Dairy Products - Western Europe · as Luxembourg, Lichtenstein, Switzerland, Norway, Ireland, or the generally healthy Scandinavian economies of Iceland, Denmark, Sweden and Finland;

MARKET ACCESS SECRETARIAT Global Analysis Report

Dairy Products

Western Europe January 2015

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EXECUTIVE SUMMARY Western Europe is home to approximately 500 million inhabitants (January 2014, Planet Retail), which includes a slightly increasing population, with a growing number of aging residents. The region's economic and political core includes Germany, France, the United Kingdom (U.K.), Italy, and Spain. These countries account for slightly less than 80% of the region's population and consumer expenditures (Planet Retail). The European dairy market comprises many interconnected dairy products that vary in geographic scope from regional specialities to worldwide reach, depending on the product. As trade of the dairy commodity becomes more global, with national and multinational companies competing in nearly every region, many products are also becoming more international. However, consumers of milk and dairy products across European regions exhibit widely varying preferences for taste, convenience, nutrition, wholesomeness, and packaging. Dairy products range from fairly standardized goods, such as milk, butter, and non-fat dry milk powder, to multi-variety, multi-flavoured products, such as specialty cheeses, fermented drinks, and milk protein fractions used in food and beverage products. Some dairy products are produced and consumed locally, nationally or in European markets, while others are consumed internationally. Products such as fresh milk, yogurt, and cheese are intended for direct consumption. Dairy products are also consumed indirectly as ingredients in other foods, such as pizza, snack bars, and bakery products. Non-food uses range from nutraceuticals to industrial applications.

CONTENTS Executive Summary ....................... 1

Introduction ..................................... 2

Expenditure on Dairy Products… …2

Growth on Dairy Products .............. 4

Subsector Analysis ......................... 4

Cheese ...................................... 5

Drinking Milk Products............... 8

Yogurt and Sour Milk ... .....……13

Other Dairy Products… . ……...16

Distribution ................... …………..17

For More Information .................... 19

Resources .................................... 19

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INTRODUCTION Western Europe is known for its higher standards of living, with noticeably higher income levels. It is the wealthiest region on the European continent, with a per capita Gross Domestic Product (GDP) that is more than three times as high as in Central Europe and five times as high as in Eastern Europe. Both the United Sates (U.S) and Japan, however, have slightly higher levels of per capita GDP, according to 2014 data (Planet Retail). The European countries with the wealthiest populations, however, are those that are less populated, such as Luxembourg, Lichtenstein, Switzerland, Norway, Ireland, or the generally healthy Scandinavian economies of Iceland, Denmark, Sweden and Finland; however, these nations only account for 12% of Western Europe's consumer expenditures (Planet Retail). Moreover, the region's economy is closely linked to the performance of its key national markets – Germany, the U.K., France, Italy and Spain – which account for 75% of economic output (Planet Retail). According to the International Dairy Federation, most Western European economies have a positive outlook in terms of private consumption; however, consumers within each market behave differently. For example, British consumers continue to spend large proportions of their income on domestic retail, foodservice outlets and buying property, meanwhile Germans tend to rent a flat, eat as cheaply as possible and spend on long holidays and expensive cars instead. EXPENDITURE ON DAIRY PRODUCTS Variations in European consumer preferences reflect economic status, culinary practices, and eating habits of different countries. Income levels and the availability and cost of milk are key factors behind differences in dairy product consumption throughout Europe.

European Main Markets Expenditures on Dairy Products Per Capita 2008-2018 Country 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F European Union 339.6 339.4 345.3 358.4 363.6 370.7 377.2 387.0 399.2 412.1 425.2 France 443.5 437.9 440.8 455.0 464.4 468.5 470.6 477.9 486.2 495.5 505.3 Germany 327.8 328 345.2 368.9 386.4 410.5 425.3 441.5 458.6 475.3 490.0 Italy 416.1 414.9 406.5 418.1 411.6 401.9 402.9 408.3 417.4 427.9 439.7 Spain 320.9 298.1 306.7 309.5 302.6 296.8 297.7 302.7 311.2 321.5 333.4 United Kingdom 262.2 273.1 269.5 275.7 278.7 284.2 290.6 297.8 307.5 316.8 326.4 Source: Euromonitor International, 2014. F=Forecast Major differences in consumption patterns for dairy products can exist even within a country or region for a variety of reasons, including ethnic and cultural factors. This is particularly true in Europe where, for example, Finland has a noticeably higher proportion of per capita liquid milk consumption to per capita cheese consumption. France and Greece have a higher per capita consumption of soft-type cheeses than the rest of the EU.

Cheese Consumption in Kilogram per Capita in Main European Market

Country 2007 2008 2009 2010 2011 2012 European Union 16.4 16.7 16.7 17.2 17.3 17.2 France 25.6 26.9 26.5 26.6 26.3 26.2 Germany 22.3 22.2 22.3 23.5 24.2 24.3 Italy 20.9 20.7 21 21.1 21.8 20.9 Netherlands 21.5 20.5 19 19.5 19.4 19.4 Sweden 17.6 18.5 18.7 18.9 19 19.7 United Kingdom 11.2 11.7 10.9 11.3 11 11.2

Source: International Dairy Federation and Statistics Canada. Calculations done by AAFC-AID, Dairy Section

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Top European Markets for Butter Consumption in Kilogram per Capita

Country 2007 2008 2009 2010 2011 2012 European Union 3.7 3.6 3.6 3.6 3.6 3.7 France 8.1 7.5 7.7 7.6 7.6 7.4 Germany 6.4 6.2 5.8 5.7 6.1 6.2 Czech Republic 4.1 4.7 5 4.9 4.9 5.2 Austria 5.1 4.9 4.9 5.1 5.0 5.0 Finland 2.8 2.7 3.1 3.4 4.1 4.5

