Vol. 6, No. 2 January 2016 naturalproductsinsider.com US$20.75

The NEXT GENERATION of

Expo Hall April 28 & 29 Market Watch

Competition, Innovation Thrive in the Dairy and Dairy Alternative Markets

by Judie Bizzozero

Increased consumer comfort with dairy alternatives and scrutiny of dairy foods is fueling intense competition between the dairy and dairy alternative sectors, particularly beverages. Sales of plant-based dairy alternatives, especially almond , show no signs of slowing, and new alternative sources, such as cashews, are expected to drive the alternative segment even faster and higher over the next several years. According to the “Dairy and Dairy Alternative Beverage Trends in the U.S.” report from Packaged Facts, U.S. retail sales for dairy and dairy alternative beverages reached US$24 billion in 2014, representing a 4-percent increase from 2013. While sales increased for both segments, the past few years have seen the dairy alternative sector increasing its share of the overall market to now account for 20 percent of the industry. It’s not surprising that is leading sector growth. Need proof? From 2013 to 2014, dollar sales of almond milk increased 40 percent on unit while volume increased just slightly below that figure. sales likewise have grown by double digits. Looking ahead, expansion of the market for plant-based dairy alternative beverages will inevitably be driven by more than the growth of almond and coconut milk sales. The leading marketers have started to introduce additional alternatives such as cashew milk and . The dairy milk industry is fighting back, with spokespeople expressing the frustration that has been building up through years of having dairy From foods in general, and milk in particular, bashed by food and 2013 to 2014, nutrition “experts.” The National Dairy Council, the Milk Process dollar sales Education Program (MilkPEP), and the Dairy Management of almond milk Institute (DMI) are working together on a new “GetReal” INCREASED campaign, launched in January 2015, to counter what the % industry perceives as mistruths about dairy milk. 40 Looking ahead, the battles will include the dairy forces stressing the protein levels of their products, including Source: Packaged Facts those with added protein, and other healthy added ingredients. More flavored will be introduced, including limited-edition holiday and seasonal flavors. Look for more products, and for the

IN THIS ISSUE Dairy & Dairy-Alternative Foods & Beverages p.5

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Market Watch

market to expand in other, more unusual ways, such as the recent launch of donkey milk. (Pope Francis helped shine light on this product in 2014, when he said he drank donkey milk as a child in Argentina.) According to the report, the next few years will see the introduction of new dairy milk products testing the waters at the premium level, as with Coca Cola’s “super milk” fairlife®, as well as new products in market segments that seem promising in terms of growth, such as and products. It’s clear, however, that the shining star of milk’s potential comeback will be organic products. Some retailers report they have had to double the amount of space allotted to organic milks over the past few years, and news reports indicate some regions, even in dairy-rich areas in the Midwest, are reporting shortages. “The growing market for organic milk is a reflection of the overall increase in sales of organic products and the steady widening of the numbers of American consumers willing to pay a premium price for the guaranteed quality of an organic product,” said David Sprinkle, The next few years will see the market research publisher, introduction of new dairy milk Packaged Facts. Not to be overlooked is the products testing the waters at market for dairy-alternative foods the premium levels. that appeal to a wide range of consumers: those with intolerance, dairy-free consumers (vegans), those who don’t prefer dairy-laden products, and those looking to venture out and try new flavors. In her article, “The Next Generation of Dairy and Dairy-Alternative Foods and Beverages,” Alissa Marrapodi discusses the market as a whole, what hot flavors are trending and what applications are seeing the most action.

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The Next Generation of Dairy and Dairy-Alternative Foods and Beverages by Alissa Marrapodi INSIDER's Take  Dairy and dairy alternatives are  On-the-go dairy products, such  Consumers are looking for exciting popular deliverables for nutrients, and snacks, offer and adventurous flavors to mix including the hot ingredient protein. nutrition that fits into busy lifestyles. in with their dairy products.

