NATURAL WONDERS

ROSEANNE HARPER

New yogurts enhanced with healthful properties represent one of the fastest-growing categories in the dairy case.

While other fortified products, such as omega-3-enhanced eggs and rBGH-free milk, have found a place in the case, yogurt has taken on star status with the advent of added probiotics — live cultures believed to improve digestion and strengthen the body's immune system.

“I think probiotics will be the next big wave. Activia has done very well for us,” said Dave Jensen, dairy category manager at Associated Food Stores, Salt Lake City, referring to Dannon's first U.S. probiotic yogurt. “We'll take their new ones. I'm told Blue Bunny is coming out with one, too.”

The yogurt category overall has posted healthy growth, with dollar sales up 6% and unit sales up 4.4% for the 52 weeks ending Dec. 31, 2006, according to Information Resources Inc., Chicago. Dannon's Activia line rang up more than $128 million during that period, claiming 4% of yogurt sales tracked by IRI.

Probiotics have a following in Europe and are starting to make their way into mainstream retail channels in the U.S., industry sources noted. Probiotic yogurt is created in the natural process of making yogurt. To start the fermentation process, certain beneficial bacteria are chosen for their health benefits.

Retailers said they're not surprised people are looking to fortified foods to maintain health. Consumers, seeking to take charge of their bodies, want easy and natural ways to enhance their well-being. They also want to stay away from the doctor's office.

“People are taking responsibility for their health and wellness. Anything that'll boost their immune system is a positive, especially with the fear of bird flu and whatever other health threat they're reading about,” said Debbie Leland, natural and specialty food buyer at Kowalski's Markets, a St. Paul, Minn.-based chain of eight stores.

“We absolutely will bring in Dannon's new probiotic products,” she said, adding that the company's Activia line has generated strong sales over the last year. “This is a really important category. That's the way the trend is going in food — toward neutraceuticals.”

Kowalski's doesn't merchandise probiotics in a separate display, but instead right in the dairy section with conventional yogurts. However, the enhanced products are next to the all-natural and organic items in the case, Leland said.

At Central Market, Shoreline, Wash., probiotic dairy products of various brands are merchandised together, but alongside the organic, all-natural and conventional items.

“They're all right in front of the customer,” said Jeremy Dickson, a Central Market associate. “We want them to see they have the choice of all.”

When it was remodeled a couple of years ago, Central Market greatly expanded its run of dairy cases, enabling the retailer to add a lot of variety, Dickson said. While they may wish for more refrigerated space, other retailers manage by rotating SKUs in and out to see what customers will buy.

“It's a lot of SKU rationalization,” Leland at Kowalski's said, adding that she'd like to have more room to try additional products. She pointed to a new probiotic product, a refrigerated drink in the dairy case that she's been selling by the case. Called Synergy, it's not a yogurt drink, but is made from exotic mushrooms and has natural added flavors, such as pomegranate.

‘JUGGLING ACT’

When remodeling or building a store from the ground up, most retailers have extended their dairy run to accommodate at least some of the new products that continue to flood the market.

“It's a constant juggling act in that finite, refrigerated space,” said Rudy Dory, owner of single-unit, upscale Newport Market in Bend, Ore.

In not much more than 12 feet of dairy case, yogurt presents the biggest challenge for Dory because there are so many new products hitting the market all the time. Recently, he's been focused on sourcing only rBGH-free milk.

“But now that Safeway has announced it's doing the same, I have to worry about the supply,” he said.

Whether for milk or for new varieties of yogurt, additional case space would be useful, Dory said. In fact, he said if he were building a new store he would more than double the run of the dairy case.

“It would be well worth it,” he said. “This is such a high-volume department.”

Like other retailers, Dory said he sees a bright future for “high-health” items in the dairy case.

“People have seen so much press about cloning and [genetically modified organisms], and they feel negative about those,” he said. “They're ready for something positive that'll be good for them.”

Mintel, an international research organization, found that fortified yogurt and omega-3 eggs were the only functional foods to deliver double-digit percentage increases from 2004 to 2006. Released last fall, the Mintel report noted that research respondents were particularly impressed with products that are naturally enhanced such as yogurt, which already contains live cultures.

“Yogurt itself is viewed by consumers as a healthy product, and the dairy department is regarded pretty much as a healthy place,” said David Lockwood, director of research at Mintel's Chicago office.

Dairy market analyst and forecaster Jerry Dryer said that's not surprising.