Source: International Dairy Federation and Statistics Canada. Calculations done by AAFC-AID, Dairy Section

Top European Markets for Milk Consumption in Litres per Capita Country 2007 2008 2009 2010 2011 2012 European Union 64.1 62.8 63.1 62.9 62.3 62.0 Ireland 139.5 136.9 136.4 137.1 135.6 135.6 Finland 129.1 128.0 131.5 128.4 127.0 128.3 Estonia 131.9 136.0 136.4 128.7 120.9 120.9 United Kingdom 102.1 100.2 101.2 104.7 104.1 102.9 Cyprus .. 95.7 97.5 97.7 95.1 97.9

Source: International Dairy Federation and Statistics Canada. Calculations done by AAFC-AID, Dairy Section The structure of Western Europe's population has changed markedly since 1980, with the proportion of those aged 65+ rising dramatically. Although the pattern varies across different countries, with Italy and Germany aging particularly rapidly, this maturing demographic creates serious challenges for dairy companies. However, the aging population generates a growing source of consumer demand for targeted products and services thus creating business opportunities. Demand for goods and services such as healthcare and products for the elderly has risen, especially given that older people often wield significant spending power. The average gross annual income of the 65+ year-old demographic across Western Europe in 2013 was US$40,645.

Average Gross Income by Age in Western Europe in US$

2008 2009 2010 2011 2012 2013 Average Gross Income by Age 43,511 40,143 39,503 42,335 40,145 41,579 Aged 15-19 20,896 19,265 19,154 20,400 19,160 20,058 Aged 20-24 32,721 30,206 30,021 32,139 30,349 31,792 Aged 25-29 39,472 36,355 35,984 38,482 36,489 38,051 Aged 30-34 44,282 40,623 39,909 42,383 39,910 41,367 Aged 35-39 48,258 44,054 43,055 45,754 43,028 44,176 Aged 40-44 50,600 46,576 45,791 49,013 46,214 47,281 Aged 45-49 51,522 47,418 46,535 49,743 47,199 48,790 Aged 50-54 51,217 47,246 46,405 49,894 47,365 48,791 Aged 55-59 50,284 46,386 45,526 48,587 46,046 47,682 Aged 60-64 48,048 44,350 43,543 46,881 44,579 46,077 Aged 65+ 41,615 38,576 37,899 40,809 39,035 40,645

Source: Euromonitor International, 2014 Although higher incomes generally lead to higher overall consumption of dairy products, the same cannot be said of consumption of individual products. For example, in several high-income countries, consumption of cheese is increasing, but consumption of fluid milk is decreasing. Per capita consumption of yogurt is also relatively high in high-income countries, such as France and Germany, and demand growth is unabated. However, unlike markets for dry milk powders or butter, the European market for

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yogurt is highly fragmented by country or region so as to meet specific consumer demands for taste or nutritional attributes, according to Euromonitor International. GROWTH IN DAIRY PRODUCTS, 2009-2018 Retail dairy purchases are growing at widely different rates among the European countries in response to rising incomes and expanding urban populations. Mass media promotions and new forms of retail channels are also driving growth in countries where dairy products are marketed to Europe’s aging population and typically affluent senior demographic who form an attractive target market for functional dairy food and drink, for example. Functional claims are helping this increase by providing consumers access to expanded product selections and brands. Some European governments are also facilitating the access by encouraging milk consumption in schools as a means to improve the diets of children. Younger populations across the five top European economies are both the main demographic for buying dairy drinks in general and for buying those products they consider to have health benefits or contain functional ingredients.

Western Europe Growth in Dairy Sector in US$ Billions 2008-2018

Source: Euromonitor International, 2014 SUBSECTOR ANALYSIS The European dairy industry offers a wide range of products from raw milk to speciality ingredients to other industries. Europe is a mature market for dairy products and its consumers are looking for new benefits in familiar products. Innovation was successful in applying new technologies, and new products formulations, that fulfil consumer needs in established products. This is reflected in the collected data from Mintel Global New Products Database (GNPD).

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Launches of Dairy Products in Key European Markets 2011-2013

Source: Mintel GNPD, 2014 Cheese (This is the aggregation of processed and unprocessed cheese.) Euromonitor forecasts that the European cheese market will maintain steady growth across Europe through 2018. However, this growth has been sustained by lowering costs and because Europeans are no longer seeing cheese as simply a separate after a meal dish. It has now branched into the snacking sector and is being increasingly used in meal preparation.

Top Cheese Markets the World in 2014* in US$ Billions, Current Prices – Fixed 2013 Exchange Rates

Source: Euromonitor International, 2014.* 2014 figures are provisional and based on partial-year estimates.

