Soymilk and lessons for new ingredients

First published in New Nutrition Business April 2010 Newsletter

Whether you are planning to take a new type of ingredient to market or you are planning to create a new type of consumer product based on new health ingredients, the soy milk market provides one of the very best examples of commercialisation strategy and some of the best pointers for the direction your own strategy should take. It’s a perfect case study of how a new type of ingredient with new health benefits and little familiarity among consumers can create a new category.

 
Soymilk first debuted in the west in the 1970s. The pioneer brands were Silk, in the US, and Alpro, in Europe. Today these are the market-leading brands – and both belong to Dean Foods, America’s biggest dairy company.

Although the idea of soy milk has long been familiar in Asia, it is still a recent arrival in the west, appearing for the first time, in health food stores, in the 1970s. The company which today controls almost the entire soy milk market in the US (and whose sister brand, Alpro, controls the European market) was founded in 1977 in Colorado by an entrepreneur called Steve Demos. Called White Wave, it made tofu, soy milk and other soy products serving the needs of the technology consumers people who drank soy milk because they were lactose intolerant or vegetarian. By 1996 White Wave had sales of just $6 million (4.5 million).

The approval of a cholesterol-lowering health claim for soy by the FDA in 1999 and in some European countries in the following years is often credited as being responsible for the massive rise in sales of soy milk over the past decade.

But it isn’t that simple. It is, in fact, unlikely that soy milk could have become the $800 million (600 million) business it is today in the west without innovation in:
a) Packaging
b) Merchandising and distribution

Demos pioneered the idea of selling the Silk soy milk brand in the dairy chiller cabinet alongside regular milk, packaged in regular milk cartons. “Up until then, the competition had positioned soy milk as a shelf-stable, nutritional beverages that you never saw as fresh food,”” Demos told New Nutrition Business back in 2002. “But the consumer perception of the value of soy milk increased when they began to see it as a fresh product.”

Partnering with a dairy processor, Dean Foods, Silk was packaged in dairy plants and distributed and stocked nationally in the dairy cabinet, where its presence served to elevate soy milk from a special food only for people with problems found in regular supermarkets only on a special shelf in a remote aisle and normalised soy milk in consumers minds. From that point, to choose soy milk, no change in the consumer’s shopping habits or journey around the supermarket was required.

It was this innovation, copied in Europe by the Alpro brand (like Silk, first launched in the late 1970s) and supported by the later addition of the cholesterol-lowering claim, and also coupled with the increasing trend for consumers to self-diagnose themselves as sensitive to lactose, which propelled the past decades massive growth in soy milk sales. Other important factors enabling growth included improvements in taste and steadily reducing retail prices.

In summary, health in the soy market as in most markets was just one of a number of factors enabling the creation of this entirely new category.

Today, following the acquisition in 2009 of Alpro by Dean Foods, America”s biggest dairy company, which also owns the Silk brand, the entire western soy market is dominated by one business (ironically, a dairy company).

Silk has striven to build more mainstream consumer appeal in recent years and Alpro has now relaunched its brand across Europe as part of a multimillion-Euro bid to widen its appeal to mainstream consumers.

It is clear that Dean would like its Alpro and Silk brand to take soy milk more towards the mass market. But is that possible, or even wise?

HEALTH SEGMENTATION

Alpro says that there are three main groups of consumers buying soy products. It’s a segmentation which applies in the US just as much as in Europe:

  • Vegans and the lactose intolerant, who are, says Alpro, “very important to us”. Those are need-based people.
  • People who have cholesterol issues and who choose soy to help with cholesterol management.
  • The emerging group is those people who are looking to lead a healthier lifestyle. Because it’s a plant-based product rather than an animal-based product, these people see soy as contributing to a healthier lifestyle. Describing them as health seekers, Alpro says they tend to be older, female, affluent consumers. They are motivated by an important new driver to purchase – choice, rather than need.

These groups and their willingness to pay premium prices pay a key role in the creation of new markets:

1. Technology consumers where new health ideas start: The first two groups described by Alpro are the technology consumers – people who have a medicalised need for a product. They are willing to pay premium prices for something that delivers them the specific benefit they need and, once they have found a product that works for them, they are loyal customers. The technology consumer area is a niche, accounting for no more than 5%-7% of the consumer market. The medically lactose intolerant, for example, account for around 5% of the total population in the US and in Europe (although higher in some individual countries and ethnic groups).

The cholesterol-lowering message may have helped propel growth in recent years, but cholesterol-lowering too, is niche, not mass-market, appealing almost exclusively to people over the age of 50 or even 60  the time of life when people become more aware of health risks. This reality has been confirmed by cholesterol-lowering food makers to NNB on many occasions in the past.

As soy’s benefits appeal primarily to these groups, it’s no surprise that soy milk remains a niche concept. The sales values for soy milk markets may look impressive, but the fact is that in the US sales of soy milk are only 2% those of cows’ milk and in the UK 2.2% of cow milk sales.

2. Loyal technology consumers enable soy to ride out the recession: The benefit of having a strong appeal to the loyal technology consumers has been shown in the recession. While some lifestyle brands (especially in the smoothie sector) saw sales fall by up to 30% over two years, science-based cholesterol-lowering niche brands such as Benecol and Danacol saw sales grow by as much as 30% in the same period. And soy milk, despite its super-premium pricing actually rode out the recession in good shape in Europe with sales flat in the UK, for example, but no significant decline.

3. Lifestyle consumers, where good ideas go next: The third consumer segment for soy identified above is the more lifestyle-oriented health seekers. While they have no specific medicalised need, they aim to have a lifestyle of health and wellness. This group has a strong skew towards older, more affluent consumers. They often have high disposable income. It’s a worthwhile market to develop.

