Thought Process

Penny pinchers aren't necessarily swapping natural cheese for processed varieties.

Sales of processed cheeses are expected to grow steadily through 2014, but not necessarily at the expense of pricier natural varieties, according to Chicago-based market researcher Mintel, which projects sales of processed cheese to surpass $2.3 billion within the next three years, up from an estimated $2.15 billion overall in 2010.

"Processed cheese has long been a favorite among budget shoppers, yet even the growth of the budget shopping trend during the recession was not enough to breathe life into the category that certainly suffers as the perceived second-rate choice to natural cheese," Mintel reports, "particularly with health trends on the rise and a resulting categorization of the very word processed' as taboo."

Major manufacturers of processed cheese sound cautiously optimistic. "We are not seeing any material difference in the retail climate over prior year," says Angela Wiggins, senior manager of corporate affairs at Northfield, Ill.-based Kraft Foods Inc. "As the economy continues to rebound, there are fluctuations of dairy commodities that may impact how consumers trade up or down from natural cheese vs. processed cheese. However, the changes are not material."

Janine Smiley, spokeswoman

for Kansas City, Mo.-based Dairy Farmers of America's (DFA) consumer brands, which markets Borden processed cheese products, observes a flat year to date for processed cheese growth. "Retailers and the entire supply chain are experiencing significant increases in all food prices over the last year," she says, "and the cheese market has also experienced these significant increases."

Sales of sliced processed cheese, including American and other varieties, were just shy of $1.3 billion for the year ending April 16, 2011, at food stores with at least $2 million in sales (excluding supercenters), according to data from Schaumburg, Ill.-based Nielsen. That's a 2.3 percent decrease from the same period a year ago, but an improvement compared with the 10.8 percent drop for that period between 2009 and 2010.

Meanwhile, sales in the "other" processed cheese category — which includes loaves and snack products, and which is about half the size of the slices category — rose 7.3 percent to more than $685 million for that period, according to Nielsen data, which found natural cheese sales for the same period edging up 0.2 percent to about $3.35 billion.

"Processed cheese sales will level off and Kraft's commitment to the segment will help to bolster interest that will keep sales in the black overall," contends Mintel, which foresees opportunities for other cheese manufacturers to come to market with similar types of products that meet consumer demand for health and convenience.

Promoting Health and Fun

The big players are waging significant promotions to stimulate sales of processed cheese. "Due to economic challenges, we see that consumers are eating at home more," Wiggins says. "In fact, 52 percent of U.S. grocery shoppers are planning to eat at home more, and many of these consumers lack time and skill to address their needs. Across our brands, we are leveraging consumer insights, new media and product innovation to help families provide quick meals."

Kraft's efforts include simple meal solutions across categories, new products focused on delivering restaurant-inspired meals and usage-based messages, and merchandising to remind shoppers to cook with cheese.

"We also know a growing number of consumers are concerned about their sodium intake, and we want to help them translate their intentions into actions," Wiggins says. "We are committed to reducing sodium by 5 percent in the next two years, and are on track to achieve the plan. In 2010, we reduced sodium levels in our Velveeta and Kraft American Singles brands."

Those two Kraft brands are the focus of new promotions this year. Kraft American Singles is teaming with Minor League Baseball for a third consecutive year for the "Tuesday Night Tickets" program, which allows folks to swap a Kraft singles wrapper for a free ticket with the purchase of one ticket. Supported by print and digital ads, POS, radio and in-stadium activities, the program runs through Sept. 6.

Through the end of May, families could redeem any Kraft Singles wrapper for a pair of 50 percent-off tickets to any of five Disney On Ice shows playing across the country.

Kraft is also continuing Velveeta's six-year relationship with ConAgra Foods' Ro-Tel blend of diced tomatoes and green chilies, with ongoing promotions surrounding a dip recipe featuring just these two ingredients. The campaign encompasses joint in-store merchandising, national television advertising, sponsorship, customer events and recipe development.

Additionally, Velveeta has expanded its offerings with the launch of a Spicy Buffalo variety in January, with Queso Blanco expected soon.

What's more, Kraft's processed cheese brands are part of a broader partnership with recycling pioneer TerraCycle. In a collaboration dubbed the Cheese Brigade, Kraft and TerraCycle are offering consumers the opportunity to send in cheese packaging to be "upcycled" into other products ranging from office suppliers to decorative accessories. In return, Kraft and Princeton, N.J.-based TerraCycle will donate 2 cents per unit of donated packaging to a charity of the collector's choice.

Versatile Flavors

Borden promotions are responding to consumers' demands for flavor and versatility. "Home cooking continues to increase in this post-recession economy," DFA's Smiley says. "Cheese that has unique flavor and can be used in a variety of dishes seems to be popular."

Current promotions include grilled cheese "house parties" that were offered to randomly selected "friends" of Borden mascot Elsie the Cow's Face-book page as part of National Grilled Cheese Month in April. "The House Party kits came complete with a grilled cheese press, cheese, bread and butter," Smiley explains, noting that friends submitted photos of their parties to the Facebook page.

Borden Singles Sensations — flavored processed cheese slices — were the subject of grocers' circulars heading into Memorial Day, Smiley says. "Our expectations are that consumers will try the new Borden Singles Sensations flavors, and there will be repeat usage," she says. "It's a testament that the line is offering something that the consumer desires. In the last two years, it has grown and met sales goals, and the cooperative continues to launch new flavors."

This year saw the launch of Extra Sharp Cheddar and 3 Cheese Italiano varieties, which joined 2009's Apple-wood Bacon Cheddar, Southwest Pepperjack and Sun-dried Tomato Basil, and last year's Hickory-smoked Swiss and Chipotle Cheddar. "The line has continually expanded and the processed cheese shelves are offering more choices for consumers," Smiley says.

No Meltdown in Sight

The Madison-based Wisconsin Milk Marketing Board (WMMB) sees a healthy market for processed cheeses, with new and innovative applications.

"Whether used in the deli case or prepared foods, pasteurized processed cheese is a great asset to retail sales," says WMMB's Marilyn Wilkinson. "Nearly 20 cheese companies make Wisconsin varieties, including Swiss and Cheddar, and flavors such as bacon, caraway, taco, port wine, tomato basil and more. Wisconsin cheese-makers are consistently offering new variations in styles and types."

While perhaps best known in sliced form, processed cheese is also available in dispensers, cups, tubs, cans, ribbons and loaves. "Convenient styles of processed cheeses are leading the way in sales, with sticks, crumbles, blends and shreds all achieving double-digit growth over the past year," Wilkinson observes, noting that the wide variety of available flavored pasteurized processed cheeses allows retailers to dedicate a large portion of the cheese case to the category, and capitalize on seasonal sales opportunities by promoting cheese balls, dips, spreads and logs during holiday and entertaining seasons. Moreover, during grilling season, cross-merchandising versatile convenience-oriented processed cheese with outdoor-grilling foods can further increase sales.

Indeed, from a manufacturer's standpoint, the outlook is favorable for processed cheese.

"We think the processed cheese category overall is healthy," Wiggins says. "With any of our Kraft promotions, we aim to drive awareness for our cheese products, connect with consumers in a meaningful way around our point of difference and drive growth in our business."