Russia	1,906,597,076.00	-18%
Hong Kong	1,807,875,236.00	4%
Saudi Arabia	1,742,302,264.00	-1%
Spain	1,622,022,623.00	-9%

Source: Global Trade Tracker, 2018

*CAGR: Compound Annual Growth Rate

HS Codes used: 0401 to 0406

In 2017, retail sales of dairy products were valued at US$ 113.6 billion in Western Europe. This figure represents almost three times the size of the dairy market in Eastern Europe (US$ 40.5 billion).

Thus, this report focuses on Western Europe, and more specifically on the top five markets for dairy products retail sales, namely Germany, France, the U.K., Italy and Spain. These countries also rank amongst the 13 major consumers of dairy in the world. Moreover, retail sales for these five countries together made up 67% of the total dairy products consumed in 2017 in Western Europe.

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Country	US$ Billions	*CAGR 2013-2017
Germany	26.6	1.2%
France	19.9	-0.1%
U.K	14.4	-0.6%
Italy	12.2	-2.7%
Spain	9.0	-0.4%

Source: Euromonitor International, 2018

*CAGR: Compound Annual Growth Rate

Dairy consumption in Western Europe

Major differences in consumption patterns for dairy products can be noticed in Western Europe. Variations reflect the economic situation, culinary practices, and eating habits of different countries. Overall, the region is characterised by a strong dairy culture and high per capita consumption. Production in Western Europe is strong and benchmarked throughout the world. Cheese from Italy and France, for example, is widely recognised and exported around the world (Euromonitor International, 2017).

The market has been in decline over the past years. However, according to Euromonitor International (2017) there is still room for growth, due to shifts between categories, and following trends such as premiumisation. Dairy products are a natural source of vitamin B and calcium, which could help in positioning products. Well-packaged dairy is also starting to compete with snacking products, responding to the consumers quest for convenience.

Four out of the top five dairy markets in Western Europe saw a slowdown in consumption in 2017. Only Germany registered growth, especially in cheese and other dairy, which can be partly explained by the favourable economic stability. One of the key trends causing the general decline in dairy retail sales is related to changes in consumer perceptions and diets, many of whom are adopting more dairy-free oriented diets, whether for motives related to intolerance or allergy, or to enhance the digestion process. Many consumers in Western Europe are decreasing their dairy consumption overall. Even in Italy, well known for its cheese production, consumer attitudes have changed towards dairy. Another important factor is the rise in milk prices which can impact the retail price of products, pushing local consumers to search for more affordable brands (Euromonitor International, 2017).

Sub-sector analysis

In total, 4,807 dairy products were launched in 2017 in the five main markets in Western Europe. Lidl was the leading company for dairy product launches in Germany, Yoplait in France, Asda in the U.K., Lidl in Italy and Danone in Spain. The five dairy sub-sectors under analysis in this section are butter and margarine, cheese, drinking milk, yogurt and sour milk, and other dairy.

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Market	Launches
Germany	1,443
France	1,095
UK	914
Italy	711
Spain	644

Source: Mintel, 2018

Butter and margarine

Butter and margarine is a US$ 40 billion market in the world, worth US$ 11 billion in Western Europe. This category includes butter and other animal-based cooking fats such as lard, margarine and spreads (fatty butter substitutes consisting of a blend of vegetable oils).

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Country	US$ Billions
USA	5.0
Germany	2.9
India	2.2
Iran	2.1
Brazil	2.0
Russia	1.9
United Kingdom	1.7
France	1.7
Poland	1.3
Canada	1.0

Source: Euromonitor International, 2018

This subsector has been declining from 2013 to 2017 at a negative 1% CAGR. Compared to the other top markets, butter and margarine are significantly less popular in Italy and Spain, which traditionally use olive oil. For instance, many Spaniards preferring to use olive oil on their toast or when cooking instead of butter and margarine. Consumers also tend to be confused with regards to vegetable fat and margarine, with many concerned about the risks associated with margarine containing trans-fats.

There were 280 butter and margarine products launched in 2017 in the five main European markets from January 2017 to December 2017. In all countries, there is a clear preference for butter, except in the U.K. where margarine and other blends are favourites. Vegetarian claims are also strongly associated to new product launches in this sub-sector in the U.K., which may respond to the taste of British consumers.

Some of the new products launched in 2017 in this sub-sector were for example butter with sea salt crystals, brandy butter, butter with truffles, fine hay milk butter oil, and vegan herb butter.

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Country	Launches
Germany	90
UK	74
France	72
Italy	23
Spain	21

Source: Mintel, 2018

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Country	Not imported	Imported
Germany	6	3
UK	34	14
France	27	2
Italy	2	3
Spain	2	3

*Note: Not all launches are assessed on this criteria.

Overall, Unilever has launched the highest number of products in 2017 in four out of the five main markets under review, with the exception of Italy, where it has not launched any.

Cheese

This sub-sector is the aggregation of processed and unprocessed cheese (hard cheese, soft cheese, spreadable, unspreadable, etc.).