From almond and cashew milk to coconut milk yogurt and meat-free products capitalizing on cheese’s shapeability, consumers have a lot of options to choose from in the “dairy” aisle. Dairy and dairy-alternative foods and beverages are truly expanding their reach when it comes to flavor, innovation and texture. For example, Innova Market Insights’ “Top 10 Trends List for 2016,” inspired by clean eating, named “The ‘Flexitarian’ Effect” as a major upcoming trend in which the rise of part-time vegetarians is having a major impact on new product activity. In fact, Innova said Western Europe has doubled its meat substitutes consumption since 2011. What’s fun about this trend is it includes “the technological development and promotion of better- tasting products more reminiscent of meat, as well as the use of alternative protein sources and more animal-friendly processes.” And this is where innovation within the dairy segment comes in; examples of this trend include grilled cheese marketed as dairy-based and meat substitute in the shape of a hot dog. Innovative indeed. But vegetarian-based food isn’t the only category seeking out new proteins and protein alternatives.

Nutrient-Rich The dairy and dairy-alternative category has taken a turn in that these products are increasingly popular vehicles for many nutrients—calcium, pro- and prebiotics, fiber, protein, etc. Of course, one of the hottest nutrients to fortify with is protein. “Today, consumers are looking for ways to add more protein to their diets,” said Lesley Nicholson, marketing manager, ADM, WILD Flavors & Specialty Ingredients. “For a variety of reasons, from convenience to sustainability and vegan lifestyles, dairy-alternative products are packing in more protein, most often in the form of vegetable or nut protein.” “Certainly one of the hottest applications is protein fortification,” said Ivan Gonzales, marketing director, dairy, Ingredion Inc. “In the case of protein-fortified products, we have identified the use of dairy and plant-based proteins pairings for consumers interested in having a mixed source of proteins. Among other

IN THIS ISSUE Market Watch p.2 Last Bite p.12

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emerging nutrient claims are the ones related to energy and sustained energy. Manufacturers are leveraging the use of protein and fibers in their formulations to convey these messages.” Jen Lowry, vice president of sales and marketing at Edlong Dairy Technologies, agreed: “Protein, specifically pea protein, is an emerging and increasingly important addition to many applications. Healthy consumers are becoming more educated on what types of protein they want to add to their diets and the pros and cons of each. For vegans, lactose-intolerant or dairy-allergic consumers, getting the right protein while satisfying their health needs can be a challenge.” Functional beverages are a popular medium for nutrients such as protein in both dairy and non-dairy forms. Edlong developed a non-dairy protein beverage with as much protein as an egg and almost half of the recommended daily fiber for teens and adults. Edlong’s R&D (research and development) department combined natural, kosher, pareve milk flavors with a natural, kosher, pareve vanilla flavor, at low usage levels, with pea protein and to mask the high amounts of bitter, plant-based protein. Vicky Fligel, business development manager, Glanbia Nutritionals, said dairy “For vegans, lactose-intolerant beverages such as smoothies and fortified or dairy-allergic consumers, flavored milk are attractive to consumers getting the right protein while looking for nutritional supplementation. “A highly functional delivery method for a variety satisfying their health needs of market segments, beverages offer an can be a challenge.” on-the-go, hydrating solution for most demographic groups,” she said. “Within the —Jen Lowry, vice president of sales and marketing —at Edlong Dairy Technologies category, ready-to-drink (RTD) beverages are the preferred application format to include a high content of nutrients including dairy, milk and proteins, or grains for their fiber, omega-3 alpha lipoic acid (ALA) and calcium claims.” Molly Spence, regional director, North America, Almond Board of California, said, “We’ve seen a lot of interest in almond milk as a dairy alternative and ingredient in dairy-free products, potentially to reduce calories because some unsweetened almond milk products have as few as 35 calories per 8-ounce serving. When it comes to nutrient pairings, almonds are a key player, especially in snack applications.” Indeed almonds and other inclusions such as seeds and berries are boosting the nutritional status of snacks. Spence said California almonds are reported as the favorite nut among food professionals because of their taste (70 percent), versatility (45 percent) and texture (43 percent), according to the Sterling-Rice Group’s 2011 “Volume Driver Attitudes, Awareness and Usage Survey.” Worldwide, 76 percent of consumers surveyed rate almonds as great-tasting, and their versatile flavor profile translates well to a variety of products—from dessert indulgences, like creamy almond milk , to umami creations like almond milk cheese, according to the 2013 report “Global Perceptions ” from the Sterling-Rice Group, 2013.

