Some key findings from this report...
• A 16% growth in market value is expected in the combined European and US dairy markets between 2005 and 2009. Growth will be driven by developments in health, innovation in the Spanish market and emerging markets in Eastern Europe.
• Yogurt and yogurt drinks are a key growth opportunity. Consumers are increasingly adding functional yogurts and yogurt drinks to their diet and smoothie-style drinks demand is booming.
• Premium dairy offerings including premium cheeses and organic milks and yogurts are a key growth area. The share of new product launches that made the upscale claim has increased by 1.9 percentage points since 2004 to reach 4.3%.
• Low fat is the most common product label in new releases for 2006 with just under 10% of products making this claim. This reflects the importance of the health trend and continuing efforts of manufacturers to revamp their product lines with healthier formulations.

Innovation and NPD in Dairy
Future opportunities in functional, indulgent and ethical food and drinks
The worldwide dairy market is set for significant growth in the next decade. In Western markets there is a growing interest in health and wellbeing and an increasing demand for premium products. In Asia and Latin America the market is also moving quickly with high growth expected despite traditionally high levels of intolerance. Manufacturers are under pressure to understand and respond to these trends in order to defend market share and stay ahead of the competition.
Innovation and NPD in Dairy: Future opportunities in functional, indulgent and ethical food and drinks is a new management report published by Business Insights that provides detailed insights into worldwide dairy market dynamics and identifies the key markets and product categories that are driving growth. It examines key innovations from around the world and analyzes key issues including premiumization, functional food benefits and private label. Use this report’s analysis of the key trends in global dairy innovation and NPD to create more effective product development strategies.

This new report will enable you to...
• Identify and target new and emerging growth opportunities using this report’s US and European dairy market forecasts detailing market value and volume to 2009.
• Understand the key trends in the dairy market including the organic movement and the growing health trend and how these and future trends will affect the market over the next five years.
• Assess the competitive landscape with this report’s analysis of the strategies and market shares of leading players in the dairy market including Kraft, Nestlé, Danone and Arla Foods.
• Benchmark leading executives’ opinions on the future of the dairy market using this report’s analysis of our proprietary global survey detailing the key issues affecting the future of NPD and innovation across Europe, Asia-Pacific, South America and North America.
• Improve the effectiveness of your NPD strategies with this report’s analysis of innovation by category, region and product tag using Productscan data from 8,000 dairy food and drinks product launches between 2004 and 2006.

Key issues examined in this report...
• Regulatory pressure. Government concerns about public health issues are forcing manufacturers to re-think formulation, advertising strategies and marketing.
• Competition in the organic dairy market. Organic manufacturers face rising competition as budget and private label lines start to the enter the market. The market leaders are responding by raising the bar for organic production and sourcing standards.
• Eastern European markets. Opportunities in Russia and Eastern Europe are emerging as the distribution of consumers becomes more urbanized and their incomes rise.
• The evolution of functional dairy products. Functional products are evolving, as niche products start to emerge that specifically address individual health issues for example brain or skin health.

Your questions answered...
• Which dairy sectors will see the most growth over the next five years?
• How can dairy manufacturers exploit consumers’ growing interest in health?
• Who are the leading innovators driving the future of dairy NPD, and what are the key developments that they are introducing?
• Which dairy product segments offer the greatest future opportunities?
• How are key consumer trends shaping the future of the dairy market?
• What is the outlook for the dairy industry in the future?