“When it comes to health-enhanced foods, dairy products are a natural,” said Dryer, who's based in Delray Beach, Fla. “There are working relationships between various vitamins, minerals, herbals and other additives. Dairy products are already nutrient-dense and ready to complement other nutrients that might be added.”

He compared the “fortified” products found elsewhere in the store as well as in the dairy case, noting that fiber, cultures and other natural ingredients are most valuable when added to milk or milk products.

“For example, ‘calcium fortified’ doesn't mean anything unless there also is a good dose of phosphorus and vitamin D to aid absorption by the body — i.e., milk, not orange juice,” he said.

Mintel's Lockwood, too, said consumers can be misled by some fortified products. He believes that's why some of the spreads and butter substitutes have not taken off like their manufacturers expected.

“First there's the big price differential, and then you'd have to eat so much of it to have a benefit from it,” he said. “Nobody is going to eat a half cup of one of those spreads every day. Certain things work, others don't. Yogurt is one that works.

“It has taken forever,” he said. “These [fortified yogurts] have been around, but now people are willing to listen. I think when the [Centers for Disease Control and Prevention] declared obesity was an epidemic, people really started paying attention to what they were eating.”

AGGRESSIVE MARKETING

Indeed, over the past year, milk and yogurt products, especially Dannon's Activia, have caught the attention of retailers and their customers. There are other foods containing probiotics, including yogurts and kefirs from regional as well as national manufacturers, but products from Dannon are the ones that have captured the attention of retailers. Dannon, which has had success for years with probiotic yogurts in Europe, has invested heavily in the future of its Activia products in the United States with aggressive marketing programs.

One New York City retailer gave White Plains, N.Y.-based Dannon credit for getting Activia off to a flying start just a year ago.

“They did a great job of promoting it to the right people, especially to women,” said Luigi Mucciacciaro, director of dairy, frozen, meat and seafood at D'Agostino's, a Larchmont, N.Y.-based chain with most of its 23 stores in Manhattan. “They had a plan, and they executed it well. But I had no idea it would do as well as it has. It was unbelievable. Our stores in the city are small, and we put refrigerated bins in the aisle with the Activia multi-packs. I didn't have room to put enough of them in the dairy case.”

In fact, he is so confident the products will continue going strong that he told all the company's dairy managers to dedicate floor space to the yogurt company's latest line of products, Mucciacciaro said.

In addition to Activia, which had record sales at retail this past year, Dannon has introduced three more probiotic products in a variety of flavors. National distribution was just being completed late last month. The newcomers, enhanced with probiotics, are a light version of Activia; DanActive, a drinkable yogurt; and a newly formulated Danimals for kids.

Mucciacciaro said he's creating a new planogram for his dairy cases to dedicate a separate area — most of a 4-foot, tiered section — exclusively to probiotic yogurts.

“The whole yogurt category has grown a lot in the last couple of years,” he said. “I'm devoting 12 to 16 feet to yogurt alone, double what I was giving it two years ago. That's a lot for a small Manhattan store.”

Top Seller

The Dannon Co.'s launch of Activia, a yogurt enhanced with healthful probiotics, set a new sales record for the company.

In its first year, Activia rang up $100 million in sales, and that's at a premium retail of 20% above the price of the manufacturer's conventional yogurt. The $100 million mark is not only a milestone for Dannon, but also a record for any new yogurt introduction, said Michael Neuwirth, a spokesman for the White Plains, N.Y.-based company.

What's important to Dannon, Neuwirth said, is the market potential for all types of yogurt in the United States. It may seem that yogurt is pervasive, with more and more space being devoted to it in supermarkets, but actual consumption in this country is tiny compared to Europe. Per capita consumption here is less than 8 pounds a year. In France, it's at least eight times that, and in Finland, it's easily 10 times that, Neuwirth said.

A platform of probiotic products may be what's needed to boost consumption. Neuwirth pointed out that 15% of Activia consumers are new to the yogurt category. That, however, could be the result of the massive marketing blitz that accompanied the product's debut. In addition to heavy consumer advertising and other support, the company made sure consumers got a taste of the product.

“There were 20,000 sampling days in supermarkets across the country in the introductory year,” Neuwirth said, noting Dannon paid for the in-store demonstrations. Dannon is a subsidiary of the Danone Group, one of the largest dairy food and water producers in the world. The company is based in Paris.
— R.H.