GlobalData’s Snapshot Of APAC Dairy And Milk Beverages Market

Changing consumer trends such as the growing demand for ‘better-for-you’ and ‘clean label’ products, rising popularity of ‘functional beverages’ and the growth in protein consumption will drive innovation in the dairy beverages sector. By GlobalData.

Robust economic growth and a large population base is driving the Asia-Pacific (APAC) region’s Dairy and Milk beverages sector, which is forecast to grow at a compound annual growth rate (CAGR) of 4.96 percent from US$62.9 billion in 2018 to US$80.2 billion by 2023, according to GlobalData, a leading data and analytics company.

The consumption of dairy in APAC region has historically been higher than the rest of the continents due to high consumption in India and China. Asia and Pacific combined consumed more than 64 billion kg of dairy products in 2018, with Asia accounting for 95 percent of the consumption.

White milk, which is one of the core parts of daily diet in many APAC countries such as India and Australia, formed a significant chunk of 62 percent of total dairy consumption in 2018. However, the proportion of white milk consumption has been declining in recent years due to increasing preference for value-added dairy products.  At the same time, the smaller and more volatile category, fermented milk, has been witnessing growth fuelled by health-conscious consumers.

This growth can be attributed to socio-economic factors such as increasing income and growing consumer interest in purchasing specialty dairy drinks with health and wellness benefits. Growing inclination towards ‘better-for-health’ products and increasing acceptance of milk in daily diets along with rising urbanisation and improving retail infrastructure in developing countries such as Indonesia and India will further drive the APAC Dairy and Milk beverages sector.

Supply-Side Factors

Despite high foreign investments pouring in, the dairy industry in APAC is dominated by regional players due to local taste, easy sourcing and pricing structure. Companies such as Inner Mongolia Mengniu Dairy, Yili Group, Want Want China, Meiji Holdings, Nestle, Fonterra, Amul and Royal FrieslandCampina are leading the APAC value sales. However, the operating environment makes it difficult to trade in some of the region’s largest markets including India and China.

For instance, more than three-fourths of the Indian market is still unorganised and every region in the country has two to three well-entrenched local players. Besides market leader Amul, there are other strong co-operative brands at the state level, such as Nandini in Karnataka, Vijaya in Andhra Pradesh, Verka in Punjab, Saras in Rajasthan, Milma in Kerala, Gokul in Kolhapur and Sudha in Bihar. Furthermore, there are other regional players such as Mother Dairy and Kwality in the north, Metro and Mother Dairy in the east, Prabhat and Parag in the west and Hatsun and Heritage in the south, which make the market hyper-competitive.

In addition, multinationals like PepsiCo and Coca-Cola have been pushing ready-to-drink milk-based beverages, posing stiff competition and making it imperative for domestic conglomerates such as ITC to focus on procurement systems and bring efficiency in supply chain.

Demand-Side Factors:

The levels of dairy consumption in APAC are still far below Western standards, and signify massive growth opportunities. While the regional consumption patterns may be different and cultural factors have a major role to play. In countries such as India and Pakistan, milk consumption is very much part of local traditions and the markets show continuing trend of increased milk consumption.

Changing consumer trends such as the growing demand for ‘better-for-you’ and ‘clean label’ products, rising popularity of ‘functional drinks’ and the growth in protein consumption will drive innovation in the dairy beverages sector. Dairy companies are taking advantage of this trend, with many adding extra protein and functional ingredients to their products.

Trends To Watch Out For In APAC Dairy Sector:

Fascinating Flavours

APAC region is home to more adventurous dairy consumers. In contrast to the regular flavours that blend well with the taste characteristics of milk, manufacturers are experimenting with cross-category flavours that are generally heterogeneous to the taste and texture of milk. Hybrid features diversify the milk flavour from a single option to a novelty, thereby enticing consumers to give it a try. This is backed by GlobalData’s 2018 Q4 Consumer Survey, which reveals that 24 percent of APAC consumers believe that curiosity is the motivating factor to try new flavours and fragrances.

