Yogurt and Desserts. Executive Summary UK June 2011

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Kiti Soininen Senior Food Analyst Health looks set to remain on the nation s long-term food agenda, but taste is still the top factor in consumers choice of snacks. Against these often contradictory demands facing snacks, the majority view of yogurt as a healthy but tasty snack and a popular alternative to such HFSS foods as chocolate or desserts puts it in a rare, strong position for long-term growth. 1

The Market Figure 1: Forecast of UK retail sales of yogurts, by value, 2006-16 by value, 2006-16 Figure 2: Forecast of UK retail sales of desserts, Source: Mintel/based on SymphonyIRI Group InfoScan Yogurt posts robust growth as a healthy but tasty snack Estimated value growth of 21% over 2006-11 will see the yogurt market reach an estimated 1.79 billion. The market has benefited from consumers long-term focus on healthy eating, and the image it has forged as a healthy but enjoyable snack. However, heavy promotional activity has dampened value growth. With estimated sales growth of 28% over the period, to 1.55 billion, spoonable yogurt has continued to gain share in the yogurts market, to stand at 86% of the total. Sales of yogurt drinks declined in 2007 and 2008, temporarily returning into positive territory in 2009, fuelled by strong performance from Benecol and sales growth at Actimel. Growth in desserts is fuelled by the chilled segment The desserts market is estimated to reach 1.45 billion in 2011, on the back of expected 16% growth since 2006. The market has benefited from the growth in eating in, and the demand for affordable luxuries in the recession. However, value growth has come under pressure from promotional activities; around half of consumers buy desserts on offer. Estimated sales growth of 28% over 2006-11, to 650 million, saw chilled dessert reach a 45% stake in the market. Both frozen and ambient desserts benefited in the recession from their value-for-money image, also supported by product launches. However, their fortunes soon reversed, with sales declining in both segments in 2010, estimated to stand at 565 million for ambient and 233 million for frozen desserts in 2011. 2

Forecast Mintel expects the yogurt market to grow by 18% over 2011-16, to a total of 2.1 billion in 2016. The market will continue to benefit from an image as a healthy but enjoyable snack, though under pressure from a focus on price, while the large operators will support visibility and new product development. Growth of 8% to 1.6 billion is forecast for the dessert market over 2011-16. The chilled segment is expected to continue to outperform the others, with sales of ambient desserts expected to stagnate and of frozen desserts to decline, in keeping with the longer term trends in these markets. Market Factors EU regulation sees many yogurt health claims rejected At the end of 2006, the European Commission adopted a regulation on the nutrition and health claims made on foods, whether on labels or in advertising/marketing campaigns, requiring claims to be approved by the European Food Safety Authority (EFSA). By spring 2011 around four in five of the opinions issued by EFSA had rejected the claims submitted. More than 200 probiotic submissions, many of these relevant to yogurt, had been rejected by the panel, while the effect of plant stanols/sterols in reducing cholesterol had won an approval. This has led to many brands discontinuing the use of selected health claims in their marketing, either as having faced EFSA refusal, or having been withdrawn from the process to wait further clarification. Examples include claims by the likes of Actimel, Activia and Yakult. Three-a-day recommendation remains unknown Evenings in benefit snacking at home The rise in staying and entertaining at home instead of going out during the economic downturn has benefited certain segments of in-home food, including desserts. One in four adults (26%) report eating more desserts at home, because they are eating out less often. This rise in uptake was partly fuelled by the role of desserts in popular meal deals and 'dine in' offers; 35% of adults having bought desserts as part of such deals. As consumers look to remain cautious in their spending in 2011, evenings in could continue to support the demand for desserts. Obesity keeps health on the food agenda With obesity regularly in the media spotlight, calorie counting and weight watching have forged a permanent place on the nation's agenda, among a large minority. Meanwhile, around half the population are inclined to eat less healthy treats, signalling a division in attitudes towards healthy eating. With health issues set to remain on the nation's food agenda, HFSS foods including many desserts face a long-term challenge in defending their place as part of a balanced diet. Meanwhile, products that combine health and enjoyment are well positioned for growth, including yogurt. The recommendation for three portions of dairy a day remains largely unknown, with only 21% of adults trying to meet the target. Raising awareness of this could support regular usage of yogurt as one of the three portions. Meanwhile, the calcium intake message remains largely limited to children's yogurt, despite calcium need being at its highest at ages 11-18, suggesting wider potential to leverage it. 3