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Forecast Cheese Value Sales by Key Markets 2014/2018 and Ranking

Source: Euromonitor International, 2014 As compared to the previous year, sales growth in 2013 was slightly higher in key markets except in Italy where it was stagnant. Cheese is generally considered, for many dairy producing European countries, as an essential food basket item, when faced with a morose economic condition. Many European consumers find in cheese a culturally symbolic food item and a way of reconnecting with aspects of pleasure, fun and conviviality. Historic Retail Value Sales of Cheese in Key European Markets, in US$ Millions and Period Growth

(%), Current Prices – Fixed 2013 Exchange Rates

Country 2009 2010 2011 2012 2013 2009-13 CAGR*

France 10,572.8 10,797.2 11,193.8 11,375.4 11,500.5 2.1% Germany 8,356.4 8,210.7 8,341.9 8,661.3 8,867.1 1.5% Italy 9,092.0 9,264.3 9,497.6 9,575.7 9,145.0 0.1% United Kingdom 5,708.1 5,860.2 6,106.7 6,426.5 6,562.8 3.5%

Source: Euromonitor International, 2014 *CAGR: Compounded Annual Growth Rate Cheese sales in key markets in Europe are likely to remain on a positive outlook over the forecast period with a CAGR of 2% for both volume and value according to Euromonitor. Cheese is a food item deeply rooted in the culinary, nutritional and degustation habits of the European population. However, new consumption patterns, especially in the application and ways of consuming cheese, notably as snacks and/or as culinary ingredients as practiced in North America may spur innovation and help the category growth.

Forecast Retail Value Sales of Cheese in Key European Markets, in US$ Millions and Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2014 2015 2016 2017 2018 2014-18 CAGR

France 11,673.6 12,074.0 12,526.3 13,033.1 13,603.8 3.9% Germany 9,093.3 9,333.7 9,572.8 9,829.2 10,095.3 2.6% Italy 8,898.5 8,877.6 8,934.6 9,054.4 9,210.0 0.9% United Kingdom 6,709.8 6,830.4 6,899.0 6,987.8 7,099.8 1.4%

Source: Euromonitor International, 2014 *CAGR: Compounded Annual Growth Rate

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New Product Launches of Cheese Products in Key European Markets in 2013

Source: Mintel GNPD, 2014 There were 1,431 new cheese products launched in the four key European markets from January 2013 to December 2013. Of the new products that were launched for that year, 437 were in Germany, 397 in France 332 in Italy and 265 in the United Kingdom. A large number of cheeses with controlled designation of origin, that guarantees that the cheese originates from a specific region, from milk from specific herds of animals in the same area and, that the cheese was made using strictly defined traditional methods, which guarantees the authenticity and quality of the products, are rather hindered in growth because of these geographical limitation, despite their popularity.

New Product Launches of Cheese Products by Sub-Category in Key European Markets in 2013 Category Germany France Italy UK Hard Cheese & Semi-Hard Cheese 44.9% 31.0% 32.8% 53.6% Soft Cheese & Semi-Soft Cheese 34.3% 41.8% 44.6% 27.2% Processed Cheese 10.8% 10.6% 19.6% 14.3% Soft Cheese Desserts 10.1% 16.6% 3.0% 4.9%

Source: Mintel GNPD, 2014

New Product Launches of Cheese Products by Claim in Key European Markets in 2013 Claim Germany France Italy UK No Additives/Preservatives 13.50% 6.30% 29.22% 11.70% Convenient Packaging 16.02% 7.81% 13.86% 20.38% Vegetarian 3.43% 0.76% 1.20% 66.42% Low/No/Reduced Allergen 25.63% 1.26% 9.94% 3.77% Organic 8.70% 18.64% 3.01% 1.89%

Source: Mintel GNPD, 2014 European consumers overall are increasingly looking for healthier, more natural foods, which offer convenience as well, therefore no additives/preservatives is the leading claim among the four review countries, closely followed by convenient packaging.

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New Product Launches of Cheese Products by Category in Key European Markets in 2013

Category No Additives/ Preservatives

Convenient Packaging Vegetarian

Low/No/ Reduced Allergen

Organic

Hard Cheese & Semi-Hard Cheese 23.6% 81.6% 57.6% 47.5% 29.9%

Soft Cheese & Semi-Soft Cheese 30.7% 10.4% 23.7% 23.1% 51.2%

Processed Cheese 30.2% 8.0% 12.1% 24.4% 5.5% Soft Cheese Desserts 15.6% 0.0% 6.6% 5.0% 13.4%

Source: Mintel GNPD, 2014 Over 30.7% of “No Additives/Preservatives” product launches are in the soft cheese and semi-soft cheese category, followed closely by processed cheese. Italy is the leading country for new products with this claim. Organic cheese ranked fifth is new product launches and plays an important role in France and Germany, who, together, account for most recent organic cheese launches in the E.U. 51.2% of the new organic cheese products is in the soft and semi-soft cheese category. The number of consumers ready to pay more for natural food, such as “free-from” cheese claims, is increasing in all countries. In almost all European countries, women and elderly consumer groups are known to be generally more health conscious than average and are the most likely to pay more. Organic foods are also appreciated by the French and the Germans; once again it is the only country where the numbers of consumers who are willing to pay more for organic foods is rising according to Mintel and judging by the number of new product introductions in 2013. Convenience, on the other hand, is high in demand in the U.K. close to 20.4% of cheese with convenient packaging is launched there. As much as 81.6% of cheese with this claim is in the hard and semi-hard cheese category.