Western Europe is the biggest market in the world for cheese, worth US$ 44.8 billion. From 2013 to 2017, retail sales have been growing at a CAGR of 1% in the region, and this value is expected to keep increasing at a CAGR of 3% from 2018 to 2022. According to Euromonitor International (2017), this growth has been sustained by lowering costs and because Europeans are now seeing cheese increasingly as a potential snack.

In Italy only, sales of cheese have fallen, reflecting again the consumer shift to non-dairy. Cheese is sometimes perceived as being less healthy, due to its high fat content, and experienced a decline of - 3% CAGR over 2013-2017.

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Country	US$ Billions
USA	23.4
France	9.4
Germany	7.7
Russia	7.1
Brazil	6.5
Italy	6.5
Mexico	4.7
United Kingdom	4.1
Argentina	3.8
Japan	3.6
Canada	3.1
Spain	2.7

Source: Euromonitor International, 2018

There were 2,173 cheese products launched in 2017 in the main European markets between January 2017 and December 2017. The country/region of origin of cheese is an essential part of product marketing. According to Mintel (2018), France was the only country that had more product launches without an import status in 2017. By contrast, Spaniards tend to prefer imported cheese, due to the wide variety and high quality of products coming from across Europe – especially France, Italy, the Netherlands, Germany and Switzerland.

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Country	Launches
Germany	633
France	598
Italy	385
UK	351
Spain	206

Source: Mintel, 2018

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Country	Imported	Not imported
Germany	138	63
France	88	150
Italy	49	39
UK	140	127
Spain	38	6

Source: Mintel, 2018.

*Note: Not all launches are assessed on this criteria.

Drinking milk products

This is the aggregation of fresh/pasteurised milk, long-life/shelf stable milk, goat milk, flavoured milk drinks, non-dairy milk alternatives (soy drinks and other alternatives explicitly positioned as milk substitutes), powder milk and flavoured powder milk drinks.

Despite recording the poorest performance amongst all sub-sectors in Western Europe with a negative 1% CAGR from 2013 to 2017, drinking milk should experience moderate growth up to 2022, except in Italy. A few categories still recorded strong historical growth figures, especially milk alternatives. This is aligned with the rising trend towards dairy alternatives and free-from lactose products as a growing number of consumers consider these products healthier. In Western Europe, milk alternatives registered a CAGR of 12% over 2013-2017 (20% in Italy, 15% in France, 13% in the U.K., 8% in Spain and 4% in Germany). The most common varieties include soy, coconut, hazelnut, almond and rice milk.

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Country	Retail sales
China	36.0
USA	17.7
India	12.3
Brazil	9.7
Japan	6.4
Russia	4.4
United Kingdom	4.2
Mexico	3.6
Spain	3.4
Australia	3.4
Canada	2.9
Germany	2.8

Source: Source: Euromonitor International, 2018.

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Country	Launches
Germany	192
Spain	171
France	132
UK	118
Italy	85

Source: Mintel, 2018.

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Country	Not imported	Imported
Germany	24	15
Spain	14	12
France	42	19
UK	28	25
Italy	17	3

Source: Mintel, 2018.

*Note: Not all launches are assessed on this criteria.

Yogurt and sour milk

Around US$ 17.8 billion worth of yogurt and sour milk was consumed in Western Europe in 2017, down from US$ 18.1 billion in 2013. This decline in retail sales is not expected to continue, however, as this sub-sector is expected to grow at a compound annual growth rate of 2% from 2018 to 2022.

Yogurt is the aggregation of spoonable and drinking yoghurt (soy-based yoghurts are not included in this category), and sour milk, which includes kefir, lassi as well as buttermilk and whey drinks. While kefir is traditionally significant in Eastern Europe, it is still much less popular in Western Europe.

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Country	Retail sales
China	17.9
USA	9.1
Japan	9.0
Brazil	4.1
Russia	3.8
Germany	2.9
France	2.7
United Kingdom	2.3
India	2.3
Italy	1.9
Spain	1.8

Source: Euromonitor International, 2018.

Retail sales in this sub-sector declined in France, Italy and Spain, and remained stagnant in the U.K.. Yogurt and sour milk only recorded some growth in Germany. Despite increasing health concerns with regard to sugar or dairy products in general, many Germans eat yogurt on a daily basis at breakfast time and are open to trying new products. According to Euromonitor International (2017), brand loyalty in yogurt tends to be low, with consumers willing to try new varieties.

It is forecast that products such as sour milk drinks, plain yogurt, lactose-free and soy-based yogurt will benefit from health-related concerns and new trends such as the emergence of snacking habits. Other emerging niche categories like sheep and goat milk based yogurts are also starting to attract consumers interested in natural and authentic products, as is the case in France.

There were 1,300 yogurt and sour milk products launched in the five main European markets between January 2017 and December 2017.

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Country	Launches
Germany	391
UK	301
France	221
Spain	213
Italy	174

Source: Mintel, 2018.

