Dairy products and alternatives saw a spike in 2020 retail sales growth due to consumers cooking and eating at home more frequently during the pandemic. But these products registered a more modest growth of 2% in 2021, according to Euromonitor International.

Consumer demand for sustainable and healthy offerings, as well as convenience and transparency, are driving trends in the dairy industry. Alongside these consumer trends, inflationary pressures are through the roof and significant supply chain disruptions persist across the globe, which will also have a major impact on the future.

Functionality shapes innovation in dairy aisle

On the back of Covid-19, interest in “food as medicine” increased globally, with consumers looking at preventive health closer and choosing foods that might provide them with additional benefits. Immune support is one of the areas that accelerated quickly and ingredients promoting the immune system, such as vitamin C, vitamin D and zinc, have benefitted from this trend. Yogurt and sour milk products saw increased demand due to a wide range of offerings sometimes associated with potential immune support—not only through vitamin and mineral fortification, but also through their probiotics content. Global retail sales of yogurt grew by 5% in 2021 to reach $93 billion in 2021, according to Euromonitor. Also linked to immunity is gut health, which is gaining ground in the dairy space. Promising research on the gut-brain axis suggests a “happy gut” leads to a happy mood, and many manufacturers have capitalized on this growing interest to launch new innovations with this positioning.

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In the United States, Danone launched the new Activia+ Multi-Benefit yogurt in March 2022. It contains billions of live and active probiotics to help support gut health, as well as vitamin C, vitamin D and zinc to support the immune system. Another interesting example is a U.K. kefir product called Biotiful. In February 2022, the brand unveiled a major new product development plan to further push kefir into the mainstream, including coconut kefir and a plant-based oat kefir yogurt, all featuring a prominent, gut-friendly claim.

The clean label revolution continues to infiltrate the dairy aisle

Consumers increasingly scrutinize ingredients and labels. They are seeking transparency, less-processed food and inherently more natural products.

Dairy manufacturers are working on product recipes that shorten ingredient lists, like removing or replacing artificial ingredients with more natural ones. Analyzing the claim landscape for dairy products highlights different trends across regions.

Euromonitor data indicates “no GMO” is the most prominent and fastest-growing claim in North America, while “no artificial preservatives” and “natural” are the most prominent and among the fastest-growing in Australasia and Western Europe, respectively. Although dairy is non-GMO, a way for GMOs to enter the dairy supply is through animal feed, and manufacturers are highlighting dairy products as non-GMO, given the claim resonates with consumers.

Ingredient companies are also pushing for clean label solutions to tap into consumer demand. As an example, DSM launched a new culture for stirred yogurt in 2021, which claims to be indulgent, creamy yogurt with no extra ingredients.

A more localized future for dairy

Governments and consumers alike are pushing for more local production of dairy. On one hand, supply chain shocks in the last couple of years have been a stark reminder of the food security challenges for many countries that are heavily reliant on imports. As such, recent policies have turned to investing, promoting and fostering domestic food production, including dairy products.

On the other hand, consumers are choosing locally sourced dairy for two fundamental reasons: sustainability and a healthy halo. First, sustainable products may have a lower environmental impact because of fewer farm-to-fork miles—and they also support the local community and economy. Health is another vital consideration, as locally sourced dairy is associated with freshness and healthiness, as it’s often thought fewer nutrients are lost from the farm to the table.

Arla’s partnership with Tolaram Group in early 2022 is one initiative in this space. The goal of this joint venture is to build a commercial dairy farm in Nigeria to boost local milk production in the country. The farm will be built in Kaduna State, which is considered the “dairy state” in Nigeria.

María Mascaraque is a global industry manager at Euromonitor International with a focus on food and nutrition. Based in London, she has nearly a decade of experience in the industry. Mascaraque drives the content and quality of the firm’s global food industry research, provides global expertise and forward-thinking insights, and identifies the latest product developments and key market trends. With a doctorate in nutrition from Complutense University, Spain, she has a special interest in the dairy industry, plant-based eating, and health and wellness trends.