Skip to main content

Keeping Dairy In Demand

In response to the category’s challenges, retailers need to emphasize its nutritional benefits and novel products
grab-and-go beverage
Dairy can be part of a grab-and-go beverage set, as is the case with Darigold products.

Let’s be clear: Dairy products are still considered essentials by most consumers, but that doesn’t mean that the category hasn’t faced some real challenges in recent years.

“Dairy has solidified its reputation as a household staple over the past few years,” affirms Anne-Marie Roerink, principal and founder of San Antonio-based 210 Analytics. “Now a $80 billion department in Circana’s MULO+ [multioutlet] data universe, it is not only a bigger seller, but also boasts tremendous consumer engagement. The deflation in eggs is the sole reason for total dairy dollars to be down year-on-year, at -1.0%.” 

[RELATED: Progressive Grocer’s 91st Annual Report - How Grocers Are Connecting the Dots]

Further, considering what Roerink calls “the truer measure of demand” — units — dairy emerges as “one of the stronger performers across the store, with a gain of 1.4%. Only two items are down in units year-on-year: milk (-0.9%) and processed cheese (-1.5%).”

As for standout dairy segments, Roerink points first to cottage cheese, which “is on fire at the moment, with a year-on-year unit gain of 12.2%. Cottage cheese is trending in several TikToks, such as chicken sausage and cottage cheese, but is also popular among those looking for [a] healthier swap to use as an alternative to yogurt, with fruit, in salads and replacing mayonnaise in dips. Cottage cheese has been highly successful in building a reputation as a high-protein, nutritious part of the diet, widely used by athletes and often recommended in weight loss plans.”

Another successful segment identified by Roerink is that of whipped toppings. “That one is interesting to me, because when we flip over to the produce department, berries have been a growth area for many, many years,” she notes. “And when we look on the bakery side, pies are doing very well both in center store and perimeter bakery. For years, Boomers were the ones driving pie sales, but lately we see all generations getting involved, driving big gains. The American Bakers Association just released its first-edition ‘Bakery Playbook 2024’ that probed into some of the whys. The study found that 58% of consumers believe there is such a thing as better-for-you baked treats and desserts, and the first and foremost way they define that is by having fruit and/or vegetable inclusions. That means cross-merchandising displays in produce and bakery can be a big win for whipped toppings.”  

As for the more basic dairy products, she observes: “Items like milk, cheese and eggs have high household penetration and are bought many times throughout the year. Despite there being substantial pressure on income these days, we still see high levels of sales and engagement.”

With eggs, for example, “last year, when prices were up 60%, we still only saw units down by about 1%-2%,” says Roerink. “That truly says something about the strength of demand. Prices haven’t come down to pre-pandemic levels, but units are up 2.7% over year ago. As avian influenza lingers, egg prices continue to be volatile, especially during Easter, when we always see the big spike in consumer demand, but eggs continue to be a household staple.”

On the supplier side, Laurie Drake, VP of marketing, category growth at Organic Valley, a La Farge, Wis.-based dairy farmer-owned cooperative, cites SPINS data when she notes, “Spending on dairy products remains modestly higher, outperforming the overall food and beverage sector,” with such segments as yogurt, cheese, creams/creamers, and products like butter, cottage cheese and sour cream showing growth in both dollar sales and unit sales versus the previous year.” She adds that despite a slight decline in milk sales, “they still exceed the performance of the broader food and beverage market.”

Advertisement - article continues below
Organic Valley
More dairy producers are calling out the nutritional attributes of their offerings, as Organic Valley is doing with its DHA Omega 3-enhanced milk.

Identifying Challenges

When asked about issues affecting the category, Gary M. Stibel, founder and CEO of The New England Consulting Group, in Westport, Conn., is blunt: “Dairy is facing many challenges today, ranging from its perceived poor price value to the most recent changes in SNAP and WIC which reallocate funds available for dairy to fresh fruits and vegetables, but by far, the biggest challenge facing the category and industry is the value proposition that results in dairy being perceived as too expensive for many.” 

Stibel also points to such lesser challenges as “[ultra-high temperature] milk and other non-refrigerated ‘dairy’ products that can be stocked outside the dairy section and fortified as necessary to make specific claims,” and plant-based dairy alternatives, which “are also growing, but most have disappointed to date.” 

Also picking up on the dairy-free trend among some consumers, Drake observes: “Milk continues to be a cornerstone product in the dairy sector, yet it is experiencing a decline as consumers increasingly opt for alternative beverages. Water has become the primary substitute, significantly reducing milk’s market share. Consumers have more choices on the shelves, with a broader variety of beverages now available. Despite this trend, certain segments within the dairy industry are still experiencing growth, such as yogurt, cheese, grass-fed products and lactose-free options.”

[RELATED: Taking the Pulse of Shopper Attitudes]

“Dairy, much like meat, does have a share of the population who have concerns over animal welfare, along with dairy’s impact on the planet and paying farmers fairly,” notes Roerink. “Otherwise, we still see the impact of several years of high inflation, where total food and beverage prices measured in the Circana universe are now 32%-35% higher than they were pre-pandemic. That means consumers are hyper-focused on price and promotions in all departments, including dairy.”

