Sector Insight: Cheese - Snack attack

The sector is shifting its focus to on-the-go products to appeal to both kids and time-poor adults.

THE BACKGROUND

Cheese producers have embarked on a number of new marketing initiatives over the past few years. New product development in snacks aimed at children and adults is driving growth, while at the epicurean end of the sector, plenty of unexploited opportunities for branding exist. However, cheese also faces challenges on the health front; its image as a natural, calcium-rich food is in danger of being sullied by warnings about its high fat and salt content that could appear on packs under proposed traffic-light labelling schemes.

In 2004, UK consumers munched their way through £1.83bn worth of cheese, an increase of 16% on 2000, according to Mintel. The sector's value has been boosted by consumers trading up to speciality cheeses.

On average, each Briton consumes 30g of cheese a day, far less than the rest of Europe, where the average is 50g. The disparity occurs because there are more eating occasions for cheese on the Continent, where it can be served at breakfast, as a snack and as a meal course.

In the UK, milk and cheese account for 65% of the dairy products market, according to Euromonitor. The cheese sector has a high level of penetration, with 90% of the UK population buying 'block' products. Cheddar remains far and away the UK's most popular cheese, with more than 50% of the market.

There is room for growth, but when UK consumption figures are compared with Europe, they reveal a trend toward lighter consumption. One path could be to urge consumers to make greater use of the product as a cooking ingredient.

Only one in five homes in the UK has more than one type of cheese in the fridge at any one time, according to Dairy Crest, which has resulted in initiatives intended to fuel consumption focusing on diversifying buying habits, using such lines as 'Cheddar plus one'.

Children's menu

Kids' snacks is a boom area. The processed cheese category, which accounts for 13% of the market and comprises mainly branded snacks, grew by 23% between 2003 and 2004, with 90% of its products aimed at children.

However, the £240m category has come under fire for products containing high levels of salt, meaning some lunchbox and meal products have declined since 2002, according to Mintel.

Continental cheeses are also growing in popularity, with sales increasing 26% between 2000 and 2005. Purchase is seasonal, however, with shoppers being more likely to experiment or buy pre-combined selections at Christmas. The category includes French, Italian and German cheeses. French cheese, which is dominated by brie, accounts for 22% of cheese imports, while Italy has just over 11%, mozzarella and parmesan being the most popular.

Supermarkets accounted for 92% of cheese sales by value in 2004. Sales have risen 18% since 2000, driven by the rise in the multiples' category-management techniques. However, Dairy Crest's Cheese Report 2005 claims there are too many display units in stores and urges supermarkets to make selection easier and quicker for shoppers by arranging their fixtures according to the consum-ption occasion and who will enjoy it.

As with the rest of the food industry, health issues are affecting the sector. Cheese is struggling to define itself as healthy and may even be labelled with a red light if the government can persuade manufacturers and retailers to adopt a traffic-light system. As shoppers watch their diet, sales of low-fat, hard cheeses are rising, although sales of cottage cheese, a low-fat product, were down 30% in the 2002-2004 period.

Kraft Foods is the leading producer of cheese in the UK and owns category leaders Dairylea and Philadelphia. At the end of last year Philadelphia was relaunched with an improved taste. Dairylea, meanwhile, is active in new product development, with Light Cheese Triangles, Rippers and Dunkers Sticks all launching last year.

Responding to consumer health concerns, Kraft has reduced Dairylea's salt content. A 30% reduction had already been achieved between 2002 and 2004, according to Kraft. Another 10% reduction was made to Dunkers and Lunchables in 2004, while further alterations have been made to the latter this year.

Catering to convenience

Dairy Crest is the biggest dairy company in the UK and its Cathedral City brand is the leading cheddar. In 2003 it entered the snack market with the launch of Dip & Go, while last year it introduced the Lunch Pack, which contains Jacob's cream crackers and Branston pickle.

Other companies in the sector include Bel UK, whose portfolio includes the Laughing Cow, Babybel and Leerdammer brands. Babybel has performed particularly well, appealing mostly to the kids' market; a low-fat cheddar cheese version was added this year. Kerry Foods uses the Golden Vale brand for its Cheestrings and Attack-a-Snak kids' snack brands. There are also myriad smaller-scale operators, specialising in local and artisan cheeses.