According to Mintel (2018), only five products launched in 2017 in the five top dairy markets belonged to the liquid dairy category, which includes whey-based drinks and eggnog, and these launches all took place in Germany. In Italy and Spain, most of the new products launched in 2017 had an import status.

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Country	Not imported	Imported
Germany	80	24
UK	84	54
France	51	8
Spain	14	27
Italy	5	36

Source: Mintel, 2018.

*Note: Not all launches are assessed on this criteria.

Other dairy products

This sub-sector includes the following: chilled and shelf stable desserts (dairy-based and soy-based), chilled snacks, coffee whiteners, condensed milk, evaporated milk, cream (all types of cream, including soy-based cream), and fromage frais and quark.

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Country	Retail sales
USA	8.9
Germany	4.3
France	3.5
Russia	3.5
Brazil	2.1
United Kingdom	2.1
Japan	1.7
Peru	1.3
Netherlands	1.1
Mexico	1.1
Canada	1.0
Spain	1.0

Source: Euromonitor International, 2018.

Other dairy includes basic dairy products such as cream and condensed milk, for which it is often difficult to stress the advantages of branded products over private label. These products are seldom used as a main dish and rather as an ingredient, and therefore consumers do not generally prioritise quality.

Germany is the market presenting the best performance for other dairy in 2017, in all categories except condensed milk and coffee whiteners. All of the products in other dairy have a long tradition in Germany, so there are little yearly variations. Innovation in this category is not frequent, but quark with a high protein content was one key product innovation in 2017 (Euromonitor International, 2017).

There were 361 other dairy products launched in 2017 in the five main European markets from January 2017 to December 2017.

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Country	Launches
Germany	137
France	72
UK	70
Italy	44
Spain	33

Source: Mintel, 2018.

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Country	Not imported	Imported
Germany	20	5
France	14	7
UK	27	25
Italy	4	5
Spain	3	3

Source: Mintel, 2018.

*Note: Not all launches are assessed on this criteria.

Health & Wellness dairy

Overall retail sales of health and wellness dairy products have been declining in recent years in Western Europe. That trend is being offset by the growth of organic dairy, free from dairy alternatives (such as soy milk), and free from lactose dairy which are getting stronger. These two last categories have been growing the fastest at a 6% compound annual growth rate. In several Western European countries, it is becoming fashionable to avoid dairy without having a specific food intolerance, and thus it is expected that growth will come from both those needing to avoid it and those wanting to avoid it. More local and international players are starting to invest in new product development for this type of product.

In Spain, dairy sales should continue to be driven by health and wellness categories, such as free-from lactose dairy and organic products, which have higher added value, as well as greater potential for penetration in the market due to their lower sales bases (Euromonitor International, 2017).

With the emergence of snacking in Western Europe and consumers recognising dairy foods as nutritious and natural snacks, many traditional snack companies are now looking to gain a foothold in dairy as a new generator of growth within the health arena (Euromonitor International, 2017).

Distribution channels and top brands

Dairy products in Western Europe are being sold primarily through grocery retailers, especially supermarkets, hypermarkets and discounters. However, the proportion of dairy products being sold through the Internet is growing rapidly, with this channel recording a CAGR of 9% in the region over the five-year review period (2013-2017), and achieving a consistently positive CAGR in all five main markets under review in this report (12% in France, 11% in Germany, 7% in Italy and the U.K. and 6% in Spain).

With the growth of internet retailing, new possibilities arise, even for smaller manufacturers who can benefit from a wider distribution chain such as Amazon Fresh, through their inclusion of local cheese manufacturers in their product range (Euromonitor International, 2017).

Private label is a major component of the dairy market in Western Europe, with an overall share of 29.5% in 2017, reaching as much as 40% retail sales in certain countries, such as the U.K. Cooperatives and smaller producers play a significant role in dairy products in some of the region’s markets. In Italy for example, regional and artisanal players accounted for more than 40% of retail value sales in 2017 (Euromonitor International, 2017).

Conclusion

Western Europe is a mature market for dairy, yet opportunities exist through premiumisation, the emergence of trends such as snacking, or the growth of new technologies for distribution, mostly online retailing. Changes in consumer diets, partly due to the rising lactose-free trend, could also open up new opportunities in the future.

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Resources

• Canadian Dairy Commission.
• Euromonitor International, December 2017. Dairy in Western Europe.
• Euromonitor International, 2017. Cheese in France, Germany, Italy, Spain and U.K..
• Euromonitor International, 2017. Drinking Milk Products in France, Germany, Italy, Spain and U.K..
• Euromonitor International, 2017. Yoghurt and Sour Milk Products in France, Germany, Italy, Spain and U.K..
• Euromonitor International, 2017. Other dairy in France, Germany, Italy, Spain and U.K..
• Euromonitor International, September 2017. Premiumisation.
• Euromonitor International, 2016. What’s New in Dairy in 2016: Dairy’s Resurrection as a Healthy Snack.
• International Dairy Federation.
• Mintel Global New Products Database, 2018.

Sector Trend Analysis - Dairy products in Western Europe
Global Analysis Report

Prepared by: Josique Lorenzo, Market Analyst

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