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Fligel said nutritionally enhanced snacks, such as yogurt and other dairy snacks, can easily fit into different lifestyles and allow the incorporation of several nutrients. “Yogurt continues to expand its offerings with the introduction of new and novel flavors and styles. With more than 800 new SKUs introduced in the last 12 months, new entrants are focusing on ways to set themselves apart. Innovation is sure to continue with more ‘regional’ or ‘style’ introductions, new inclusions and mix-ins and savory offerings,” said Jessica Henry, marketing manager, Idaho Milk Products. “One of the fastest growing dairy-nutrient segments over the last “One of the fastest growing five years is Greek yogurt,” Judson McLester, executive chef/ dairy-nutrient segments ingredient sales manager, McIlhenny Co./Tabasco Brand, pointed out. “The ability to provide 40-percent more protein and half of the over the last five years is carbohydrates, sodium and sugars on average is just the beginning. Greek yogurt Now, consumers are seeing Greek yogurt paired with nutrient-rich nuts, seeds and vegetables to complete the balanced meal package. For example, Chobani Flip Pumpkin Harvest with Pumpkin Seeds and Pecans and Yoplait Plenti Spiced Apple with Whole Grain Oats, Flax and Pumpkin Seeds.” As you can see, yogurt, as well as other dairy products such as cheese, is becoming a vehicle for guilt-free indulgences and flavor creativity. Henry said, “Whole- products, particularly in yogurt, continue to grow rapidly, especially among Millennials and Gen X shoppers,” she said. “Mintel has identified super-indulgent full-fat yogurt brands as one of the four areas of innovation in yogurt to watch along with high-density probiotics, more targeted nutritional profiles, and alternative textures and styles.” Owen agreed: “As Greek yogurt crests, manufacturers seek to The ability to provide regain the momentum that marked the last five years. To capture the 40 percent underdeveloped evening day part, popular desserts are being staged in full-fat and positioned as healthier meal-ending options to more protein cakes, pies and the likes. The challenge has been recreating the and half of the authenticity in yogurt so high in protein [that] it results in high carbohydrates, sodium astringency and somewhat sour products. However, Sensient and sugars on average developed an all-natural technology that mutes protein’s impact and allows a more pudding-like delivery of the concept.” is just the beginning.” McLester said, “It wasn’t long ago that yogurt was thought to — Judson McLester, executive taste like sour cream, and produced in the United States chef/ingredient sales manager, lacked creativity and taste. Yogurt is now fast becoming a staple in McIlhenny Co./Tabasco Brand almost every household because of the changes to its basic construction: create a yogurt with a smooth, creamy texture and little sour aftertaste. Once that platform was established, it allowed for creative flavor building with unexpected results such as savory, smoked or even spicy. As for cheese, it simply lacked the ingredient complexity that Europe has long enjoyed. Numerous current

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manufacturers are blending with herbs, vegetables, rubs, fruits and other nutrient-dense and flavorful components to generate an entirely different eating experience.” Spence said, “When it comes to flavor, almonds lend a natural sweetness and a balanced richness, making them a good match for other tastes, ranging from savory to sweet. Chocolate, in particular, augments the natural flavor profile of almonds so well that consumers surveyed [from the Sterling-Rice Group] believe that almonds are the nut that best fits with both milk and dark chocolate.” But while some foods and beverages remain unambiguously sweet or spicy, others are blurring the lines between dessert and savory with the introduction of beer-, spicy-, ethnic- and season-inspired flavors, among others.