Wellbeing & Personalised Health

As lifestyles evolve, on-the-go products that can deliver multiple benefits or save time and money are likely to have high appeal. GlobalData’s 2018 Q4 Consumer Survey reveals that 29 percent of APAC consumers always keep personalisation at the forefront while making a product purchase. Against this backdrop, dairy manufacturers are launching products tailored to consumers’ needs, which include health and dietary requirements, pack-size preferences, and product claims such as ‘free from’, ‘less sugar’ and ‘added nutrients’.

Fresh, Natural & Pure

Claims over fortification of milk and milk products with nutrients such as vitamins and minerals add to the naturally healthier image of milk. Consumers who want to increase their nutritional intake, but in a lighter way, could find such enhanced milk offerings enticing and more palatable over heavy supplements. In fact, 67 percent of APAC consumers claimed that they feel milk protein has a positive impact on their health. To appeal to these set of consumers, manufacturers have introduced milk beverages with claims such as ‘natural’ and ‘free’ from preservatives, artificial colours and flavours.

Novel & Experiential

Novelty and enjoyment are gaining momentum as major factors in APAC milk beverage purchase choices. The novelty element could be a vehicle for testing innovative formulations, such as more unique, unusual and experimental twist options. APAC’s substantial proportion of young and working age population likes to experiment with new and unusual flavors in milk and dairy beverages. This can be attributed to a wider exposure to unique flavors in milk beverages and originating from other countries. Given this scenario, 70 percent of APAC respondents stated that they ‘very often’/‘sometimes’ try new or different varieties of dairy products.

Premiumisation & Indulgence

With rising disposable incomes, APAC consumers are taking greater interest in premium dairy products. Furthermore, due to various scandals around food and beverages, consumers are opting for premium brands and products, associating ‘higher price’ with ‘higher quality’. This is supported by GlobalData’s survey in which 95 percent of APAC consumers stated that they are willing/prefer to pay more for better or premium quality products.

In line with these emerging trends, companies are trying to align their growth strategies and restore consumer confidence in the industry. For instance, companies such as Yili, Nestlé and Huishan have reworked their corporate vision to position their products as healthy. Future innovations in dairy beverage industry will be centred on ‘better-for-health’ positioning, and embracing technology, which help in tracking the dairy and milk products from grass to glass.

Brands have already realised that innovation has become increasingly important in the industry as a means of driving margins and how strategic placement of discounts will help them win wider customer base as consumers are less loyal to brands and are more price sensitive.

Regulations

Understanding and complying with the diverse regulatory framework in the local markets is critical for manufacturers to ensure that the products get to market and consumers in a timely fashion.

Besides the usual food and beverages regulations, the dairy industry has some complex regulations due to the perishable nature of products, its impact on human health and government policies. These vary across regions based on factors such as demographics, consumption pattern and income distribution. Some of the recent regulations observed are:

• Infant milk is highly regulated in China due to a tainted milk scandal in 2008
• Higher taxes on supplements in India
• Stricter labelling requirements on dairy products imported through e-commerce
• In Indonesia, dairy product importers must fund the activities, which promote milk consumption in the country
• Exporters of raw milk and milk products in Japan need to verify the health of animals that produce the milk in order to obtain the license
• Australia and New Zealand allow higher amount of lactoferrin for fortification

Unique Functional Dairy Products Gaining Momentum In APAC

There has been rising demand for fortified dairy beverages and ultra-heat treatment (UHT) milk across the APAC region. Rising concerns over health and wellness among consumers is resulting in limited intake of ingredients such as sugar and fat. As a result, consumers are opting for unique and functional dairy products, which can cater to their nutritional requirements. Consequently, manufacturers are expected to fortify dairy products with additional vitamin D, calcium, and omega 3 fatty acids, which are known to reduce the risk of heart disease.

Furthermore, busy lifestyles of consumers in emerging countries in APAC are fuelling the demand for perishable dairy products such as UHT milk, which can be purchased in bulk and stored for a longer period without the need for refrigeration, thus eliminating the need to shop on a daily or near-daily basis. Furthermore, the smaller packaging formats appeal to on-the-go consumers, who can take the products to work.

Ample Space For Innovative Ideas & Start-Ups

Innovation is the foremost growth technique in the dairy beverages industry and there is ample space for innovative ideas and establishing start-ups in APAC. Most of the industrial players are focused on maintaining a strong foothold in the market and design strategies around increased productivity and cost reduction.

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