Historic and Forecast Cheese Retail Market Prices per Kilogram in US$ in Key Markets

Country 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F France 12.3 11.8 12.4 11.6 12.1 12.4 11.8 12.1 12.3 Germany 9.8 9.1 9.9 9.1 9.6 9.8 9.2 9.3 9.3 Italy 13.4 12.7 13.5 12.4 12.9 13.1 12.3 12.2 12.2 UK 10.4 10.3 11.1 11.4 11.3 12.0 11.9 11.9 12.0

Source: Mintel GNPD, 2014. *F=Forecast

Top Five Company and Their Market Share in Cheese Products in 2013 Company Germany France Italy UK Spain Total Sample

Lidl 8.2% 0.2% 4.4% 2.7% 6.3% 4.6% Fromageries Bel 0.2% 6.6% 2.9% 4.1% 1.1% 2.4% Arla Foods 1.0% 0.0% 0.0% 2.7% 1.1% 1.8% Tesco 0.0% 0.0% 0.0% 13.7% 0.0% 1.6% Aldi 0.4% 0.7% 0.0% 4.5% 3.3% 1.2%

Source: Mintel GNPD, 2014

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Drinking milk products (This is the aggregation of fresh/pasteurised milk, long-life/Ultra-High-Temperature (UHT) milk, goat milk, flavoured milk drinks, soy beverages, powder milk and flavoured powder milk drinks.) Milk is perhaps the most basic of all foods, regarded as a staple among much of the European population. The milk drinking products market has significant potential to diversify. Milk and drinking milk nutritional credentials appeal to different consumer groups. For example; as an important source of calcium, milk and flavoured milk products can easily be promoted as improving bone health, a significant plus point with the aging European population. While milk’s high protein content is also beneficial for children, low-fat milk drinks are often used by dieters, often women. Milk and drinking milk products are also promoted to be an excellent post-exercise drink. Functionality is another potential development for added value, for example functional milk product can help digestion and boost the immune system, among other benefits. Drinking milk products such as chocolate milk sells as a comfort food, an indulgence, and as a healthy item. Milk can be used as part of a breakfast, as a snack, in hot drinks, or as a cooking and baking ingredient.

Top Drinking Milk Markets in the World in 2014* in US$ Billions, Current Prices – Fixed 2013 Exchange Rates

Source: Euromonitor International, 2014.* 2014 figures are provisional and based on part-year estimates. Historic Retail Value Sales of Drinking Milk Product in Key European Markets, in US$ Millions and

Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2009 2010 2011 2012 2013 2009-13 CAGR*

France 3,399.2 3,312.3 3,353.0 3,302.1 3,280.4 -0.9% Germany 3,714.9 3,693.1 3,844.9 3,766.8 3,993.6 1.8% Italy 3,632.6 3,717.7 3,843.5 3,913.3 3,818.5 1.3% Spain 5,020.2 4,792.0 4,584.3 4,528.9 4,574.8 -2.3% United Kingdom 5,881.8 5,963.5 5,984.0 5,997.5 6,094.3 0.9%

Source: Euromonitor International, 2014 *CAGR: Compounded Annual Growth Rate

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Euromonitor forecasts that the French milk products market will make slow, but steady progress between 2014 and 2018 with a 1.7% CAGR. Organic milk will gain more ground, though milk with added vitamins remains the most dynamic sub-segment. Value sales in Germany are forecast to expand by 3.1% CAGR to 2018, faster than anywhere among the key market, according to Euromonitor. Despite the stagnant volume consumption of milk and milk products in Germany, the average price is above the European average, and is forecast to keep growing. The Italian market is holding steady growing by 1.4% CAGR to 2018. While there are fewer launches compared to the other big 5 countries, the Italians do well with new functional products, mainly in the Yogurt drinks sector, digestive, immune system, and also heart healthy (added omega) products; this helps maintain consumer interest. In Spain, drinking milk products are expected to see a steady increase of 2.3% CAGR in constant value sales to 2018. Drinking milk products is quite a mature category, in which health and wellness is set to continue to offer growth opportunities. According to Euromonitor, the strongest growth category in drinking milk products in the U.K. is goat milk as well as flavoured milk drinks and flavoured powder drinks. British consumers are increasingly keen to try new options as alternative to cow’s milk, either out of curiosity or for health reasons, and this is leading to rising demand for the products in all of these categories, even though they remain very small categories in comparison with cow’s milk. Drinking milk products is forecast to see a growth of modest 1.3% CAGR to 2018, a sign of the maturity of the U.K. market. Forecast Retail Value Sales of Drinking Milk Product in Key European Markets, in US$ Millions and

Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2014 2015 2016 2017 2018 2014-18 CAGR*

France 3,305.1 3,344.6 3,393.9 3,455.2 3,523.5 1.7% Germany 4,131.3 4,263.6 4,407.7 4,566.5 4,691.8 3.1% Italy 3,729.9 3,740.5 3,786.8 3,849.7 3,922.3 1.4% Spain 4,616.6 4,708.2 4,814.3 4,928.0 5,049.4 2.3% United Kingdom 6,077.0 6,174.2 6,235.0 6,308.0 6,391.8 1.3%

Source: Euromonitor International, 2014 *CAGR: Compounded Annual Growth Rate There were 710 new drinking milk products launched in the five key European markets from January 2013 to December 2013. Of the new products that were launched for that year, 163 were in Germany, 153 in Italy, 153 in Spain, 140 in the United Kingdom and 111 in France.

New Launches of Drinking Milk Products in Key European Markets in 2013

Source: Mintel GNPD, 2014

163 153 143 140 111

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New Launches of Drinking Milk Products by Sub-Category in Key European Markets in 2013

Category Germany Italy Spain UK France Total Sample

Drinking Yogurt & Liquid Cultured Milk 40.5% 33.3% 42.0% 44.3% 48.6% 41.3%

White Milk 17.8% 61.4% 42.7% 16.4% 33.3% 34.4%

Flavoured Milk 39.3% 5.2% 12.6% 32.1% 13.5% 21.1%

Sweetened Condensed Milk 0.6% 0.0% 2.1% 3.6% 3.6% 1.8%

Evaporated Milk 1.8% 0.0% 0.7% 3.6% 0.9% 1.4% Source: Mintel GNPD, 2014 Over the 12 month period of 2013, drinking Yogurt and liquid cultured milk saw the highest activity, accounting for 41.3% of all product launches in the 5 key markets, followed by white milk with 34.4% and, flavoured milk accounted for 21.1%. France leads for most new products in the drinking milk products sector, followed by the U.K and Germany, while white milk innovation is led by Italy, followed by Spain and France. Germany also leads for new products launches in flavoured milk category.

