Terminology Tempest in the Dairy Case David Sprinkle Research Director, Packaged Facts

PACKAGED FACTS ON OPPORTUNITIES IN FOOD INDUSTRY DISRUPTION

The recent European Union Court of Justice ruling against marketing of non-dairy soy/ soya products in dairy terms (such as soy “milk” or tofu “butter”) was the right call, narrowly speaking. From the consumer protection viewpoint, however, it’s not clear that much justice was served. Nor is the European dairy industry likely to benefit significantly, as is the case with parallel initiatives taking place in the U.S.

EU Ruling Against Soyfoods Marketed in Dairy Terms Since 2013, European Union law has specified that dairy terms such as milk, cheese, yogurt, and butter are restricted to animal products. With logic that fails to leap out, at least on this side of the Atlantic, EU regulators baked in exceptions for dairy analog products including almond milk and coconut milk, which are relatively new as packaged dairy alternative beverages. Ice “cream,” similarly, was allowed for non-dairy alternatives.

The EU regulators left soy “milk” out in the cold, even though soy milk has been marketed in Europe as well as the U.S. for a century. While marketers of soy-based dairy analogs were officially barred from using dairy terminology for their products, enforcement of this restriction has been lax, as in the parallel case in the U.S.

This led the main consumer protection organizational alliance in Germany (funded by the Federal Ministry With logic that fails to of Consumer Affairs, Nutrition, and Agriculture) to leap out, EU regulators file a case in German courts against Tofu Town—a baked in exceptions for German food manufacturer that (as the company name almond and coconut proactively gives away) markets soy-based foods. The milk, but not soy milk. matter was subsequently referred to the EU Court of Justice, which ruled against Tofu Town on the letter of the law. Establishing regulations without enforcing them is seldom optimal, so as a point of order, the court ruling makes sense.

Muddy Waters in the Dairy Case But little else adds up in this skirmish among dairy case competitors, especially if you focus on what should be the intent of the law. The essential purpose of food identity standards is to protect consumers from buying products that Adulterated milk aren’t what they claim to be (not to establish a products have a long and canon of federally sponsored foods). Adulterated dishonorable history, such products—diluted or made cheaply with inferior and that “purity” is close to the sometimes unsafe substitute ingredients—have a heart of dairy producers. long and dishonorable history in the milk industry, in urban as well as remote markets, such that the concept of dairy “purity” is rightfully close to the heart of dairy producers.

Moreover, the historical trajectory of soy milk in the West (setting aside the far older East Asian tradition) ties in to wartime food shortages and substitutions for meat, flour, and dairy. In the Western context, soy products gained extra visibility around World War I, and then spiked during World War II and the post-war recovery era. This historical context supports the mainstream industry perspective that dairy milk is the real thing, a gold standard against which products made from soy are second-best imitations and substitutions.

Dairy Alternative Beverages Take Off But time has paved over that history. It was in the late 1970s that soy milk really began to take off, particularly as a counter-culture health beverage in the natural food channel. Soy (though now dogged by GMO concerns), almond, coconut, and other plant milks and blends have subsequently gained significantly in popularity. In this process, plant milks became entrenched in mainstream supermarkets (as have hit products from the natural food channel generally)—first fairly innocuously in the shelf-stable center store, but then much more visibly, and competitively, in the refrigerated dairy case.

Next-generation refrigerated plant milks inevitably Next-generation refrigerated attracted the attention, if not necessarily the plant milks inevitably neighborly affection, of conventional dairy milk attracted the attention, if marketers, even though leading European-based not the neighborly affection, dairy titans such as Nestlé and Danone also of milk marketers. market dairy alternatives.

© 2017 MarketResearch.com. All rights reserved. 2 If anything, therefore, the current market context for plant milks in Western grocery stores is the opposite of what food identity standards are meant to protect against: consumers buying adulterated, knock-off products that are spuriously being passed off as the real thing.

A Clarification Without a Confusion?