Table of Contents
Innovation and NPD in Dairy
Executive Summary 10
Market issues 10
The dairy market 11
Innovation and NPD in dairy 12
Key trends in dairy 13
Conclusions 14
Chapter 1 Market issues 16
Summary 16
Introduction 16
Key issues affecting innovation in dairy 17
Obesity 18
Labeling 19
TV advertising bans 21
Ingredient elimination or substitution 23
Organic, natural and ethical 24
Ethical sourcing 26
Consumer engagement 29
Private label 31
Waitrose 31
Trader Joes 32
ASDA (UK subsidiary of Walmart) 32
Tesco 33
Private label organics 34
Chapter 2 The dairy market 36
Summary 36
Introduction 37
Dairy market value 37
Market value by category 44
Cheese 44
Milk 48
Spreadable fats 50
Yogurts and smoothies 52
Dairy market volume 56
Dairy market volume by category 57
Milk 58
Cheese 58
Yogurt 58
Leading players by region 60
Europe 60
The Americas 61
Asia-Pacific 62
Middle East and Africa 64
Innovative manufacturers 64
Chapter 3 Innovation and NPD in dairy 68
Summary 68
Introduction 69
NPD by category 69
Category analysis 71
Milk 71
Cheese 75
Yogurt 79
Spreadable fats 83
Regional analysis 85
Europe 86
The Americas 87
Asia-Pacific 88
Middle East and Africa 92
Innovation analysis 93
Innovation in formulation 93
Innovation in packaging 96
Innovation by category 98
Product tag analysis 101
Low fat 102
High vitamins 103
Upscale and premium 103
Private label 105
Kids 106
Flavor analysis 108
Chapter 4 Key trends in dairy 112
Summary 112
Introduction 113
Health 113
Functional products 114
Natural 115
Low fat 117
Wellbeing 118
Indulgence 121
Regional / authentic 121
Ethnic 124
Gourmet 125
Convenience 127
Portable 128
Environmentally friendly 130
Portion control / single serve 131
Chapter 5 Conclusions 136
Summary 136
Introduction 136
Overview of main trends 137
Organic / natural / ethical 137
Health 139
Functional trends 139
Health as a new desirable lifestyle 139
Premium 140
Index 141
List of Figures
Figure 1.1: The level of impact certain threats will have on dairy NPD over the next 5 years 17
Figure 1.2: UK Food Standards Association’s traffic light labelling system 20
Figure 1.3: US labeling system 21
Figure 1.4: Cathedral City Lighter Mature Cheddar 22
Figure 1.5: Soy based products capitalizing on their “Trans-free” status 24
Figure 1.6: Highgrove Food’s Gold Top Organic Milk 27
Figure 1.7: Products with “no artificial hormones”: Promise Land Milk & Mountainside UltraPure
Milk 29
Figure 1.8: Danone’s Xperiment drink 30
Figure 1.9: New private label offerings from Waitrose 31
Figure 1.10: Trader Joe private label products 32
Figure 1.11: Asda Extra Special Line 33
Figure 1.12: Tesco health products 33
Figure 1.13: Private label organic brands 34
Figure 2.14: 2006 product releases from Danone in Russia 39
Figure 2.15: Zott’s Allgautaler 40
Figure 2.16: Danone’s Jogurt Waniliowy z Cukierkami Czekoladowymi (Vanilla Yogurt with
Chocolate Candies) 40
Figure 2.17: Dairy products with functional properties launched in Spain 41
Figure 2.18: Central Lechera Asturiana Natur Fibra Leche 42
Figure 2.19: Vita Reduce la Tension Arterial Cultured Milk Drink 42
Figure 2.20: Asturiana Oriental Yogurt and Danone Vitalinea Floral Yogurt 43
Figure 2.21: Kraft Cracker Barrel 2% and Kraft Natural Cheese Crumbles 45
Figure 2.22: Activalp Râpé Doré 46
Figure 2.23: Stilton cheeses launched in North America 47
Figure 2.24: Using associations with traditional production techniques : President Société Creme
Cheese & Senoble La Faisselle 48
Figure 2.25: Functional milk 49
Figure 2.26: Dairy Gold Heart Cholesterol Reducing Spread and St Hubert Cholegram 51
Figure 2.27: Sabatino Tartuff Truffle Butter and Delallo Butter from Parma 51
Figure 2.28: Growth in market value of dairy categories over the next 5 years 52
Figure 2.29: Tilamook Oregon Strawbetter Smoothie and Whitneys Yo on the Go Strawberry
Smoothie 53
Figure 2.30: Yeo Valley Inner Balance Range 54
Figure 2.31: Tesco’s yogurts fortified with seeds and grains and Brown Cow’s Fruit and Whole
Grain yogurts 55
Figure 2.32: Low sugar products 56
Figure 2.33: Sales growth potential of consumption occasions over the next 5 years 59
Figure 2.34: Company shares of top 5 players in each region, %, 2004 60
Figure 2.35: New convenient products launched in North America by Kraft 62
Figure 2.36: Danone’s Essensis 65