Much of the evolution in the sector focuses on adding or enhancing flavour, introducing quirky processed products to appeal to kids, and revamping packaging to create combined snack products.

Future growth is dependent on how effectively the industry communicates the food's health benefits, such as its high level of calcium, and overrides its negative aspects.

Assuming this can be achieved, Mintel predicts a healthy maturing of the market by 2010, with sales growing 20% to reach £2.3bn. Continental cheese will be the biggest beneficiary, growing by 36.8%, while territorial products, such as regional UK cheeses, will grow at almost 30%.

UK CHEESE BRAND SALES (pounds m) Brand 2004 2002 02-04 % chng 1 Dairylea 120 90 33.3 2 Cathedral City 92 70 31.4 3 Seriously Strong 52 50 4.0 4 Pilgrim's Choice 51 n/a n/a 5 Cheestrings 49 40 22.5 6 Philadelphia 46 35 31.4 7 Davidstow 36 n/a n/a 8 Babybel 34 25 36.0 9 The Laughing Cow 33 13 153.8 10 Primula 12 18 -33.3 11 Rosenberg Danish Blue 13 10 30.0 12 Anchor Mature 9 15 -40.0 Other brands 135 114 18.4 Own-label 1148 1120 2.5 Total 1830 1600 14.4 Source: Mintel UK CHEESE MANUFACTURERS BY ADSPEND (pounds) Brand TV Radio Press Total 1 Kraft Foods 7,937,783 1,136,700 1,424,187 10,915,870* 2 Bel 2,784,152 - 912,951 3,697,103 3 Golden Vale Dairies 2,234,254 - 158,433 2,392,103 4 Dairy Crest 1,414,318 - 31,210 1,445,528 5 Galbani 911,975 - 1830 913,805 6 McLelland 829,238 4684 7547 841,469 7 Lactalis 666,849 - 1830 668,679 8 North Downs Dairy - - 596,625 596,625 9 Fromageries Triballat - - 385,446 385,446 10 Bongrain 348,307 - 12,544 360,851 Source: Nielsen Media Research * includes £417,200 outdoor spend UK RETAIL SALES OF CHEESE BY OUTLET TYPE Brand 2004 2002 2000 00-04 pounds m pounds m pounds m % chng 1 Grocery multiples 1684 1456 1423 15.7 2 Co-ops 55 32 63 71.9 3 Independent grocers 37 32 32 15.6 Source: Mintel

ANALYST COMMENT - VICKY MCCRORIE CONSUMER MARKETS ANALYST, DATAMONITOR

Branded cheese manufacturers have begun to follow in the footsteps of other sectors by releasing on-the-go varieties of key brands. This has seen the emergence of a variety of cheese products on the UK market, from cheese and dips, to children's lunches.

A forerunner to on-the-go cheese in the UK was Fromageries Bel's Mini Babybel, which had its global launch back in 1977. Current ads for the brand highlights its appeal to both adults and children.

In 1996, Kraft Foods became one of the first major players to launch snack versions of its products, with Philadelphia Snacks and Dairylea Dunkers. These contained tubs of cream cheese and breadsticks.

In 1998, Kraft Foods launched Dairylea Lunchables, designed for kids and containing cheese, crackers and processed meat.

Dairy Crest has also latched onto this appeal. In 2003, it introduced Dip & Go, an extension of its market-leading Cathedral City brand. Last year, a £3.5m campaign promoted Dip & Go as a convenience food. Partly as a result of the activity, Cathedral City has seen a 20% increase in value since.

Not all brands have embraced the on-the-go format, however. Seriously Strong cheddar, for example, is available only in big pre-packed and delicatessen blocks.

However, at the beginning of this year, it was acquired by Lactalis, France's biggest dairy producer. It plans to launch sliced versions of the brand to appeal to the convenience market and boost its competitiveness with Cathedral City.

On-the-go cheese products look set to be a continuing trend, as brands exploit the fact that time-pressed consumers often look for established names when buying.

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