The reasonable assumption is that buyers of dairy The current market alternative products know what they are buying. It’s context for plant milks difficult if not alarming to imagine a consumer so unwary is the opposite of what as to purchase Tofu Town Soyatoo! Tofubutter—further food identity standards labeled as “100% vegetal,” and boasting of being “the protect against. best soy on planet earth”—under the assumption that this product is dairy fare.

In the case of refrigerated plant milks and other dairy alternative products, factor in that plant milk buyers on the whole are paying more attention to nutrition, rather than less. And factor in that the standard dairy counterparts are usually very prominently, and more economically, available for sale just an eyeshot and arm’s length away. (An exception is when plant food products are formally slotted into a specialty section, such as natural/organic or vegan foods.) The merits of dairy products vs. their non-dairy analogs can and will be debated, but it’s hard to question whether consumers are making free choices, with ingredient information literally at their fingertips, in a land of plenty.

The Point of Non-Dairy Is Non-Dairy The whole point is that refrigerated plant milks are no longer specialty or peripheral. Among non-dairy milk alternative buyers in the U.S., only 5% are watching their diet for lactose intolerance, and only 11% are vegetarian/vegetarian leaning. In contrast, 82% of these non- dairy milk buyers also buy dairy milk or half-and-half.

Marketers of plant milks and other dairy alternatives are hardly concealing the nature of their products because the whole point is that Among non-dairy they are offering dairy alternatives. Hence, Tofu beverage buyers, only 5% Town rather than Cheez City. In the U.S. market, are watching their diet for similarly, a cashew milk product from Silk (now under lactose intolerance, and WhiteWave/Danone) does everything to visually and only 11% are vegetarian.

© 2017 MarketResearch.com. All rights reserved. 3 verbally assert that it’s cashew based short of hanging from a cashew tree. In terms of product labeling, the term “milk” is used only secondarily, and is easily omittable. Alpro, the top producer of soy milk in the European market, reports that it already complies with terminology regulation, such that the EU court ruling would have “no impact” on its soy product labeling (Financial Times, June 14, 2017). If top producers of plant beverages don’t consider the term “milk” central to their product positioning or consumer appeal, why should anybody else?

If anything, marketers of trendy plant milk products are waggishly (Califia Farms Better Half Coconut Cream and Almondmilk) or quantitatively (Ripple Foods Pea Milk) highlighting their differentiation from dairy.

On the whole, dairy alternatives aren’t flying under cover of dairy terminology to conceal their non-dairy identity. Instead, with their non-dairy identity a given, they are signaling to consumers which dairy products they aim to compete with. So it’s true that non-dairy products compete brazenly against dairy products, but that’s how the marketplace works. And it’s true that these products generally are substitutes for and imitations of dairy products, but that does not necessarily mean they are inferior. When they obviously are inferior, on the terms that matter to individual shoppers, consumers will purchase them once at most, which indeed is the fate of a disproportionate number of dairy alternative products. When dairy alternatives are inferior but less obviously so, the dairy industry can make its case directly to consumers through marketing.

The Case Against Plant Milks In its regulatory lobbying and legal efforts, the dairy industry is making the arguments that consumers are being misled, and that plant milks aren’t nutritionally equivalent to milk, such that they represent a regulatory and public health concern. The latter point has merit, given milk’s time-honored nutritional role in Western diets, especially for children, and that plant milks products (which are not uniform in their nutritional merits and demerits) can be nutritionally inferior to dairy on various scores. Despite almond’s superfood status, for example, standard almond milk has much less protein than does dairy milk, at one gram vs. eight. And milk (with chocolate milk as a niche exception) doesn’t have added sugars, while most plant milk products do.