Companies, Brands and Innovation Figure 3: Leading brands in UK retail value sales of spoonable yogurt and fromage frais, 2010 Private label took the lead in NPD in the desserts market in 2009, in line with its majority stake in sales. However, activity by the likes of Weight Watchers, Premier Foods and Nestlé saw brands regain the lead in the first five months of 2011. Figure 4: Top six claims in NPD in yogurts and desserts, 2010 Source: Mintel Own label 16% Other brands 28% Yeo Valley Organic 5% Activia (Danone) 17% Müller Corner (Müller) 17% Müllerlight (Müller) Petits Filous 9% (Yoplait) 8% Despite seeing its growth rates slow from their recent heights, Danone s Activia took the lead in spoonable yogurts in 2010, ahead of Müller Corner. The two brands combined capture a third of sales in the segment, while most brands hold market shares of less than 5%. Own-label's share in the market has remained low, reflecting the intense competition between the many sizeable branded players. In drinking yogurts, Actimel held its lead, accounting for nearly half of the segment sales, in spite of stopping the use of its health claim as immunity-boosting. Benecol posted the strongest growth in the market over 2008-10, helped by EFSA s approval of its health claim. Cadbury has maintained the lead in chilled desserts, helped by its broad portfolio of desserts including a number of its established chocolate brands, however, it only captures 10% of the fragmented market. Ownlabel dominates the chilled desserts segment, with a 63% share. No additives takes lead in desserts, low fat in yogurts in NPD Brands continue to dominate NPD in the yogurts market with 68% of all new launches, in line with their share in sales. Müller and Danone as leading players have maintained their places in the top five throughout the 2008-10 period. Vegetarian Low/No/Reduced Fat Environmentally Friendly Package No Additives/Preservatives Low/No/Reduced Allergen Gluten Free Yogurt 29.8 24.4 23.9 46.8 46.8 70.2 0.0 20.0 40.0 60.0 80.0 % Vegetarian Environmentally Friendly Package No Additives/ Preservatives Microwaveable Premium Low/No/Reduced Transfat Dessert 12.9 11.8 17.9 39.5 39.2 57.8 0.0 20.0 40.0 60.0 80.0 % Source: Mintel GNPD Reflecting the wider food market, vegetarian and green packaging claims were the most common among new launches in both yogurts and desserts in 2010. The no additives/preservatives claim has gained popularity in NPD in desserts in recent years, while the low/no/reduced fat claim appeared on nearly half of new yogurt launches. Recent launches have also featured yogurts with compotes, in Greek style and lassi, while the desserts market has seen the entry of a number of brands established in other markets such as ice cream maker Carte D Or and chocolate maker Thorntons. Adspend rebounds in 2010 Following cuts to adspend in 2008 and 2009, abovethe-line spending on yogurt as recorded by Nielsen Media Research leapt ahead in 2010, rising to 60 million. Adspend on desserts remained broadly steady throughout the recession as many leading grocers highlighted their meal deals, rising to 12.9 million in 2010. 4

Figure 5: Adspend on yogurts and cakes and desserts, 2006-10 70 60.4 60.5 60 50 42.3 47.1 43.7 40 m Yogurts 30 Cakes and desserts* 20 11.8 10.6 11.0 12.9 10 6.8 0 2006 2007 2008 2009 2010 * includes cakes, fruit pies, frozen cakes and convenience desserts Source: Nielsen Media Research/Mintel The adspend to sales ratio of 3.5% in yogurt remains high compared to most food categories, reflecting the intense competition amongst numerous large operators. The ratio in cakes and desserts is much lower, as expected given the fragmented market and the strong position of own-label. Premier Foods and Müller dominate the adspend on desserts, capturing more than half of the total, reflecting their lead position in the sales of ambient and chilled desserts respectively. In yogurt, Müller and Danone together account for around 70% of the market total adspend, seeing the overall visibility of the market depend heavily on the marketing strategies of these two. Many of the recent campaigns have taken a humorous rather than technical or functional approach, ranging from rapping farmers to talking guts and galloping cows. The Consumer Yogurt enjoys high penetration Used by nearly three in four adults (72%), yogurt and fromage frais enjoy high penetration. With only a minority of 28% of users eating yogurt daily, recent marketing has focused on encouraging more frequent usage. Less than half of adults (47%) used ready-to-use desserts in 2010, with both overall and frequent usage falling against 2009. Longer term, the market has been affected by competition from other products, as well as rising health concerns. Cakes and pastries have enjoyed ongoing growth in usage in recent years, to three quarters (76%) of adults. The sector is likely to have benefited from low prices compared to most pot desserts, as well as tapping into the recent trend for nostalgia. Snacking is top occasion for yogurt, special occasions for desserts While more than three in four adults eat yogurt, no single usage occasion appeals to the whole population. Yogurt is most popularly eaten as a snack at home. However, the growth in indulgent variants has seen use as a dessert take second position in popularity. Meanwhile, usage in cooking remains rare. In line with their traditional role, desserts are most popular for special occasions and serving to guests. However, nearly half of adults have bought them on offer, underlining the role of promotions in driving usage, but also in dampening value growth the category. Chilled desserts come across as the most popular type overall, with 72% of adults buying them, and for most occasions. 5