Sweet, Meet Savory “The fusion of segments—as well as eating occasions, flavors and even cultures—has been fun to watch,” said Alan Owen, director of marketing, sweet flavors, Sensient Flavors. “Sweet applications such as ice cream, candy and bakery have been most impacted by this Millennial-driven movement. In frozen dairy, particularly gelato, spices such as ginger, While some foods and rosemary and basil are not only present, but included in the product name. There’s a bit beverages remain more reluctance to incorporate hot chiles in unambiguously sweet or spicy, these applications, but I think it will come in time. We have a really interesting creation others are blurring the lines that delivers heat into a mango-coconut ice cream or sherbet that would certainly be between dessert and savory. incremental to the assortment.” Suvash Kafley, senior director of process & product innovation, Global Milk Specialties, said some examples her company has seen are “salted caramel, along with hot and spicy ice cream flavors such as sweet peachy heatwave and rolling berry blastoff, etc.” FIigel also said ice cream is experiencing a unique mix of savory and sweet flavors such as “strawberry balsamic with black pepper or pistachio honey ricotta. References to provenance in flavors are very common now, i.e., Tahitian vanilla and Maine wild blueberry crisp. As with most categories, herbs are cropping up in unexpected places, and now you see things like ‘rosemary brown ice cream’ or ‘honey lavender.’ In yogurt, we expect to see a lot more savory flavor combinations. Trending herb flavors are popping up in yogurts, like cilantro, zaa’tar, cardamom, cinnamon and dill, and of course sea salt is popular. These flavors complement the natural tang in yogurt and can be uniquely refreshing. You can also expect to see more pepper flavors such as habanero or cayenne, which have also been growing in the beverage arena. For yogurt, this may be a strong segue into other occasions than breakfast or snacks. For

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cheese, alcohol or dessert infusions such as ‘chocolate stout Cheddar’ or ‘Syrah-soaked parmesan’ are also increasingly popular.” McLester made a good point: “Properly built spicy flavors have no boundaries when considering food categories and without question, flavorful spicy is the king. Formulators know that it’s not enough anymore to just make the tongue burn, thus the best products merge sweet, acid and varying levels of heat to provide a three-dimensional eating experience.”

The Nutrient Challenge Given the demand for nutrient-dense products, which clearly includes desserts, manufacturers are learning how to overcome the challenges that arise when working with particular nutrients, such as protein, and particular applications such as yogurt. “Even though dairy proteins are highly functional, there isn’t a single protein that works for all applications,” Kafley explained. “The challenges we mainly see are when formulators try to use the same protein across all applications segments (powders, bars, RTDs, etc.). Certain proteins are not heat stable until/unless they are modified to be heat stable. If this is not done, they can clog the system and cause long downtime at the plants. When we work with customers, we understand what they’re trying to do and how they’re trying to do it in order to come up with a protein solution that best fits their final product application.” Ann Tigges, technical service, dairy, Cargill Texturizing Solutions, said: “In dairy, one of the formulation challenges we see is the move toward more ‘label-friendly’ ingredients. Carrageenan is a prime example. It has been used for many years as its chemistry is tailor- made for thickening, gelling and adding mouthfeel and texture to dairy products; however, some of our customers are looking for alternatives to carrageenan. We are working hard with those customers to find other types of hydrocolloids to replace carrageenan’s functionality. We’ve found systems of gums and starches offer the most flexibility and provide their own thickening and gelling. And, we are constantly sourcing new ingredients to offer our customers even more solutions.” Gonzales explained that “each of the dairy applications has its own challenges.” The key is to focus heavily on what affects texture, sweetness and nutrition development efforts. Whether the challenge is to create a unique and signature texture for a yogurt or pudding; reduce the sugar or fat content in a dairy beverage or yogurt; or to help make sure the eating perception and consumer acceptability of products do not get compromised; it is important to provide support and solutions to customers. Indeed, both dairy and dairy-alternative foods and beverages are boosting consumers’ eating experience with fresh, unique flavors, enhanced texture and nutrient-dense applications, and the future is full of opportunity.

