Probiotic drinks are booming in Europe, where they account for 30 per cent of the functional foods market. Julian Mellentin and Michael Heasman, PH.D., chart the category's success and look to the future of dairy-based intestinal health products.
Imagine yourself in charge of a company that is completely new to the European dairy market. Your company and brand are unknown. You sell one product, in one flavour, in one size, in one packaging format. You do not offer private label, discounts or price promotions. Your product is completely unique in Europe and an entirely new concept to consumers. You keep advertising to a minimum and prefer to communicate to consumers face-to-face. And, by the way, the selling proposition is that your product is good for the intestines.
It sounds impossible, doesn't it? How about if you put this plan to your shareholders, coupled with a promise that this strategy would lead to the creation of an entirely new market that will be worth $350 million within five years? In all likelihood you'd soon be clearing your desk and spending more time with your family.
Yet this was precisely the strategy adopted by Japan's Yakult when, back in 1994, it made its entry into the European market with a 65ml 'daily dose' fermented skimmed milk drink, based on the probiotic lactic acid bacteria Lactobacillus casei Shirota. Most marketing people at the time were certain there was no market for intestinal health products and were confident Yakult would fail. Only Paris-based group Danone, the manufacturer of Dannon yoghurt, realised Yakult was on to a good thing. Between them, the two companies have transformed the functional foods landscape.
In the past five years, functional dairy has emerged as one of the most dynamic and innovative functional foods sectors in Europe, accounting for around 30 per cent of all functional products. Indeed, Danone views probiotic-fermented milk drinks as 'the fastest-growing area of fresh dairy in the world.'
Yakult, which first launched its products in Japan in 1955, sells more than 600,000 of its 'little bottles' a day in the Netherlands, Belgium, UK and Germany—making it a $102 million-plus brand in Europe—and it has just entered France. Of the inevitable clones that have emerged in its wake, dairy giant Danone's Actimel has been by far the most successful.
Making its European debut in Belgium in 1994, Actimel is available across Europe today. The product is said to have European sales of approximately $233 million, and although Actimel's sales are dwarfed by Yakult's worldwide total of more than 26 million bottles a day, it is the biggest brand in the category in Europe.
A Cautionary Tale
But the picture is not all rosy. Nestlé, for example, took its successful LC1 probiotic eating yoghurt and repackaged it into a daily dose drinking yoghurt in an 80ml bottle, branded LC1 Go!
Unfortunately for the world's biggest food producer, it proved to be an outright failure and was eventually withdrawn.
The demise of Go! reflects the challenges of communicating health messages to consumers. Nestlé invested heavily in marketing its LC1 functional brand just as if it were any other kind of food—spending millions of dollars on print and TV advertising. But it ignored the now ample evidence that functional products require a more complex and subtle marketing approach.
Less than 50 per cent of Yakult's sales result from traditional advertising activities, the balance stemming from its winning face-to-face policy. It provides interested consumers with educational materials about digestive health, such as its 'Guide to the Gut,' of which it has distributed 500,000 copies in the UK alone since 1995. A massive sampling program has seen Yakult distribute more than a million of its little bottles in five years.
Possibly one of the world's most successful functional ingredients is the probiotic Lactobacillus Goldin & Gorbach (LGG). LGG was discovered by two American scientists who licensed the global marketing rights to Valio, Finland's largest dairy company, in the absence of any strong American interest and assured by Scandinavia's reputation as world leaders in gut health innovation. Ten years later and LGG—now the most researched probiotic in the world—can be found in products in 28 countries with sales in excess of $150 million.
In Lund, the hub of Sweden's functional foods cluster, BioGaia Biologics has invested more than $20 million in R&D for its probiotic Lactobacillus reuteri, which can be found in dairy products in Switzerland, Spain and Japan. BioGaia's best-known customer, however, is America's Stonyfield Farm, which uses L. reuteri in all its products. Stonyfield Farm has become one of America's fastest-growing yoghurt brands, with profitable sales of $85 million. Indeed, Danone recently took a 40 per cent stake, giving Stonyfield access to Danone's vast distribution network.
Other gut-health product concepts are waiting in the wings. Danone is developing a traditional Russian drink, kefir—a fermented dairy drink long championed by the Russian medical profession—and has taken a 20 per cent stake in America's leading kefir producer, Lifeway.
Matters Of The Heart
Although gut health dominates Europe's functional dairy scene, it isn't the whole story. In the past two years, heart health has emerged as a selling proposition in functional dairy. Parmalat, Italy's biggest dairy group, pioneered the embryonic market for heart-healthy dairy drinks, launching its omega-3-enriched Plus Omega-3 at the end of 1998. Plus Omega-3 is a semi-skimmed ultra high temperature (UHT) milk containing 80mg of omega-3 in 1.7g of fat per 100ml. First launched in Italy, it can now be found in Spain, Portugal, Argentina, Venezuela and Brazil.
The omega-3 milk concept is now growing with France's Candia and Spain's Puleva among the first to follow Parmalat. Functional milks already account for some 60 per cent of Puleva's sales, and the company is betting the farm that the sector will continue to grow. The company forecasts increased sales of omega milk from $32 million to $54 million within three to five years.
Finally, another development to watch is the first plant-sterol-based milk in Europe, Benecol, launched in the UK in September.
Europe's functional dairy business illustrates some of the broader trends shaping all functional foods, not just dairy products. These include new marketing and communications strategies and the rapid diffusion of functional foods technology globally. Japan's Yakult, Finland's Valio, France's Danone, Sweden's BioGaia, Italy's Parmalat—to name just a few—are all engaged in transforming dairy markets globally.
And there is America. As well as its stakes in Stonyfield and Lifeway, Danone has introduced its Actimel brand into US test markets. Similarly, Yakult has begun its US rollout in California, not far from its Mexican manufacturing base. The success or failure of their efforts will be keenly watched by other hopefuls keen to break into, potentially, the most lucrative market of them all.
Michael Heasman, Ph.D., and Julian Mellentin are directors of The Centre for Food & Health Studies, a London-based food and health think tank. They are also co-authors of The Functional Foods Revolution, (www.functionalfoodsrevolution.com). The Centre also publishes New Nutrition Business, www.new-nutrition.com, tel, +44 208 758 9414, fax, +44 208 758 9404.
Stonyfield Farm: www.stonyfield.com