New Product Launches of Drinking Milk Products by Claim in Key European Markets in 2013

Claim Germany Italy Spain UK France Total Sample

Low/No/Reduced Fat 31.9% 54.2% 41.3% 44.3% 31.5% 41.0% Ethical - Environmentally Friendly Package 25.8% 28.1% 26.6% 57.9% 36.9% 34.5%

No Additives/Preservatives 12.9% 13.7% 6.3% 40.0% 28.8% 19.6% Low/No/Reduced Allergen 10.4% 17.0% 38.5% 12.9% 4.5% 17.0% Vegetarian 2.5% 2.6% 0.0% 64.3% 0.0% 13.8%

Source: Mintel GNPD, 2014 Low fat/no/reduced fat is the leading product claim in the key European Market: 63.5% of the new low fat products were launched in the white milk category, followed closely by evaporated milk with 40.0%. Environmentally-friendly packaging, most often recyclable materials such as cartons, has become very important in many markets. The U.K. has seen 57.9% of recent dairy drinks launched with this claim, followed by France 36.9% and Italy 28.1%. No additives/preservatives is the top claim in the drinking Yogurt category. The U.K. was leading here, with 40% of new product launches with this claim.

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New Product Launches of Drinking Milk Products by Sub-Category and Claim in Key European Markets in 2013

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Low/No/Reduced Fat 31.7% 63.5% 25.3% 7.7% 40.0% 41.0% Ethical - Environmentally Friendly Package 22.5% 46.3% 36.7% 30.8% 70.0% 34.5% No additives /Preservatives 30.4% 5.3% 23.3% 15.4% 0.0% 19.6% Low/No/Reduced Allergen 16.7% 18.0% 16.7% 15.4% 10.0% 17.0% Vegetarian 17.1% 4.5% 19.3% 30.8% 40.0% 13.8%

Source: Mintel GNPD, 2014

Historic and Forecast of Milk Retail unit prices in US$ per Litre

Country 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F France 1.4 1.3 1.4 1.3 1.3 1.3 1.3 1.3 1.4 Germany 0.8 0.8 0.9 0.9 0.9 1.0 0.9 1.0 1.0 Italy 1.6 1.5 1.6 1.5 1.5 1.6 1.5 1.5 1.5 Spain 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.9 0.9 UK 1.2 1.1 1.1 1.1 1.1 1.1 1.1 1.2 1.2

Source: Mintel GNPD, 2014

Top Five Company and Their Market Share in the Milk and Milk Drinking Products in 2013

Company Germany Italy Spain UK France Total Sample

Danone 3.7% 2.6% 9.8% 7.1% 2.7% 5.2% Lidl 4.3% 6.5% 4.2% 0.0% 0.9% 3.4% Carrefour - CMI 0.0% 0.0% 0.0% 0.0% 17.1% 2.7% Tesco 0.0% 0.0% 0.0% 13.6% 0.0% 2.7% Molkerei Alois Müller 9.8% 1.3% 0.0% 0.0% 0.0% 2.5%

Source: Mintel GNPD, 2014 The drinking milk products category is fragmented in Europe with the top ten players accounting for about 65% of total sales value and among the local modern grocery retailers. In most European countries, modern grocery retailers adopted mid-priced private label milk and drinking milk products for the most part. The sophistication of their product offers via trendy labels, such as “local sourcing”, “organic”, “support for regional farms” are coupled with aggressive pricing competition, thus having the largest market share. Another new development observed by Mintel is the move towards the subcategories of flavoured, lactose-free and organic drinking milk products adopted by private label in the majority of the European market a strategy which some players have opted for in order to generate value.

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Yogurt and sour milk (This is the aggregation of Yogurt and sour milk drinks.) According to Mintel data, 56% of Western European consumers view Yogurt as a guilt-free snack. This can be easily explained by the perceived healthy product benefits and wide variety of flavours. The shift of Yogurt from being solely a breakfast or dessert option to a snack product happened thanks to its versatility and successful combination with healthy ingredients such as cereals, grains, nuts, etc.

Top Ten Yogurt and Sour Milk Products Markets in the World in 2014* in US$ Billions, Current Prices – Fixed 2014 Exchange Rates

Source: Euromonitor International, 2014.* 2014 figures are provisional and based on part-year estimates. Stagnation of value sales in 2013 is signalling the maturity of European markets of yogurt and sour milk products. These products benefits from high levels of trust in their health credentials, being seen as guilt-free treats, their affordability and the presence of a number of big-hitting brands such as Danone. However, rising prices have seen the value of the market continue to grow in the U.K and experience anemic growth in France.

Historic Retail Value Sales of Yogurt and Sour Milk Products in Key European Markets, in US$ Millions and Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2009 2010 2011 2012 2013 2009-13 CAGR*

France 3,382.2 3,420.6 3,474.4 3,436.6 3,427.0 0.3% Germany 3,673.7 3,705.4 3,610.0 3,521.3 3,526.4 -1.0% Italy 2,522.5 2,485.0 2,533.2 2,563.3 2,434.7 -0.9% United Kingdom 2,633.5 2,773.4 2,856.4 2,941.6 3,030.9 3.6%

Source: Euromonitor International, 2014 *CAGR: Compounded

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Health and wellness is an important trend affecting the category. In spoonable yogurt, a shift from flavoured to fruited and plain spoonable yogurt can be observed, which can be explained by the fact that the latter two types are considered healthier. Plain spoonable yogurt is even expected to see the best performance within yogurt and sour milk products.