And consumers are probably prone to give plants milks, which are highly processed beverage products, too much credit for “naturalness.” Because of the health halo of natural, organic, and mainstream-alternative products, plant milk consumers may also be overlooking

© 2017 MarketResearch.com. All rights reserved. 4 (Nutritional Panels notwithstanding) some Because of the health halo of hard facts about saturated fat, added sugar, alternative products based on and artificial ingredient content, especially “superfoods,” consumers may when plant milks ride the coattails of a trendy be overlooking some hard superfood ingredient such as coconut. facts on Nutritional Panels. More generally, but also more ephemerally, consumers may also be prone to excess optimism about how successfully products such as cheese analogs are at duplicating the qualities of the real thing. In that sense, non-dairy products can be riding on the coattails of dairy’s goodness—but only to a limited degree, because shoppers are after all choosing to buy or to try non-dairy for their own reasons. And because any unwarranted optimism will not survive product trial anyway, why aim A consumer market perspective a regulatory cannon at a doomed imitation that includes sustainability and feta? Factor in that irrational exuberance animal welfare concerns, as well about new products is not necessarily as dietary trends, does not tend something that food marketers want to to favor conventional dairy. deflate.

Threading a Needle in a Haystack of Inconvenient Facts With that said, the European Dairy Association’s assertion that “The unique and natural blend of micro-and macronutrients of milk and dairy products cannot be matched by any plant-based products,” in celebrating the European Union court ruling against Tofu Town, begs more questions than it answers. Set aside that the court ruling wasn’t a nutritional endorsement. And set aside that this claim is tautological, and holds equally true for brie, or for fudge brownie ice cream.

Is the dairy case primarily about nutrition? Do consumers (or government regulators) generally hold dairy product nutritional profiles as the gold standard? Do non-dairy consumers generally seek, much less take for granted, a nutritional equivalency to dairy? Nutritionally speaking, should non-dairy seek to replicate dairy?

Even with a narrowed focus on whether plant milks should match the “natural” nutrient blend of milk, the answer is “not necessarily.” The “natural” nutrient blend for milk would presumably be for regular milk, which has five grams of saturated fat in an 8-oz. glass (as does coconut milk, typically).

USDA MyPlate guidelines therefore specify that consumers should favor fat-free or low-fat dairy products, along with including “calcium-fortified soymilk (soy beverage)” in its Dairy Group. As the Chicago Tribune (July 3, 2017) has reported, this “soymilk (soy beverage)”

© 2017 MarketResearch.com. All rights reserved. 5 verbal hedge reflects terminology disagreement between the USDA, under which soy falls as key agricultural crop, and the FDA, which enforces food standards of identity. And we are talking both semantics and substance here. European Union regulation prohibits the use of “milk” for soy beverages (though not almond or coconut beverages), while USDA MyPlate guidelines include calcium-fortified soy milk in its “Dairy Group” but excludes dairy foods “that have little to no calcium, such as cream cheese, cream, and butter.” Rather than weaving through this regulatory maze, wouldn’t it be simpler to respond directly to evolving consumer concerns and preferences?

Beyond Nutrition: Environmental Sustainability, Animal Welfare, and Plant Protein Moreover, not sticking to nutritional grounds yields a truer consumer market context. A wider consumer market perspective that includes sustainability, environmental, and animal welfare concerns, along with dietary trends including vegetarian and vegan, does not tend to favor conventional dairy, especially in the case of full-fat and non-organic products. In the U.S. market, among adult consumers of dairy milk alternatives:

• 70% agree (either a little or a lot) that they are trying to eat healthier foods, compared with 54% of whole milk consumers

• 56% agree that nutritional value is most important in choosing foods, compared with 43% of whole milk consumers

• 49% agree that their diet is very healthy, compared with 34% of whole milk consumers

• 43% agree that they especially look out for organic or natural foods, compared with 29% of whole milk consumers

Users of Users of Users of Dairy Any Agree (Agree a Little, or Agree a Lot) Whole Milk Skim Milk Milk Alternatives