Figure 6: Five most popular usage occasions of yogurts and desserts, April 2011 Base: 1,500 internet users aged 16+ Figure 7: Attitudes towards yogurt, April 2011 Base: 1,121 internet users aged 16+ who eat/use yogurt As a snack at home As a dessert by itself At lunch As breakfast/ part of breakfast As an evening snack Yogurts 21 26 25 36 43 0 10 20% 30 40 50 Special occasion (eg birthday, Christmas) When I have guests around When they are on offer As part of Sunday lunch After evening meal (Friday Sunday) Desserts 40 38 49 52 56 0 10 20 30 40 50 60 % Source: Toluna/Mintel Yogurt is favoured as a healthy alternative to other snacks Two in three yogurt eaters choose yogurt as a healthy alternative to other foods like desserts, cakes or chocolate, standing testimony to the progress made by brands in positioning yogurt as a treat. This image as a healthy yet enjoyable snack gives it a strong point of difference. Nearly two in three adults who eat yogurt like to try new flavours and styles of yogurt. This underlines the importance of active NPD in maintaining consumer interest. More than half of yogurt eaters would like to see more 'completely natural' yogurts, suggesting potential to mine this rare proposition further. Nearly half of adults who eat yogurt report to usually buying whichever brand is on offer, while one in three only buy branded yogurt when it's on offer. These findings reflect the high levels of promotional activity in the market, and their impact in devaluing the market. Source: Toluna/Mintel Evenings in benefit desserts, while health concerns dampen demand Desserts have benefited from the economic downturn and consumers cutting back on discretionary spending. One in four adults report eating more desserts at home because they are eating out less often, however, the question remains whether they can retain a regular role on the at-home menu when consumer spending regains momentum. Two in five consumers view desserts as too unhealthy to eat often, underlining health considerations as a key barrier to higher frequency of usage, as expected. A nearly equal share claim not to worry about the healthiness of desserts, because they eat them so rarely. Low concern over the healthiness of desserts among the over-55s could suggest opportunities for the segment among older consumers. Desserts are challenged by scratch cooking, as more than one in three people prefer to serve homemade desserts to guests, likely to reflect the pride now taken in craft skills like cooking. Meanwhile, a minority of one in three view making desserts at home as too much hassle. 6

Only a minority of adults hold a more positive view of chilled than ambient or frozen desserts. However, the majority of the population neither agree nor disagree on the statements, likely to reflect a lack of awareness of the smaller segments. Figure 8: Attitudes towards desserts, April 2011 Base: 1,500 internet users aged 16+ for desserts. For desserts, continuing to deliver on taste while looking to polish their health credentials poses a challenge, however, these could play a role in differentiating in particular everyday desserts. Figure 9: Top five choice factors seen as important in desserts and yogurts, April 2011 Base: internet users aged 16+ who eat/use yogurts and desserts Price 78 75 A flavour I like 61 59 Light* 69 58 Special offer Size (eg single portion v. big pot/cake) Low fat 37 29 32 46 65 58 Desserts Yogurt Source: Toluna/Mintel What we think 0 20 40 60 80 100 % Source: Toluna/Mintel Price is top choice factor for both yogurts and desserts Price comes across as the top choice factor in both yogurts and desserts, taken into consideration by more than three in four users in each category. This ties in with the high levels of promotional activity seen in the market, making price-led purchases easier, however, it stands to dampen long-term value growth in the market. A liked flavour ranks among the three most common choice factors overall in both yogurts and desserts, underlining the importance for products in both categories of delivering on taste. While lighter credentials now provide little differentiation in yogurt, the interest in them remains strong. Light credentials rank among the three most common choice factors for yogurt and in the top four Health looks set to remain on the nation s food agenda for the long term, but taste remains the top factor in consumers choice of snacks. Against these often contradictory demands facing snacks, the majority view of yogurt as a healthy but tasty snack and a popular alternative to such HFSS foods as chocolate or desserts puts it in a rare, strong position for long-term growth. However, the current price-led attitude of the majority of consumers stands to undervalue the value growth of the market. Nearly half of adults who eat yogurt tend to buy whichever brand is on offer, and two in five see price as their most important choice factor. This price-led approach has been facilitated by the heavy promotions in the intensely competitive market, and the onus remains on the brands to change tactics. New and completely natural products could, among others, provide grounds for combating discounting, as areas of interest for consumers as found in the research for this report. The research also shows new product development as playing a key role in continuing to engage consumers. 7

Against the same background, the desserts market comes across as being in a potentially vulnerable position. As two in five adults see desserts as too unhealthy to eat often, health concerns look set to put some constraints on the potential for higher usage. Meanwhile, half of adults who buy desserts see either price or special offers as their most important choice factor, only 15% mentioning flavour, this price focus standing to hamper value growth in the market. Arguably, this could suggest further opportunities for mini desserts, helping to bring them more in line with competing snacks in terms of both price and healthiness. Naturally healthier desserts like mousse or fruit crumbles could benefit from highlighting these credentials to encourage usage as an everyday treat. At the premium end, as with yogurts, the onus is on the brands to justify their premium prices, as seen in competing markets like ice cream, or, for selected brands, chocolate. 8

Kiti Soininen Senior Food Analyst E-mail ksoininen@mintel.com Telephone +44 (0) 20 7606 4533 Kiti researches, writes and edits reports on the UK food industry. She joined Mintel in 2004 and was part of the European Retail team before taking on responsibility for food reports in 2009. Kiti has a first class BA in Economics with Russian. 9