Forecast Retail Value Sales of Yogurt and Sour Milk Products in Key European Markets, in US$ Millions and Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2014 2015 2016 2017 2018 2014-18 CAGR*

France 3,452.3 3,456.3 3,470.6 3,491.3 3,520.4 0.5% Germany 3,579.8 3,601.4 3,621.5 3,631.6 3,659.5 0.6% Italy 2,311.4 2,249.5 2,221.8 2,214.9 2,219.3 -1.0% Spain 2,412.4 2,389.6 2,399.9 2,436.9 2,491.4 0.8% United Kingdom 3,063.4 3,033.8 3,011.1 2,997.6 2,984.2 -0.7%

Source: Euromonitor International, 2014 *CAGR: Compounded

There were 1338 new yogurt and sour milk products launched in the five key European markets from January 2013 to December 2013. Of the new products that were launched for that year, 370 were in Germany, 293 in France, 249 in the U.K and 215 in Italy.

New Product Launches of Yogurt and Sour Milk Products in Key European Market in 2013

Source: Mintel GNPD, 2014 Germany has the highest number of launches among the key European markets. The country accounts for the highest number of introductions of spoonable yogurt with 82.2% of 370 new product introduced in 2013 in this category.

New Launches of Yogurt and Sour Milk Products by Category in Key European Market in 2013

Category Germany France UK Italy Spain Total Sample

Spoonable Yogurt 82.2% 81.6% 75.1% 76.3% 71.6% 78.1% Sour Milk 17.8% 18.4% 24.9% 23.7% 28.4% 21.9%

Source: Mintel GNPD, 2014

370

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215 211

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Penetration of spoonable yogurt is highest in Germany and lowest in Spain. However, in contrast, daily consumption of sour milk drinks is low in Germany and much higher in Spain; a large proportion of Germans consume these products only occasionally. Eating spoonable yogurt is much more common.

New Product Launches of Yogurt and Sour Milk Products by Claim in Key European Markets in 2013

Claim Germany France UK Italy Spain Total Sample

No Additives/Preservatives 24.1% 32.8% 30.1% 29.3% 11.8% 26.0% Low/No/Reduced Fat 11.4% 20.1% 42.2% 29.8% 25.1% 24.1% Ethical - Environmentally Friendly Package 8.9% 33.8% 39.8% 5.1% 3.3% 18.6%

Vegetarian 0.8% 1.4% 70.3% 1.4% 0.5% 13.9% Low/No/Reduced Allergen 9.7% 3.1% 9.6% 14.4% 33.6% 12.8%

Source: Mintel GNPD, 2014 “No Additives/preservatives” is the leading product claim in the launched from the five key markets: 26% of “no additives/preservatives” products are launched in the Yogurt and sour milk category followed closely by “low/no/reduced fat” products with 24.1%. New Launches of Yogurt and Sour Milk Products by Claim and Category in Key European Markets

in 2013

Claim Spoonable Yogurt Sour Milk Total Sample No Additives/Preservatives 24.8% 30.4% 26.0% Low/No/Reduced Fat 22.0% 31.7% 24.1% Ethical - Environmentally Friendly Package 17.5% 22.5% 18.6%

Vegetarian 13.0% 17.1% 13.9% Low/No/Reduced Allergen 11.7% 16.7% 12.8%

Source: Mintel GNPD, 2014 Over the review period, top innovator Danone, has been most active in Spain and Germany. The company operates almost exclusively in the yogurt sector. Müller Group is the largest private dairy company in Germany with several powerful brands. Muller yogurt and sour milk products holds the second positions in Germany behind the powerful Danone brand.

Top Company of Yogurt and Sour Milk Products in Key European Markets in 2013

Company Germany France UK Italy Spain Total Sample

Danone 12.4% 8.2% 10.0% 5.6% 16.6% 10.6% Lidl 4.9% 1.0% 0.8% 7.9% 8.5% 4.3% Molkerei Alois Müller 7.0% 0.0% 0.0% 6.5% 0.0% 3.0% Yoplait 0.0% 10.2% 4.0% 0.0% 0.0% 3.0% Tesco 0.0% 0.0% 13.3% 0.0% 0.0% 2.5%

Source: Mintel GNPD, 2014

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Yogurt: Retail market volume consumption in Kilogram per capita (population)

Country 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F France 19.5 19.1 20.0 19.8 19.6 19.5 19.5 19.6 19.6 19.7 19.9 Germany 16.6 16.2 16.6 16.7 16.2 15.9 15.9 15.5 15.2 15.1 14.8 Italy 6.8 7.1 7.2 7.4 7.5 7.8 8.0 8.1 8.3 8.5 8.6 Spain 17.4 17.7 17.8 18.2 18.0 17.9 18.2 18.3 18.6 19.0 19.1 UK 10.9 11.0 11.1 10.8 10.5 10.5 10.4 10.2 10.1 10.0 9.8

Source: Mintel GNPD, 2014. F=Forecast The ‘Big 5’ listed in the table above, showed differing trends in yogurt consumption depending on market saturation and competitive strategies. The market in Germany is showing a slight decline in consumption as a result of the decline in population. Respondents to a Mintel survey on yogurt and sour milk products in the five key European market who choose yogurts or sour milk products based on low price or special promotions are most likely to believe that private label products are just as good as brand names. This indicates, according to Mintel, that there is an opportunity for private label manufacturers to win market share if they can compete aggressively on price. However, Mintel notes that while consumers in these key countries are aware of price differences between brands, they are not actively taking greater steps to save money when buying yogurt.