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Flavored Milk

DSM’s third Global Insight Series report focused on sugar reduction in flavored milk, zooming in on consumer preferences and trends. According to its international consumer survey, flavored-milk consumption is soaring, and it’s not limited to children alone—adults are also embracing these dairy beverages. Nearly one-fourth of adults (24 percent) and 41 percent of their children drink flavored milk daily. The Adults are Embracing year-on-year market growth between 2010 and 2015 Dairy-Flavored Milk was 13 percent, demonstrating the increased They like chilled café latte-style drinks or consumption of flavored-milk products. post-workout dairy beverages What’s more is how adults are embracing dairy- flavored milk. They like chilled café latte-style drinks or post-workout dairy beverages, in which taste (55 percent) and bone health (41 percent) are the main attractions for flavored milk. In China, the functional benefits are more important, as 43 percent of participants see gastrointestinal (GI) health as the main driver. 41% The survey respondents also indicated they would Taste is the increase their consumption in the next three years, main attraction 29 percent of adults and 50 percent of their children 55% respectively. But six out of 10 consumers are concerned Bone health about the amount of sugar in dairy. Better taste is the main (34 percent) and more flavor varieties (28 percent) attraction are indicated most often as reasons to further increase consumption of sugar-reduced flavored milk beverages. DSM’s survey was conducted in the United States, China, Brazil, Spain and Germany.

Survey Locations

United States China Brazil Spain Germany

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The Last Bite by Courtney Johnson

Dairy and dairy-alternative foods are expanding, with options such as almond, coconut and cashew as ingredients, and these ingredients are becoming popular sources for many nutrients that include calcium, pro- and prebiotics, fiber, and one of the hottest nutrients—protein. “Today, consumers are looking for ways to add more protein to their diets,” said Lesley Nicholson, marketing manager, ADM, WILD Flavors & Specialty Ingredients. “For a variety of reasons, from convenience to sustainability to vegan lifestyles, dairy-alternative products are packing in more protein, most often in the form of vegetable or nut protein.” “Certainly one of the hottest applications is protein fortification,” said Ivan Gonzales, marketing director, dairy, Ingredion Inc. “In the case of protein-fortified products, we have identified the use of dairy and plant-based proteins pairings for consumers interested in having a mixed source of proteins. Among other emerging nutrient claims are the ones related to energy and sustained energy. Manufacturers are leveraging the use of protein and fibers in their formulations to convey these messages.” Protein isn’t the only thing trending. Almond milk is leading sector growth. Need proof? From 2013 to 2014, dollar sales of almond milk increased 40 percent on unit while volume increased just slightly below that figure. Coconut milk sales likewise have grown by double digits. Looking ahead, expansion of the market for plant-based dairy-alternative beverages will inevitably be driven by more than the growth of almond and coconut milk sales. Molly Spence, regional director, North America, Almond Board of California, said, “We’ve seen a lot of interest in almond milk as a dairy alternative and ingredient in dairy-free products, potentially to reduce calories because some unsweetened almond milk products have as few as 35 calories per 8-ounce serving. When it comes to nutrient pairings, almonds are a key player, especially in snack applications.” Another benefit of almonds, as well as other inclusions such as seeds and berries, is they boost the nutritional status of snacks. Spence said California almonds are reported as the favorite nut among food professionals because of their taste (70 percent), versatility (45 percent) and texture (43 percent), according to the Sterling-Rice Group’s 2011 “Volume Driver Attitudes, Awareness and Usage Survey.” Worldwide, 76 percent of consumers surveyed rated almonds as great-tasting, and their versatile flavor profile translates well to a variety of products—from dessert indulgences, such as creamy almond milk ice cream, to umami creations like almond milk cheese, according to the 2013 report “Global Perceptions” from the Sterling-Rice Group, 2013. For the future of dairy, challenges the dairy forces will face will be stressing the protein levels of their products, including those with added protein and other healthy added ingredients. In addition, more flavored milks will be introduced, including limited-edition holiday and seasonal flavors. Keep an eye out for organic milk products, and for the market to expand in other unique ways.

