SAY CHEESE 2004

LYNNE MILLER

Consumers, especially those on low-carb diets, can't seem to resist the power of cheese. All kinds of products, from packaged chunks to shreds, pre-sliced and snack items, are lifting sales in the dairy aisle, never mind higher retail prices, industry sources told SN.

Natural, non-processed cheese continued to deliver strong sales in 2003, posting increases that ranged from almost 2.5% for Kraft Cracker Barrel's brand of non-shredded natural product to nearly 30% for Sargento's brand of non-shredded natural cheese, according to top 10 brand data for the calendar year ending Dec. 28, 2003, from Chicago-based Information Resources Inc.

Private-label, non-shredded natural cheese saw sales increase more than 14% year over year; the only category on the list that experienced a decline was the Kraft brand of shelf-stable grated cheese, sold in cans -- down 2.3%, according to IRI.

Chunk cheeses -- those sold packaged in solid blocks -- have benefited from the high-protein diet craze, an official with Richmond, Va.-based Ukrop's Super Markets told SN. Late last year, he said he noticed sales of chunks start to turn around. Now sales for the category are up about 12%, said Barry Van Dyke, category manager for frozen and dairy for the 29-store chain.

"If not for the Atkins diet, I'd say our block cheese sales would be down," said Van Dyke. "It's been a savior for cheeses for us."

Consumers love one product in particular, Laughing Cow Light reduced-calorie cheese, a mild, soft white cheese sold in individually wrapped wedges. He thinks Laughing Cow's popularity stems from its status as an officially endorsed snack by the South Beach Diet. In fact, runaway sales of Laughing Cow are driving the overall boost in volume of specialty cheeses in dairy, Van Dyke said.

"My sales are up 550% just for that item," he said, referring to year-over-year sales of that cheese, made by Bel/Kaukauna USA, Little Chute, Wis.

Shaw's Supermarkets got serious about Laughing Cow cheese in 2001 after a new merchandising tack sent sales flying way above projections.

In a chainwide effort to grow sales in the dairy aisle, the retailer planted trees in the department's specialty cheese section -- hanging trees that hold 18 net bags each of miniature, colorful, waxed rounds of Laughing Cow Mini BonBel and Laughing Cow Mini BabyBel cheeses.

Previously, the red net bags that contain six mini cheese rounds each, and weigh a total of 4.5 ounces, were displayed just in four lucite bins on the top shelf of the dairy case.

At Ukrop's, the retailer streamlined its assortment of block cheeses to eliminate duplication of similar products from different manufacturers, Van Dyke said. Stores typically set aside a four-foot section for blocks or chunks. Interestingly, the retailer's No. 2-selling chunk cheese also appeals to consumers on diets, a reduced-fat cheddar cheese from Cabot Creamery, based in Vermont, Van Dyke said.

"Most people wouldn't think of a light cheese being in the top 10," he said. "There's been a lot of innovation in chunks."

Another popular newcomer is a six-ounce block of pre-sliced cheese designed to fit on crackers. The stores carry Kraft Cracker Cuts and Kraft Cracker Barrel Cuts and they appeal to consumers seeking convenience, Van Dyke said. Customers also apparently appreciate cheeses packaged in resealable bags -- and sometimes complain about brands that do not include that option.

"People are asking for them," Van Dyke said. "You're seeing them all over the place. We get a lot of good comments on resealable bags."

Young consumers are attracted to new packaged cheeses cut into fun shapes, such as stars and seahorses, and string cheeses. The stores position those products on low shelves to catch the eyes of children, who wield great influence over their parents' buying decisions, Van Dyke said.

The renewed interest in dairy aisle cheeses is reversing a trend that saw consumers increasingly patronizing gourmet and specialty cheese displays in the deli area, where a multitude of obscure, often expensive varieties from around the globe became a competing destination. Ukrop's has focused a lot of attention on developing its own gourmet cheese departments, though they have had a slight impact on sales of dairy cheeses, Van Dyke said.

"I had a whole top shelf of Goudas and other specialty [cheeses]," he said. "I've seen a decline in that. The specialty cheeses have taken some of that business. We had probably 12 feet and we cut it to eight feet."

Van Dyke is philosophical about the contest.

"If we're creating these super-premium cheese sections in the deli and bringing more customers into the store, my department is willing to take a little hit for the benefit of the entire company," he said.

Dairy cheeses and specialty deli cheese displays can exist amicably under the same store roof since they appeal to different shoppers. Officials at Giant Eagle said they have seen "very little overlap between the more convenience-oriented, packaged cheeses found in our dairy section with the unique and gourmet cheeses found in our Cheese Shoppe," offering more than 400 varieties of specialty and gourmet wheels, wedges and blocks.

"We find two major groups of cheese customers," said Brian Frey, a spokesman for the Pittsburgh-based operator of more than 200 stores. "The Cheese Shoppe customer is typically purchasing unique cheese products for entertaining purposes or as an indulgence with a fine bottle of wine or artisan bread. Customers purchasing packaged cheese in the dairy are generally looking for convenience or kid-friendly items such as cheese cubes, string cheese or pre-cut cheese."

Overall, cheese sales are up at Yoke's Foods, with value-added products commanding the most interest from consumers. Meat and cheese sales are up 8% to 10%, according to an official with the Spokane, Wash., chain, who attributes the growth in part to the popularity of high-protein diets.

The best moneymakers include the value-added items -- shreds, cubes, strings and slices in resealable bags. This year, the stores revamped the dairy cheese sections to increase the selection of shredded cheeses, said Ken Chapin, who oversees dairy as director of meat and seafood for the 12-store chain.

"That's what people are buying," he said. "We're seeing more selection in shredded cheeses. Vendors are marketing them harder."

Similar trends can be seen at St. Louis-based Schnuck Markets. Stores are reporting healthy sales growth in spite of higher retails, said Steve Zielinski, category manager for the 100-store chain.

Specific products fueling the growth appeal to dieters and consumers seeking convenience. For instance, Kraft Cracker Cuts are triggering stronger sales, too, he said. Stores also are selling more large-size packages of hard cheese to consumers looking for low-carb snacks and willing to cut the cheese themselves to save money, said Zielinski. The popular low-carb diets also are boosting sales of shredded cheese.

"People are melting cheese on meatballs, chicken breasts and many other low-carb meats," he said. "The only cheese product that is slumping in sales is grated Parmesan and that is because most of that product is used on pasta and garlic bread, which are high in carbs."

The sales numbers please officials at Dairy Management Inc. A number of factors are behind the growth, though product innovation and the image of cheese as a healthy food for dieters are key, noted Kevin Burkum, senior vice president of retail marketing for DMI, Rosemont, Ill.

The fastest-growing form of cheese in the category is snacks, he said. In fact, last year string and stick cheeses saw a 19% increase in sales volume compared to the previous year. To capitalize on the popularity, some retailers have gone so far as to create snack sections highlighting string and stick products within the dairy case.

"Manufacturers have done a nice job of creating products that fit today's on-the-go lifestyle," Burkum said.

In addition to the role of cheese in low-carb diets, there's new scientific research that suggests a relationship between eating three servings of milk, cheese and yogurt a day to weight loss, he said. DMI this summer intends to highlight the weight-loss connection to dairy foods.

"The big news for cheese is it's a category that's in a very strong position," Burkum said. "It has a healthy halo."