Yogurt: Retail Market Unit Prices in US$ per Kilogram

Country 2008 2009 2010 2011 2012 2013 2014F 2015F 2016F 2017F 2018F France 3.0 2.8 2.6 2.7 2.5 2.6 2.7 2.5 2.5 2.5 2.5 Germany 3.4 3.2 2.9 2.9 2.7 2.8 3.0 2.8 2.7 2.7 2.6 Italy 5.7 5.3 5.0 5.3 4.8 4.9 5.0 4.7 4.8 4.8 4.8 Spain 3.9 3.5 3.2 3.4 3.1 3.2 3.2 3.1 3.1 3.1 3.2 UK 4.5 4.0 3.9 4.3 4.5 4.5 4.9 5.0 5.1 5.4 5.5

Source: Mintel GNPD, 2014. F=Forecast

Other Dairy (This is the aggregation of chilled and shelf stable desserts, chilled snacks, coffee whiteners, condensed/evaporated milk, cream, and fromage frais and quark.) International dessert specialities and other premium dessert products, which already have a strong presence in foodservice channels, have begun to make their way onto the shelves of grocery retailers in most of the E.U. countries. Products such as tiramisu, mousse au chocolat or crème brulée are offered by a growing number of manufacturers and grocery retailers’ private labels and are creating growing consumer interest. Classical desserts such as pudding or rice pudding however, still dominate the market.

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Historic Retail Value Sales of Other Dairy Products in Key European Markets, in US$ Millions and Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2008 2009 2010 2011 2012 2013 2008-13 CAGR*

Germany 4,720.5 4,719.2 4,657.5 4,716.1 4,808.5 4,858.2 0.6% France 4,155.5 4,255.9 4,345.8 4,426.4 4,472.0 4,515.0 1.7% United Kingdom 1,593.0 1,631.2 1,672.9 1,738.0 1,793.0 1,810.8 2.6% Spain 1,294.6 1,242.6 1,190.0 1,197.0 1,255.4 1,245.0 -0.8% Italy 959.9 929.3 938.3 958.2 966.3 965.1 0.1%

Source: Euromonitor International, 2014 *CAGR: Compounded Retail value sales of other dairy products are expected to perform well to 2018. While organic products according to Euromonitor, are predicted to see a strong performance, conventional dairy-based products will see a slight decline. Euromonitor also notes that soy-based dessert will have its growth mainly driven by consumers showing more interest in alternative dairy products, especially for health reasons, such as lactose intolerance. Forecast Retail Value Sales of Other Dairy Products in Key European Markets, in US$ Millions and

Period Growth (%), Current Prices – Fixed 2013 Exchange Rates

Country 2014 2015 2016 2017 2018 2014-18 CAGR*

Germany 4,912.0 4,975.8 5,047.1 5,134.9 5,233.8 1.6% France 4,590.1 4,692.5 4,808.2 4,939.6 5,086.6 2.6% United Kingdom 1,823.8 1,847.1 1,880.1 1,920.6 1,966.7 1.9% Spain 1,245.6 1,272.1 1,300.6 1,331.6 1,369.8 2.4% Italy 965.9 986.4 1,011.2 1,043.7 1,079.7 2.8%

Source: Euromonitor International, 2014 *CAGR: Compounded The growth will be sustained by the greater trend of home-cooking by European households. This trend will also be fuelled by the diversified applications of other dairy products such as in sauces, dips, soups, gratin, quiche and desserts. DISTRIBUTION Along with North America and Japan, Western Europe has one of the world's most modern retail landscapes. Traditional store formats and open markets only play a minor role in Western European food retailing. Traditional markets can still be found in markets such as Spain, Portugal and southern Italy, while there are very few in Northern Europe, including Germany, the U.K. and Scandinavia. Germany, France and the U.K. constitute the largest markets for modern grocery retailing, whereas, France, the U.K. and Italy constitute the largest markets for the hotel, restaurants and catering sector according to Planet Retail. At the food supply chain level, Western Europe's structure is unique and complex. The market is fragmented and the numbers of suppliers are so few that the actions of one could affect price and have a measurable impact on competitors. Food and drink companies face considerable pressure from retailers, especially discounters, on product prices, and will continue to see a growing presence of private label products, magnifying competition on price in the market.

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In addition Planet Retail notes that because its high levels of market concentration, Western Europe has one of the world's most modern retail landscapes, with many avant-garde trends and formats that are said to be around a few years ahead of North America. Of late, the retail sector has been highly influenced by shopper-centric trends and efforts toward range rationalization, as a wide array of grocery retailers cut back on Stock Keeping Units (SKUs) to improve shopper convenience and increase efficiency. The economic uncertainties has had a dramatic effect on consumer behavior, with value-for-money becoming a driving force and ultimately leading retailers to become more sophisticated and selective, which has, in turn, affected suppliers worldwide. Increasingly, retailers are engaging with shoppers directly through private label development, which is driving loyalty and gaining higher margins. As the private label trend grows in Western Europe, suppliers will either face strong challenges in competing with them or see major opportunities if they choose to supply them.

