Flavoured milk continues to gain importance due to the growing health and wellness trend, with more consumers turning to flavoured milk for a flavourful alternative to sugary beverages, that also delivers essential nutrients like calcium and protein*.
Flavoured milk consists of two key segments – iced coffee and ‘rainbow’ milk, which comprises all other flavoured milks.
In the AACS 2023 State of Industry Report, total beverage sales reached $2.85 billion, an increase of 12.1 per cent from the prior year. Flavoured milk now makes up 19.2 per cent of total beverages.
Daryl Barry, Senior Category Manager of Beverages at Bega Dairy and Drink, says one of the key drivers for the growth of the flavoured milk market is the rising demand for functional beverages.
“Consumers are increasingly seeking functional beverages that offer not only taste but also additional health benefits,” says Barry.
“Flavoured milk is perceived as a healthier alternative to carbonated soft drinks and other sugary beverages as it contains essential nutrients such as calcium, protein, vitamins and minerals.”
Australians are recognised as big consumers of drinking milk, with Australia’s per capita consumption ranking among the highest in the world, according to a report released by Rabobank last year**, while the International Dairy Federation has found the average Australian consumes a large volume of drinking milk, ranking only behind Ireland, Finland and New Zealand.
Barry says the flavoured milk category is critical to the success of a P&C retailer’s overall beverage offer, because it drives foot traffic into stores, with one in five shoppers purchasing flavoured milk, mainly between the hours of 5:00am – 9:00am.
“The milk beverage shopper is very valuable because they have a very high propensity to cross shop and buy on impulse, therefore it is extremely important that their favourite brand is always available,” says Barry.
“Almost half of iced coffee shoppers and 60 per cent of flavoured milk shoppers buy into another category more than any other beverage category, therefore it is critical that stock is fully merchandised and replenished during the 5:00am – 9:00am window.
“Forty-four per cent of shoppers are likely to walk away altogether without a purchase if their preferred brand is unavailable. This highlights a great opportunity for retailers to merchandise milk beverages both in the main and front of store fridge to capitalise on the impulse nature of this category.”
Prime position
Despite the relative short shelf-life of flavoured milk, Marcus Morais, Category Manager at Lactalis Australia says with good stock management, P&C retailers can easily boost their total sales by allowing adequate space for flavoured milk.
“The biggest opportunity we see for retailers when it comes to the positioning and space of flavoured milk, is that the category is often very under-indexed in terms of space on shelf compared to share of the total fridge sales,” says Morais.
“Flavoured milk represents around 26 per cent of value share, the second largest in the beverages category, not far behind energy drinks which has 30 per cent. Despite that, it is not uncommon to see energy drinks with twice as much space as flavoured milk.
“When it comes to the key segments, iced coffee is a much more habitual planned purchase, while rainbow is more impulsive – therefore it is important to ensure rainbow milks are always featured at a prominent, eye level position on shelves so it can be seen and purchased by shoppers.”
Ben Faulkhead, Category Manager at APCO, said most of the growth in the category is being driven from iced coffee, with stronger strength profiles being key to this and products like Dare Intense and Ice Break Extra Shot being strong performers for the APCO network.
“Sales have been growing in the area with double digit sales growth from iced coffee. Some of this has been driven by shelf price increases and whilst we have had some unit growth, we did see this slow in the back half of the year.
Faulkhead said APCO has expanded its offering in the space slightly from where it was 12 months ago, although they have traditionally always given a lot of space to iced coffee and flavoured milk based on their customer’s preferences.
“I think brand and promotions are important in the area. We certainly see a big switch between on and off promotional windows. We also see that there is a strong preference for local flavoured milk where our customers have a local brand available.”
Morais says the P&C channel plays a vital role for the Lactalis Business, which manufactures brands including Oak (which is currently valued at more than $37 million in P&C) and Ice Break (valued at over $55 million).
“Flavoured milk is a highly impulsive category, with consumption occurring immediately, or shortly after purchase,” explains Morais. “Having our products in P&C stores allows us to reach shoppers while they are on the go in need of a treat, an energy boost, or simply to refresh themselves. It also allows us to diversify our business and reduce our reliance on the major grocers.”
Despite inflation and interest rate hikes appearing to have peaked, Morais notes the cost of living is still very high, impacting many consumers in a negative way.
“When things get tough, consumers turn to small, affordable luxuries, treats or experiences to escape reality, and help themselves feel better – the so called ‘lipstick effect’, now more broadly described as ‘fun-flation’. This phenomenon is great news for flavoured milk and the P&C channel – as the category itself is seen as a ‘treat’ with shoppers buying it because ‘they feel like it’.”
Market moo-ving with opportunities
New products contributed more than 88 per cent of the growth of milk beverage sales in 2023.
“New Product Development (NPD) and innovation is critical to the growth of the category and bringing new shoppers into your store,” says Barry.
“However careful consideration should be given to the core SKUs and space allocated that generate the majority of your sales and profitability.
“As sugar remains the main barrier to increased consumption of milk beverages, the ‘no sugar’ segment offers a great opportunity for retailers to expand into,” says Barry.
“‘No sugar’ continues to be one of the fastest growing segments across total beverages yet still remains significantly under-indexed in milk beverages vs energy and carbonated soft drink ‘no sugar’’ added sales.
“Dairy free or plant-based milk also continue to gain momentum, although still a niche segment at this stage, as consumers look for plant based or animal free alternatives but still crave the great taste of traditional iced coffee and flavoured milk beverages.”
Faulkhead says that APCO hasn’t seen the growth in low or no added sugar type beverages that he would have expected 12 months ago.
“Lactose free has also been challenging as I think more education to customers is needed in the space. Outside of iced coffee, our core chocolate and strawberry flavours continue to perform strongest and have driven most of the unit growth in flavoured milk. I think moving forward there are a number of challenges facing the category in terms of shelf price, promotional price, margin.”
Morais adds that protein has been a mega trend in food for the last decade, with a multitude of brands and products not only being launched, but more importantly, succeeding.
“We’ve seen this trend playing out in a number of dairy categories such as yoghurt and cheese where brands are supporting consumers with their specific health needs. There is a clear opportunity for flavoured milk to take advantage of the protein trend and attract a new wave of shoppers into the category,” he says.
Smaller packs sizes, especially in the iced coffee space, will be a big opportunity in 2024.
“Flavoured milk really lacks attractive entry level options for new or light shoppers who can’t drink the usual 500ml sizes widely available,” says Morais.
“Ice Break has entered this space with its 320ml range, which has been a hit with shoppers.
“Lactalis is also set to launch the Ice Break Strong Espresso 500ml featuring three shots of roasted robusta coffee and 25g protein per serve in April. This new product has been designed to satisfy consumer appetite for more intense caffeine options while providing the satiety benefits of protein,” explains Morais.
“Ice Break’s recently launched lactose-free dedicated iced coffee is also outselling its direct competitor and helping to attract new shoppers to the segment who look for easy-to-digest dairy options.”
Following its success partnering with Australian brands such as Golden Gaytime and Paddle Pop, Oak is also set to partner with Violet Crumble this year, bringing yet another iconic confectionery brand into the flavoured milk space.
*https://www.renub.com/flavoured-milk-market-p.php
**https://www.rabobank.com.au/media-releases/2023/230227-drinking-milk-to-stay-key-category-for-australian-dairy-sector/
This article was written by Lizzie Hunter and originally published in the April/May issue of Convenience & Impulse Retailing magazine.
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