But the hard health benefits matter less to this group and hence in Europe, Alpro has taken the step of removing functional messages from the front of the pack and placing them on the back. Previously cartons of Alpro soy milk boasted up-front that the product reduced cholesterol, but now this is seen only on the reverse. “We’ve tried to make the milks more mainstream and lifestyle-driven rather than specific health claims-driven,” says Alpros UK commercial director John Allaway.

4. The mass-market where health concepts run into trouble: If in Europe soy milk has weathered the recession because if its strong technology consumer focus, in the US it’s a slightly different story. There Silk has expanded its sales beyond the loyal technology consumers and the lifestyle consumers and has even got a toehold on the more price-sensitive mass market. And hence it isn’t surprising that in 2009 Silk’s sales fell by 7%, its first-ever sales decline resulting from price-sensitive mass-market consumers, who are without the strong need-state motivation of the technology consumers, turning away. The brand’s market share plunged too, from 67% where it had stuck for the past five years to 60%.

A sign that soy has become more mass oriented in the US was the rapid growth of private label brands, whose sales jumped 50% to a total of $102 million (76 million) and a market share of 18%. It is one of the key lessons of the last 10 years that technology consumers have high loyalty to brands and are reluctant to entrust the care of their health to supermarket own-label. The mass market consumer and even the lifestyle consumers, however, have no such qualms.

It might be that Silk has reached a natural ceiling as health brands often do, beyond which growing sales will only be possible by competing in the mass market more on price. But why do that? Why appeal to consumers whose loyalty is so influenced by low price when you can earn superior profit margins from the loyal technology consumers? It may be anathema to some corporate managements, obsessed as they are with creating volume, but a strategy of sticking with the most health-conscious niche of the market might be the smartest and most profitable thing to do.

Soy has some characteristics that will mean it may never become in any sense mainstream or mass:

  • It’s a substitute product the reason for substituting it for cows milk is primarily health benefits and hence only the most motivated consumers in the niches described above will respond.
  • Taste. No matter what soy companies say, the taste of soy products is still problematic and the mass market will never trade away taste. Cows’ milk is the benchmark for acceptable taste in the mass market.
  • Premium pricing driven by raw material costs will also keep soy milk in the left side of the lifestyle chart and preventing it becoming mainstream.

5. Premium pricing: Silk sells in the US at a hefty 75% premium to cows’ milk and Alpro in Europe at a 65% premium to cows’ milk. For price-sensitive mass-market consumers, at such a premium it can never be an attractive substitute. Indeed, as point 4 explains above, soy’s success in Europe. despite recession. is precisely because soy has not been in the price-sensitive mass-market but in areas of the market where consumers need for the benefit means they are willing to pay a premium.

UNDERSTAND THE BENEFIT
One final and very important element in how and whether an ingredient or technology can transition to the mass-market is the question of whether the benefits offered are understood by and relevant to the consumer.

The two leading benefits of soy lactose-free, cholesterol-lowering are, as already stated, of most interest only to a niche of consumers. Soy may be fat-free but that’s not as much of a point of difference as it might have been 10 or 15 years ago.

If you want your ingredient to progress from the niche to the mass, this can only happen if the benefits are understood and accepted by mass-market consumers or you must invest very heavily over the long-term in building that understanding. And by long-term we mean 20 years, not two or three. In the ingredients business, as one CEO told NNB, ten years is as soon as you can get to break-even and you have to have a strong stomach if you want to succeed.

CONCLUSION: LOW VOLUME EXPECTATIONS, SLOW GROWTH AND MULTI-FACETED INNOVATION ARE THE CORE OF GOOD STRATEGY

The case of soy shows how new technologies – and ingredients and brands based on them –- develop in markets. They must appeal to the lifestyle and technology consumers in order to get started; they may then grow slowly, often remaining niche for a long time perhaps even for decades and rarely (if ever) becoming mass market.

Therefore, your strategy should take this into account and your expectations of sales growth should be adjusted accordingly. Makers of ingredients such as omega-3, for example, would have been better served had they tried to follow this evolutionary curve and not tried to push straight into mass, as they have done so unsuccessfully for almost a decade. The same evolution is true for almost any ingredient or technology it will be low volume for a long time.

Soy also shows that creating new markets for new ingredients is critically dependent on innovating in as many ways as possible, in:

  • Packaging
  • Supply chain
  • Merchandising
  • Brands and marketing
  • In addition to innovation in ingredients and benefits.

Had soy producers not innovated across all of these elements, the market would today be even smaller than it is, no-matter how much effort the soy ingredient companies put in to promoting their ingredients. We wish you success with your own innovation plans!

About New Nutrition Business

ImageNew Nutrition Business is a London-based research, publishing and consulting company which specialises in researching, analysing and forecasting developments in the business of food, nutrition and health around the world.

The strategies and success factors it  has identified in the 1990s have become the benchmarks for strategy development and brand positioning in the worldwide nutrition business. It works with companies all around the world, from the United States to Australia and from Sweden to South Africa.

New Nutrition Business is headed by executive director Julian Mellentin, one of the world’s very few global specialists in the business of food, nutrition and health.

He is the editor-in-chief of New Nutrition Business and Kids Nutrition Report, the only industry journal in the world on the rapidly developing kids nutritional marketplace.

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Julian is co-author of both The Functional Foods Revolution: Healthy people, healthy profits?, the first-ever book on the business of functional foods, now translated into Japanese, and Commercialising Innovation: The Food & Health Marketing Handbook.
See www.new-nutrition.com