Figure 3.37: Share of dairy product launches, by sector, 2004-2006 69
Figure 3.38: Brimi Probiotici Mozzarella 70
Figure 3.39: Yeo Valley Extra Mature Cheddar, Arla’s Rosenburg Mellow Blue and Waitrose
Medium Dutch Cheese 71
Figure 3.40: Innovative milk products launched 73
Figure 3.41: Lifeway Probugs Organic Whole Milk Kefir 74
Figure 3.42: Lifetime Immune Advantage Cheese and Asda’s Heartfelt Cheese with Reducol 75
Figure 3.43: Table-ready cheeses 76
Figure 3.44: Pilgrims Choice Cheese Connoisseur Collection 77
Figure 3.45: Premium European varieties with an American identity 78
Figure 3.46: Cortenuova Yogurt all’Orzo Tostato 80
Figure 3.47: Innovative processing 82
Figure 3.48: Unilever’s Rama Idee! 84
Figure 3.49: Flavored butters 85
Figure 3.50: % share of dairy food and drinks launched in each region, 2004-2006 86
Figure 3.51: Unilever’s Ades 88
Figure 3.52: Regions that will provide the most sales growth potential for dairy manufacturers over
the next 5 years 89
Figure 3.53: Tianshan Snow Red Jujube Milk, Robust Iron Zinc Calcium Milk 91
Figure 3.54: Meiji Biyo Yogurt Utsukushii Ashita 91
Figure 3.55: Healthy indulgence yogurts released in Israel by Danone in 2006 92
Figure 3.56: Yili yogurt and Milkman Cheese Slices 94
Figure 3.57: Nesquik Petit Para Beber Bebida Lactea 95
Figure 3.58: Kaiku Plus With No Lactose Milk 96
Figure 3.59: Kidz Dream Smoothie 96
Figure 3.60: Yo Lanz Jogurt drink 97
Figure 3.61: Innovative products launched in each category, 2004-2006 98
Figure 3.62: Nippon Lever’s Funwari Rama Vanilla Lemon no Fumi and Meiji’s Margarine and
Marmalade 99
Figure 3.63: Yeo Valley and Valio Oy fat free yogurts 102
Figure 3.64: Products that claim to enhance the sensory experience 104
Figure 3.65: Private label dairy products 105
Figure 3.66: Importance of consumer groups for dairy manufacturers over the next 5 years 106
Figure 3.67: Healthy kids’ dairy products launched 107
Figure 3.68: Flavors and ingredients that will experience the most growth in usage in dairy food
and drinks over the next 5 years 109
Figure 4.69: Importance of health trends in dairy NPD over the next 5 years 113
Figure 4.70: Products down-playing functional benefits 114
Figure 4.71: WellBeing iQ2 115
Figure 4.72: Products showing the future of the natural trend in dairy 116
Figure 4.73: Taste-path Yogurt and PrimaLiv Drinkable Yogurt 118
Figure 4.74: Leading wellbeing products 119
Figure 4.75: Meiji Dairies’ Relaxing milk drink and Nippon Luna’s Black Sesame Yogurt with
GABA 120
Figure 4.76: Importance of premium trends in dairy NPD over the next 5 years 121
Figure 4.77: Hokkaido Melon Milk Drink, Ashgrove Tasmanian Farm Cheese, Waitrose Columbian
Coffee Milk 123
Figure 4.78: Carrefour’s Reflets de France 123
Figure 4.79: Dairygold Jalapeño flavored cheese in Ireland and Kavli Ost 124
Figure 4.80: Dairy products with Indian flavorings 125
Figure 4.81: Gourmet Romme (Cream) 126
Figure 4.82: Combining new and exotic flavors 127
Figure 4.83: Importance of convenience trends in dairy NPD over the next 5 years 128
Figure 4.84: Danone’s Veloute Fruix XL 129
Figure 4.85: Portable dairy products 130
Figure 4.86: Fresh Natural Soya Drink and Danone’s Dzbanek Rodzinny Jogurt 131
Figure 4.87: Kraft’s mini tubs of Philadelphia cheese 132
Figure 4.88: Single serve and smaller portions of dairy products 133
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List of Tables
Table 1.1: Number and percentage of overweight and obese adults by country, 2005-2010 (%
adult population) 18
Table 1.2: Value of the US and European organic dairy food market, by country, $m, 2005-2010
25
Table 2.3: Dairy food and drinks market value, Europe and the US, $m, 2005-2009 37
Table 2.4: Dairy market value, by category, Europe and the US, $m, 2005-09 44
Table 2.5: Dairy market volume, Europe and the US, liters m, 2005-2009 56
Table 2.6: Dairy market volume, by category, Europe and the US, liters m and kg m, 2005-2009
57
Table 2.7: Top 10 innovative dairy manufacturers 64
Table 3.8: Unusual yogurt flavorings in products launched in 2006 80
Table 3.9: % of types of innovation within innovative dairy products, 2003-2006 93
Table 3.10: Top 20 product tags on dairy products, % share of all products launched, 2004-2006
101
Table 3.11: Top 20 flavors in dairy products, % share of products launched, 2004-2006 108