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Natural Products INSIDER EDITORIAL is the leading information source for marketers, Editor in Chief Sandy Almendarez ...... [email protected] manufacturers and formulators of dietary supplements, healthy foods and cosmeceuticals. Managing Editors Rachel Adams ...... [email protected] Since 1997, INSIDER has been serving the Judie Bizzozero ...... [email protected] needs of the global nutrition industry. INSIDER Alissa Marrapodi ...... [email protected] boasts the largest magazine and web audience Steve Myers ...... [email protected] in the industry delivering news, analysis and Content Marketing Manager features to executives involved in the expanding Karen Butler ...... [email protected] market of global nutrition. The Natural Legal and Regulatory Editor Products INSIDER brand includes a print Josh Long ...... [email protected] magazine, a website, e-newsletters, reports, SALES digital summits, whitepapers, digital issues and Vice President, Sales, Health & Nutrition image galleries. Danica Cullins ...... [email protected] Account Director Ioana Neacsu ...... [email protected] Senior Account Executives Anthony Arteca ...... [email protected] Karen Salas ...... [email protected] PRESIDENT John Siefert Todd Berger ...... [email protected] CHIEF FINANCIAL OFFICER Kelly Ridley Thomas Baker ...... [email protected] VICE PRESIDENT, Todd Willis ...... [email protected] HEALTH & NUTRITION Jon Benninger Sales Operations Specialist VICE PRESIDENT, CONTENT, Nick Casura ...... [email protected] HEALTH & NUTRITION Heather Granato MARKETING SERVICES HUMAN RESOURCES DIRECTOR Sabrina Wolf Marketing Manager Art Director, Health & Nutrition PUBLISHED BY INFORMA EXHIBITIONS LLC Katie Egley Andrew Rosseau 3300 N. Central Ave. Ste 300, Phoenix, AZ 85012 Audience Marketing Director Art Director Katherine Jackson Tel. 480-990-1101 • Fax 480-990-0819 Patti Valdez Audience Marketing Manager Website: naturalproductsinsider.com Media Operations Manager Amanda Saye Melissa Ewing Vice President, Marketing Services Program Manager Copyright © 2016 Informa Exhibitions LLC. All rights reserved. The publisher reserves the right to accept or reject any advertising or editorial material. Advertisers, and/or Danielle Dunlap Kristin LaBarbera their agents, assume the responsibility for all content of published advertisements and [email protected] assume responsibility for any claims against the publisher based on the advertisement. Editorial contributors assume responsibility for their published works and assume responsibility for any claims against the publisher based on the published work. Editorial EVENTS DEPARTMENT content may not necessarily reflect the views of the publisher. Materials contained on this site may not be reproduced, modified, distributed, republished or hosted (either Senior Vice President, Events Education Director directly or by linking) without our prior written permission. You may not alter or remove any trademark, copyright or other notice from copies of content. You may, however, Dana Hicks Shilo Lusson download material from the site (one machine readable copy and one print copy per page) for your personal, noncommercial use only. We reserve all rights in and title to all Event Director Education Coordinator material downloaded. All items submitted to NATURAL PRODUCTS INSIDER become Marisa Freed Alyssa Sanchez the sole property of Informa Exhibitions LLC.

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