Crystal Farms' Pepper Jack snack cubes
Fun new flavors and formats, like Crystal Farms' Pepper Jack snack cubes with jalapeño peppers, will help keep the dairy category vibrant.

Retail Opportunities

To counter the consumer perception of dairy as too expensive, Stibel advises: “The way to overcome this hurdle is to reinforce the health benefits of most dairy offerings, ranging from prebiotics and probiotics to milk, cheese and other better-for-you products. There is also a huge opportunity in dairy protein, which is already growing because of the basic demand for protein, and the particular need for protein among the growing number of Americans on GLP-1 weight loss diets.”

He additionally points to new product opportunities in healthy protein drinks, which “have the potential to be better-tasting and healthier than anything in the cold case”; cheeses, which can be premiumized like wine and chocolate; yogurt, which may serve as a meal replacement, liquid beverage or snack; and other dairy snacks, which are able “to trade people up from salty and sweet to something that is much more enjoyable and far healthier.”

In the area of in-store marketing, Sibel asserts: “There are many things that grocers can do to stimulate demand for dairy products, but none more important than in-store sampling and dietitian recommendations. In-store sampling has proven time and again to be of great value to our dairy clients and also to be of value to grocers by driving traffic to the dairy. This sampling can be done in concert with complementary products such as wine and cheese, chips and dips, etc. Ditto dietitian recommendations, because dietitians know more about nutrition than most doctors and nurses, and have the ability to nudge consumers toward better-for-you products, even at higher prices.”

To further nudge shoppers toward dairy, Stibel offers a few outside-the-box ideas, including “the creation of a dairy bar, which could be a cheese bar one week, a protein shake bar the next and a yogurt bar the following. There could also be a very creative personalization-type vending machine, not unlike the Coca-Cola Freestyle or retail coffee dispensers in grocery, that permit consumers to personalize their dairy selections, from yogurts to shakes.”

Meanwhile, according to Roerink: “Transparency is the currency of trust, and we’re seeing more retailers provide information to drive permissibility. We also see these concerns being addressed in the integration of locally sourced items; grass-fed milk, cheese and butter; organic eggs; vegan or vegetarian alternatives to dairy items, etc. I believe consumer education and information, hand-in-hand with assortment variety, is that winning continuum of choice that will help shoppers be engaged.”

Regarding health, she notes: “Nutrition is a big win for dairy, and more retailers are calling out protein content and the wide variety of nutrients delivered by the various dairy items. Protein continues to be red-hot, and items across the store are calling out protein content and linking it to many benefits, whether getting ready or recovering from a workout, or general energy and sustenance.”

As far as product development goes, Roerink asserts: “Dairy has done a tremendous job in limited-time flavors, line extensions and the integration of completely new items. Especially around the major holidays, items ranging from dairy creamers to cheese and yogurt will introduce holiday-relevant limited flavors, and that is exactly what consumers are looking for.”

Additionally, merchandising the category can involve more than just the dairy department. “Lately, I’m seeing more cross-merchandising displays aimed at breakfast, with several breakfast staples experiencing deflation [being offered at] enticing price points,” says Roerink. “For instance, H-E-B had a breakfast taco display with tortillas, shredded cheese, eggs, bacon, etc. These types of things work for many reasons, easy meal ideation and ease of shopping [among them.]”

[Never miss a story sign up for Progressive Grocer's FREE Daily newsletter]

“We believe it’s crucial to align our marketing with our mission, both in-store and beyond,” notes Drake. “Our new brand campaign, Protecting Where Your Food Comes From, emphasizes the origins of our products. We aim to inform consumers that by choosing Organic Valley, they are helping to protect the sources of our food. Supporting our climate-friendly dairy, sourced from small family farms, allows consumers to make a positive impact on the environment.”

Emerging Trends

What are upcoming areas of focus in dairy? “Addressing digestive and gut health within the dairy sector remains a critical focus,” observes Drake. “As consumer awareness and demand for functional foods increase, it’s essential to continue developing and enhancing dairy products that support these health needs. This involves innovating with probiotics, prebiotics and other gut-friendly ingredients to create a range of dairy products that taste good and offer significant health benefits. By prioritizing digestion-friendly options, we can meet the evolving preferences of health-conscious consumers and maintain a competitive edge in the market.”

“I think variety is going to be a big one, a.k.a. multiple flavors in one package, or mix-and-match promotions,” predicts Roerink. “Today’s consumer has their favorites, but experimentation with new flavors is a definite trend across the store. That means more limited-time flavors, more mixed varieties, and the inclusion of some more exotic and global flavors.”

She adds: “I think we’ll see more protein callouts across dairy items, along with education about other important nutrients. Both meat and dairy are running behind other categories on that, and it is a big selling opportunity. The aging Boomer generation is more focused on protein, calcium, etc. — the positives in food — than they were 10-15 years ago, when the focus was more on the negatives such as fat, saturated fat and cholesterol.” 

Advertisement - article continues below
This ad will auto-close in 10 seconds