(Bloomberg) -- Aiming to stem a yearslong slump in yogurt sales, Danone is looking beyond the cow.
The world’s biggest yogurt maker is considering adding milk-free ranges to some of its flagship brands, such as Activia and Actimel. It’s aiming to capitalize on the growth in veganism from niche diet to mainstream lifestyle choice, with even a brand as meaty as McDonald’s testing soy burgers.
Danone needs new sources of growth because sales of dairy products are stagnating and a revamp of Activia, including new green packaging, has failed to produce a robust turnaround. The $10 billion purchase last year of WhiteWave Foods moved the French company into alternatives, giving it brands such as Silk in the U.S. and Alpro in Europe. Now it’s looking at expanding those offerings.
“We didn’t add plant-based to only have an offering on one side,” said Francisco Camacho, executive vice president at Danone’s dairy and plant-based business, in an interview.
While Danone controls about 17 percent of the $83 billion global yogurt market, according to Euromonitor, sales are expected to flatline in coming years. Another research firm, Future Market Insights, expects worldwide demand for milk-free yogurt to increase about 5 percent annually, to $7.4 billion by 2027. Nondairy yogurt is rocketing forward as much as 50 percent a year in the U.S., Camacho said.
Alpro, Danone’s second-largest brand in Europe behind Activia, is the market leader in Europe’s dairy-alternatives market with more than 40 percent market share. It offers vegan yogurt using soy, almond and coconut, as well as rice, cashew and oat. Alpro has recorded nearly double-digit percentage sales growth over the past few quarters. In October, the brand introduced vegan ice cream in the U.K.
The move to add milk alternatives is driven by the small but fast-growing number of people identifying as vegan, who consume nothing derived from animals. In the U.K., more than half a million followed such a diet as of 2016, a study by the nonprofit Vegan Society showed. That was 3 1/2 times as many as in 2006. Hundreds of animal-free products well beyond yogurt have rushed to meet the rising demand, from jerky to pizza to cake mixes.
“The intent is that any offering in which consumers would like to have a choice between dairy and plant-based alternatives, we should make it available because the consumer is looking for it,” a Danone spokesman said. The company’s dairy and plant-based food business generates more than half of sales, with a water division that includes Evian and the specialized-nutrition unit containing the Aptamil baby formula brand making up the rest.
Danone wants to avoid repeating the mistake it made with Greek yogurt, a variant with a thicker consistency and more protein. The leading industry players overslept its rise, which propelled Chobani LLC from a newcomer to second-largest yogurt maker in the U.S. within a decade.
The nondairy segment could face the same challenges that the traditional yogurt market confronted with smaller rivals that undercut prices. Upstarts have been popping up to offer vegan versions.
Israel’s Yofix Probiotics Ltd., for example, makes soy- and dairy-free probiotic yogurt from a blend of cereals, lentils, grains and seeds. Emeryville, California-based Ripple Foods last year started selling a dairy-free alternative to Greek yogurt with pea protein.
“Pricing on plant-based is high, which will pull in competition and lead to lower pricing,” said Duncan Fox, an analyst at Bloomberg Intelligence. “It’s just a case of when that happens, rather than if, and private-label will be licking their lips.”
Bigger competitors aren’t far behind. General Mills Inc., the maker of Yoplait, in 2016 invested in almond-milk-yogurt maker Kite Hill through its venture capital arm. It’s also making moves in dairy yogurt, introducing a lower-sugar Yoplait variant called YQ.
“We see more and more smaller brands entering the category and also bigger competitors,” the Danone spokesman said. “That will lead to a new growth curve, which will help make it more physically and mentally available, and it will only prosper further in the future.”
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