Published on 19/05/2016 by Punchmedia

Yoghurt Bucking the Dairy Trend

Despite a tough time for the dairy industry of recent times, the yoghurt production industry is bucking the trend and has enjoyed robust growth over the past five years. Higher consumer demand has encouraged industry operators to increase their output levels and produce new varieties and flavours. In particular, premium and Greek yoghurts have become increasingly popular, boosting industry revenue due to the higher prices these products attract. Demand from overseas markets has also increased, with many producers expanding production and exporting products to Asian markets. Consequently, industry revenue is projected to post 5.3% annualised growth over the five years through 2015-16, to reach $651.3 million. This includes forecast growth of 5.6% for 2015-16.

Profit

Industry profitability has varied over the past five years. Input prices have remained historically high, particularly the domestic price of milk, despite some volatility. Milk production was slow to recover from the drought that prevailed over much of the mid-2000s, keeping prices high early in the period. Furthermore, rising demand from overseas markets for fluid milk attracted higher prices for exported products. This diverted milk supplies to export markets, limiting domestic supply for dairy manufacturers. Consequently, despite some fluctuations, domestic milk prices have remained high over the past five years. Strong industry competition has limited price increases, further hurting profitability. The highly concentrated nature of the industry means that players have competed fiercely to increase their market share. This competition has largely prevented price rises among low-price products, as consumers of these yoghurts often base their purchase decisions largely on price. Furthermore, the growing popularity of private-label products and the ongoing price war between the supermarket giants, Coles and Woolworths, have both put downward price pressure on producers of these yoghurts. Increasing competition at the premium end has contributed to depressed margins among these manufacturers as well, despite the higher prices these products attract.

Growing Consumption

There is a common perception among consumers that yoghurt is a healthy food and snack product, with a low-GI level. This has contributed to rising yoghurt consumption over the past five years. Per capita yoghurt consumption is forecast to reach 7.6 kilograms in 2015-16. A growing adult female population, which represents the industry's largest market, has also helped boost total consumption and industry revenue over the past five years. Producers have responded to increasing demand by expanding product ranges to include new flavours and varieties. This has contributed to rising industry employment over the past five years.

Health Debate

Many yoghurt products contain significant amounts of added sugar, particularly light and reduced-fat yoghurts. Removing the fat means that a high proportion of the natural flavour is removed, thus sugar is added to compensate for this. With the higher sugar content, the final product ends up being a relatively unhealthy snack product. Usually only natural and plain, full-fat yoghurts contain no added sugar. Further clouding the health picture are yoghurts targeted at children. Many large yoghurt manufacturers have developed branded yoghurts that are conveniently packaged and marketed at younger children as a healthy snack option. However, some consumer groups have disputed these claims due to the high levels of added sugar and artificial flavour content of these products.

Industry structure

The industry is highly concentrated, with the four largest players accounting for just over 70% of industry revenue. This is typical of dairy processing industries, with larger players better suited to the size and scale of production required to meet substantial demand. Despite this, several new players have entered the industry over the past five years. These players are generally small, niche-product yoghurt manufacturers. Forecast growth in enterprise numbers has increased industry demand for labour, contributing to higher industry employment over the period. The exception to this has been the entry of Chobani in 2011. The US company chose to enter the industry by acquiring Melbourne Business and local producer, Bead Foods, based out of a manufacturing plant in Dandenong South, VIC. This acquisition gave Chobani ownership of Gippsland Dairy, along with the capability to launch Chobani-branded products in the Australian market. The Chobani brand has been a phenomenal success, with the company now supplying 25,000 cases of yoghurt per day and occupying triple the shelf space it held three years ago. The short shelf life of yoghurt and high shipping and transport costs have traditionally kept international trade low. However, Australia's reputation as a producer of high-quality food products has kept exports higher than imports. Industry exports have increased over the past five years, to account for an estimated 3.7% of revenue in 2015-16. Strong demand from Hong Kong, China and Malaysia has helped to grow exports over the period. Imports, the majority of which originate from New Zealand, are expected to account for 1.8% of domestic demand in 2015-16, up from five years prior.

punchmedia

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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