Try to eat healthier foods these days 54% 72% 70%

Prefer to eat foods without artificial additives 49 55 64

Like to try out new food products 56 56 63

Nutritional value is most important factor in foods 43 50 56

Eat the foods I like regardless of calories 66 55 56

Consider my diet to be very healthy 34 43 49

I especially look out for organic/natural groceries 29 34 43

Throwing Elbows in the Dairy Case Though by letter of the law the EU court decision was right on the money, it’s hard to shake the sense that dairy association lobbying for regulatory action is about the money—that is, about throwing regulatory obstacles in the way of a challenging marketplace competitor that is gaining ground. Among U.S. households, 89% Scale-wise, this is use dairy milk, 30% use dairy alternative beverages, Goliath slinging a stone and only 10% specifically use soy milk. Scale-wise, at a runtish David. if not in terms of market momentum, this is Goliath slinging a stone at a runtish David. In this broader context of consumer purchasing trends for dairy vs. plant milks, regulatory enforcement of non-dairy product terminology seems unlikely to have a significant effect on sales. The trend has left the station.

It bears keeping in mind that dairy products themselves brandish terms that should not be taken too literally. In the U.S. market, Italian cheese blends are unlikely to have crossed the Atlantic, nor Mexican cheese blends the border. In addition to dairy milk/creamers vs. plant milk/creamers, several other dairy and refrigerated case products compete directly against each other, including margarines (I Can’t Believe It’s Not Butter) vs. butter, orange juice fortified with calcium vs. dairy milk, and fruit-flavored drinks (Sunny Delight) vs. real

© 2017 MarketResearch.com. All rights reserved. 7 fruit juice. This also reminds us that the dairy-anchored refrigerated cases house various product segments that aren’t dairy-based at all, ranging from eggs (which are from the farm, at least) to refrigerated cookie doughs (which are not).

Looking Ahead: Meaningful Innovation, Credible Premiumization Meaningful innovation with premium dairy products, rather than border patrolling dairy alternatives, should be the dairy industry’s main focus. An increasingly multicultural America is less wedded to dairy in its foodways, and appealing ready-to-drink beverage options are proliferating in the dairy and refrigerated cases, and being marketed to consumers that the food industry has trained to continuously seek out novelty. In this context, will it make much difference to marketplace trends whether a plant Meaningful innovation with milk product package says almond milk or almond premium products, rather beverage or simply “almond”? That’s not only a than border patrolling of rhetorical question, but one the marketplace has dairy alternatives, should already answered with a “no.” Nor is dairy milk the be the main focus. only “big food” category whose market share is eroding due to broader consumer trends, the only agricultural market tossed by oversupply or low-price vs. premiumization pressures, or the only fresh food category facing shelf- space battles with players and products that were formerly center store.

If anything, the dairy industry retains trump cards undreamt of in the market share anti- erosion plans of other “big food” categories. Dairy products remain beloved by most American consumers, and dairy goodness and dairy purity are powerful concepts that soy food marketers can’t begin to match.

Most of us would place one or more dairy products on a short list of foods to take to a hypothetical desert island. Low-fat dairy milk packs a nutrient punch, and added sugars, which are commonplace in plant milks (though also in flavored yogurts), are already in the crosshairs of food industry regulators. Greek yogurt is easily among the most significant packaged food product trends of the decade and, along with local/artisanal dairy products, shows that back to the future can be viable when staying the course means continued decline. Probiotic fortification is one of the hottest nutritional trends of the moment, and grass- fed is one of the most interesting moving-of-the-goalposts in consumer mentalities about what’s natural, and what they will pay more for. Coconut iced coffees and lattes are bubbling up in the foodie scene—a minor note,

© 2017 MarketResearch.com. All rights reserved. 8 but one suggesting culinary space for growth in pairings of dairy and plant milks, and a fresh take on half-and-half, as do blended products such as butter with olive oil. Larger marketplace trends are what make dairy and refrigerated case growth go round, and growth-oriented marketers will focus on meaningful innovation that broadens out the parameters of food product identity.

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