Food industry trends: alternatives to dairy

Plant-based or lab-based alternatives to cow’s milk are proliferating on supermarket shelves. So what is driving demand for these new products and how is the dairy industry fighting back?

Words / James Ashton

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Toni Petersson has proved himself to be very successful at grabbing attention. The chief executive of milk alternative Oatly, whose early pop star ambitions went unfulfilled, once lugged his synthesiser into a wheat field to film a commercial literally singing the brand’s praises.

When shares in Oatly began trading on Nasdaq in May 2021, pictures of a Japanese woman sitting in a green armchair and clapping loudly were beamed onto the stock exchange’s Times Square video wall. Thanks to Petersson’s mother, one of his biggest cheerleaders, he rarely consumed dairy at home when growing up in Sweden. And thanks to the impact of Oatly, which has been powered by some notably offbeat marketing efforts, many more will follow his lead during adulthood.

Growing concerns about personal diets and the earth’s welfare have changed eating patterns forever. Meat-free and alcohol-free have become mainstream choices, not fringe interests. But it is dairy-free where the battle among numerous rival producers has arguably been fiercest. “What’s hard to believe is that this is still the beginning of the curve,” Petersson said in an interview last year.

He has a point. The global market for plant-based milk is worth $17 billion a year according to research group Euromonitor, but there is much more to go for given the annual dairy market is still worth $650 billion. In the UK, the Vegan Society predicts annual sales growth for alternatives of almost 14% running up to 2025. What began with demand for soya milk a generation ago in response to lactose intolerance has proliferated into something far broader.

A structural shift, not a dietary fad

Not only have the reasons for consuming less dairy milk increased, so too have the choices. Shoppers might put oat, coconut or rice milks on their breakfast table or in their latte order. Sensing a structural shift rather than just another food fad, investors are pouring money into products for which consumers will happily pay more than for a typical pint of cow juice.

At the start of 2020, Califia Farms, a maker of oat and almond milks and ready-to-drink coffee, raised $225 million in a funding round involving the Qatar Investment Authority (QIA), Singaporean wealth fund Temasek and Claridge, an investment vehicle for Bronfman family whose fortune stems – perhaps ironically – from the old Seagram liquor empire. The industry is “ripe for continued disruption”, according to Califia’s founder Greg Steltenpohl.

Another notable US venture, Perfect Day, was valued at $1.5 billion in September 2021 when it raised funds from Temasek and the Canada Pension Plan Investment Board. Pushing the boundaries of modern tastebuds, the firm uses fermentation technology to produce dairy proteins that are animal-free.

It is not just start-ups getting in on the act.

In 2016, French dairy giant Danone paid $10 billion for WhiteWave, the owner of Alpro, one of the dairy-free pioneers. More recently, Nestlé has introduced Wunda, a milk alternative made from yellow peas. “We used to cater to some very specialised vegetarian or vegan consumer groups,” said Mark Schneider, the group’s chief executive. “Now we’re really catering these products for the mainstream.”

Then there is Innocent, the juice brand now owned by Coca-Cola, which in 2018 launched its own almond, hazelnut and oat milks. More broadly, food giant Unilever – the owner of Knorr stock cubes and Hellmann’s mayonnaise – is targeting annual vegan food sales of €1 billion by 2027, helped by brands such as soy-based Swedish Glace ice cream.

In the face of such activity, the challengers are still prospering. In August 2021, Oatly announced quarterly sales up 53% at $146 million and another wave of expansion. But its shares have dropped as doubters fear profitability is a long way off. And the firm will ultimately suffer from rising competition that may blow the froth from valuations across the burgeoning sector.

The dairy lobby fights back

Nor has the dairy industry been quiet, striking back in various ways, particularly in its North American and European strongholds. Nutritionally, it is hard to replicate the protein content of cow’s milk, although the alternatives are typically lower in fat and higher in fibre.

They also look to be kinder to the environment. Oatly uses 80% less land to produce the same volume of liquid without methane-belching cows – and far less water. But plant-based milks are not always trouble-free. Some coconut pickers are paid a pittance, the growing demand for soy has been linked to deforestation and almond farming can be harmful to bees.

Conscious they are up against consummate marketers, the dairy lobby has pursued these newcomers through legal channels. In 2017 the European Court of Justice stopped plant-based food makers from calling their goods “milk” or “yoghurt”, but more recent proposals to limit the use of packaging reminiscent of milk cartons or yoghurt pots and descriptors such as “creamy” did not succeed.

But if you can’t beat them, join them. Some of the biggest milk producers including Arla and Lactalis have brought out their own plant drinks too. In pursuit of better sustenance and a greener planet, consumers cannot be blamed if the choice available renders them dizzy. But at least there is no danger of them going thirsty.

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“Some of the biggest milk producers have brought out their own plant-based drinks”