Dairy Product Distribution in Western Europe by Format and %

Outlets 2009 2010 2011 2012 2013 2014* Store-Based Retailing 98.9 98.8 98.7 98.6 98.5 98.4 Grocery Retailers 97.6 97.5 97.4 97.3 97.2 97.0 Modern Grocery Retailers 87.0 87.2 87.5 87.6 87.7 87.9 Convenience Stores 5.0 5.1 5.1 5.2 5.2 5.2 Discounters 17.2 17.3 17.5 17.5 17.7 17.8 Forecourt Retailers 1.3 1.3 1.3 1.3 1.3 1.2 Hypermarkets 23.0 23.0 23.2 23.3 23.2 23.4 Supermarkets 40.5 40.4 40.4 40.3 40.3 40.2 Traditional Grocery Retailers 10.5 10.3 9.9 9.7 9.4 9.1 Food/drink/tobacco specialists 1.8 1.8 1.7 1.7 1.6 1.6 Independent Small Grocers 6.0 5.8 5.5 5.4 5.3 5.1 Other Grocery Retailers 2.8 2.7 2.6 2.6 2.5 2.5 Non-Grocery Retailers 1.3 1.3 1.3 1.3 1.4 1.4 Health and Beauty Retailers 0.1 0.1 0.1 0.0 0.0 0.0 Mixed Retailers 0.8 0.8 0.8 0.8 0.8 0.9 Other Non-Grocery Retailers 0.4 0.4 0.4 0.5 0.5 0.5 Non-Store Retailing 1.1 1.2 1.3 1.4 1.5 1.6

Source: Euromonitor International, 2014 *Forecast

Supermarkets and hypermarkets are the most popular distribution channels in Western Europe. This category accounted for 98.4% of distribution shares and consists of retailers such as Carrefour, Auchan, Tesco, Metro Group and Schwarz Group.

Europe's Top Retailers Company Description Carrefour A French-based operator of hypermarkets, supermarkets and discount stores Metro Group A German-based company largely relying on its cash and carry, hypermarket and

consumer electronics store networks Tesco A British market leader with several foreign operations outside Western Europe Schwarz Group Owner of the fast-expanding Lidl and Kaufland chains Auchan Another French multi format specialist Edeka A German market leader that has increasingly been focusing on its home market

operations Source: Planet Retail, 2014

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Buying groups According to Planet Retail, most independent retailers that continue to exist in Western Europe are organized in buying groups, such as Edeka, Rewe, Intermarché, or the numerous co-operative societies active in the region. It is difficult, in the Western European market, for independent traders to compete on price with the larger companies. For this reason, traders tend to join buying organizations, except in the very small upmarket niches. Alidis/Agenor are two buying centers working under common European distribution companies: Centros Commerciales Ceco S.A (Eroski), Zentrale AG & Co (Edeka) and ITM Entreprise S.A (les mousquetaires). FOR MORE INFORMATION International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice.

• Find a Trade Commissioner www.tradecommissioner.gc.ca/eng/find-trade-contacts.jsp

For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found under Statistics and Market Information at the following link, arranged by sector and region of interest:

• ats-sea.agr.gc.ca

Presentations and reports on the European Dairy Sector are available from the conference website;

• http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:086:0007:0011:EN:PDF • http://ec.europa.eu/agriculture/milk/milk-package/index_en.htm • http://ec.europa.eu/agriculture/events/dairy-conference-2013_en.htm

RESOURCES Euromonitor International, 2010. Got Milk? Mapping Dairy Supply Chain in the Developed World. Euromonitor International, 2014. Dairy Western Europe. Euromonitor International, 2014. Cheese in France, Germany, Italy, Spain and UK. Euromonitor International, 2014. Drinking Milk Products in France, Germany, Italy, Spain and UK. Euromonitor International, 2014. Yoghurt and Sour Milk Products in France, Germany, Italy, Spain and UK. Euromonitor International, 2014. Other Milk products in France, Germany, Italy, Spain and UK. Mintel Global New Products Database, 2014. Dairy Products in Western Europe. Mintel Inspire 2014 Stats, European Consumers await next Generation of Functional Dairy Drinks. CNIEL, Information ressources Inc., Economist Intelligence Unit - http://www.eiu.com/, Mintel.

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The Nielsen Company, BMELV, BMF, DeStatis, BLE, Economist Intelligence Unit - http://www.eiu.com/, Trade Interviews, Mintel. CLAL, ISMEA, Economist Intelligence Unit - http://www.eiu.com/, Trade Interviews, Mintel. InfoScanCensusTM, IRI España, MARM, Economist Intelligence Unit - http://www.eiu.com/, Mintel. Information Resources, Inc., Economist Intelligence Unit - http://www.eiu.com/, Mintel. International Dairy Federation: www.fil-idf.org/ Canadian Dairy Commission: www.dairyinfo.gc.ca

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Dairy Products in Western Europe Global Analysis Report Prepared by: Karim Zarrouki, Market Analyst © Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2015). Photo Credits All photographs reproduced in this publication are used by permission of the rights holders. All images, unless otherwise noted, are copyright Her Majesty the Queen in Right of Canada. For additional copies, to request an alternate format, and for all other inquiries regarding this publication, please contact: Agriculture and Agri-Food Canada, Global Analysis 1341 Baseline Road, Tower 5, 4th floor Ottawa, ON Canada, K1A 0C5 E-mail: [email protected] The Government of Canada has prepared this report based on primary and secondary sources of information. Although every effort has been made to ensure that the information is accurate, Agriculture and Agri-Food Canada (AAFC) assumes no liability for any actions taken based on the information contained herein. Reproduction or redistribution of this document, in whole or in part, must include acknowledgement of Agriculture and Agri-Food Canada as the owner of the copyright in the document, through a reference citing AAFC, the title of the document and the year. Where the reproduction or redistribution includes data from this document, it must also include an acknowledgement of the specific data source(s), as noted in this document. Agriculture and Agri-Food Canada provides this document and other report services to agriculture and food industry clients free of charge.