The market for drinkable dairy goods is an important segment of both the global and Russian food markets. In monetary terms, the share of drinkable dairy occupies 8% of all retail sales of packaged goods in the world and 6% of those in Russia. By the end of 2018, $ 179 billion worth of these products at the current exchange rate are expected to be sold globally, whereas the value for Russia will reach 280 billion rubles ($ 4.17 billion). Growing consumer interest in goods produced with healthy eating in mind remains the main trend of the market in question. Let us examine the main indicators in the Russian retail market for drinkable dairy goods, including plant-based alternatives, and analyze its future growth prospects.
“Euromonitor International” distinguishes the following categories in the market for drinkable dairy products: drinking milk – “cow’s milk” and “goat’s milk”; “milkshakes”; “powdered milk”; and “plant-based milk substitutes”*. In Russia, “cow’s milk” is the largest category in retail sales, followed by “milkshakes”, “goat’s milk” and “plant-based milk”. Powdered milk has lost its popularity among the Russians and has virtually disappeared from store shelves. Average per capita consumption of drinkable dairy products in Russia for 2018 equals 29 liters, and it is not expected to change by 2023. At the same time, a number of consumption shifts are forecasted in certain product categories. The share of drinking milk in the consumption structure will continue to decline, whereas the shares of milkshakes, goat’s milk and plant-based milk substitutes will be growing.
Comparison of the Russian market structure and the structures of foreign markets is of interest in terms of better grasping which categories may have potential for growth. Let us take a look at the structure of drinkable dairy sales in different countries this year. Drinking milk, traditionally, dominates globally. However, in a number of regions, certain product categories appear to occupy much larger shares compared with those in Russia. This has to do with consumption culture in regards to certain goods – for example, powdered milk in Latin America and plant milk in Asia. Another reason is active development of cow’s milk alternatives: in Western Europe and North America, for instance, the share of drinking milk has been rapidly shrinking in favor of milkshakes and plant-based milk, and said trend is going to persist in the coming years.
Cow’s milk is a traditional product for Russian consumers, and its retail sales have already reached their saturation level. It is expected that, in the period from 2018 to 2023, cow’s milk consumption will not change dramatically, and growth in sales will be achieved through increasing average retail prices. Goat’s milk will demonstrate relatively dynamic growth in the future, demand for it remaining limited for now – its share in the drinking milk market is currently as low as 0.5% in value terms. Higher dynamics of goat’s milk retail sales will be due to the Russians expressing interest in products designed and presented as healthy. It should be noted that vitamin-enriched cow’s milk also constitutes a promising market segment.
Growing demand for lactose-free milk will serve as an important trend in the drinkable dairy market in the future. Today, the share of lactose-free milk in Russia has not even reached 1% yet in the milk market as a whole and remains a niche segment.
In the Russian market for lactose-free drinking milk, the most notable players include “Valio” LLC (Saint Petersburg, “Valio Eila” trademark) and “Ostankinsky Molochny Kombinat” OJSC (Moscow, “LatteR” trademark). Both companies inform consumers on what lactose intolerance is and who can benefit from lactose-free dairy goods on their official web pages. Consumer awareness on the existence of lactose-free products and the problem of lactose intolerance remains low in Russia, which, quite expectedly, hinders market development. However, said products appearing on store shelves, educational marketing campaigns by manufacturers, and new brands emerging create preconditions for growth in demand.
It is expected that in the next 5 years, sales of lactose-free milk will grow by about one third in monetary terms, inflation not taken into account. Prices will serve as a factor restraining growth. The average price per liter of lactose-free milk is currently 2.5 times higher than that of regular milk. Against the overall consumer saving, said difference does not benefit lactose-free goods in the slightest. At the same time, given the trends currently present in other markets, there are no preconditions for a significant decline in the average retail price. For comparison, in other countries, where the market for lactose-free milk is more developed (e.g. in Finland, Germany, Sweden and the USA), prices for these products remain 1.5–2.2 times higher than for traditional dairy.
In the next few years, plant-based milk substitutes will be the fastest growing category in Russia. Based on the experience of European countries, said products have potential for development and represent a rather diverse product category, which can include beverages from various components and combinations, providing companies with an opportunity to diversify their portfolios accordingly. In Western Europe, sales of plant milk will increase by 21% in monetary terms in 2018, reaching 11% in total drinking milk sales. The Russian market for plant-based milk is estimated at lower than 1% of drinking milk sales, whereas its growth is several times higher than the average European indicator.
What are the expected growth rates of plant-based milk sales in value terms (inflation not taken into account) in Russia, globally, and in specific regions? During the next 5 years, global sales of plant milk will increase by 20%, primarily accelerated by growth in sales in Western and Eastern Europe. Among Western European markets, the following countries will make the greatest contribution to growth in regional sales: Spain, France, Italy, Great Britain, and Germany. The largest volumes of sales in the Eastern European market are expected in Russia, Poland, Lithuania, Slovakia, and Estonia.
According to forecasts by “Euromonitor International”, within the next 5 years sales of plant-based substitutes of milk will increase sixfold in monetary terms (inflation not taken into account). The low base will be the primary factor for growth in sales. Domestic alternatives such as “Nemoloko” trademark (“Sady Pridonia” National Food Group) emerging in the market and expanding product ranges in federal retail chains have given impetus to market growth. Products positioned as healthy continue to gain popularity.
At the same time, there are a number of factors restraining growth – in particular, the ongoing tendency to save among consumers and low consumer awareness on the goods in question and their benefits. Today, plant-based milk is not widely perceived as an alternative to regular drinking milk, milkshakes or juices by consumers. The relatively high price for these products also serves as a limiting factor, the former being 4 times higher than the price for regular milk and 2.5 times higher than that for milkshakes. Nevertheless, the market in question remains promising, primarily in Russian cities and large towns, where consumer incomes are higher than in smaller settlements.
* “Euromonitor International” includes packaged goods distributed through official retail sales channels in its assessment of the retail market for drinkable dairy. The “drinking milk” category includes products with any shelf life and any fat content. “Milkshakes” imply flavored dairy beverages and milk-dominant drinking mixtures of milk and juices. “Powdered milk” includes soy milk powder as well and excludes dry milk formulas for children under 3 years of age. The “plant-based milk substitutes” category implies flavored and non-flavored ready-to-drink beverages produced from soy, nuts or cereals, with or without added juice.