Dairy industry's big growth to come from 2.7 Bn low-income consumers: Tetra Pak Study

New research from Tetra Pak, the world’s leading food processing and packaging company, has identified 2.7 billion low-income consumers in developing countries as the dairy industry’s next big growth opportunity due to an expected rise in prosperity, purchasing power and desire for packaged liquid dairy products (LDP).

 

Consumption by low-income consumers in developing markets is forecast to increase from about 70 billion litres in 2011 to almost 80 billion litres in 2014, according to the Dairy Index, which tracks worldwide facts, figures and trends in the global dairy industry. Many of these consumers are expected to switch in coming years from drinking loose milk to packaged milk.

 

“Low-income consumers represent one of the biggest growth opportunities for the dairy industry. The key to tomorrow’s success is reaching these consumers today,” said Tetra Pak President and CEO Dennis Jönsson. “They make up almost 40% of the world’s population and live in economies driving our industry’s growth and they are growing more affluent.”

 

These low-income consumers live on $2-$8 a day and are virtually untapped by today’s dairy processors. Called Deeper in the Pyramid (DiP) consumers by Tetra Pak, they make up about 50% of developing countries’ population and consume 38% of LDP in developing countries. Half of these DiP consumers live in India and China.  The Tetra Pak research focused on six countries which account for more than 76% of LDP consumption by DiP consumers in developing countries:  India, China, Indonesia, Brazil, Pakistan and Kenya.

 

“India offers a tremendous growth opportunity with over 220 million DiP consumer households,” said Tetra Pak South Asia Markets Managing Director Kandarp Singh. “Contrary to what we have known for some time, this consumer segment is not only looking for affordability but has also become increasingly demanding on quality. We have been developing packaging solutions to address this segment and are very pleased to note that during the past years, our customers have launched several products across geographies in the dairy category at single coin-price points. The market response has been very positive and we continue to see double-digit growth rates in this segment,” he added.

 

Many DiP consumers are expected to grow in affluence, shifting from low to middle incomes by the end of the decade, boosting their purchasing power and the range of products they buy. The increase in spending power along with greater awareness of food safety and a need for convenient, ready-to- drink solutions is expected to increase the demand for packaged products.

 

The global DiP population is forecast to fall by a compound annual growth rate (CAGR) of 3% a year from 2009-2020. The population living on more than $8 a day is set to rise by 4% (CAGR) annually, according to Boston Consulting Group, which helped Tetra Pak to develop the DiP classification. 

 

“Today’s low-income consumers are tomorrow’s middle class,” said Jönsson, noting “this is a golden opportunity for dairy processors to cultivate consumer loyalty among a new generation of dairy consumers in developing countries.”

 

Tapping into this market is not without its challenges, according to the report. Tetra Pak has identified three key challenges for dairy processors seeking to reach consumers in this growth market. They need to make products which are affordable, available and attractive to consumers on limited incomes. That means dairy processors must produce healthy, safe and nutritious packaged dairy products without adding unsustainable costs. They must also make them available in small traditional stores in remote rural areas or congested cities where DiP consumers shop.

 

Innovation and efficiency will be vital in helping the industry to develop products, packaging and processing to meet the needs of these low-income consumers, according to the report.

“We must develop products differently, distribute them differently and sell them differently to extend the availability of good nutrition in developing countries,” said Jönsson.

 

Tetra Pak has identified a number of ways to make products more affordable. Among them is changing the way both milk products and packages are developed – with the price of the product driving development. By using alternatives to whole milk – such as whey or lactic acid – it is also possible to produce nutritious and healthy dairy products at lower cost. Another way is to reduce package sizes or opt for more basic packaging.

 

Figuring out ways to make packaged dairy products widely available to DiP consumers is another challenge. Around 70% of DiP purchases are in the so-called traditional trade, small-family run shops rather than modern supermarkets or convenience stores. Companies are coming up with innovative ways to reach these consumers. They are producing locally where demand for packaged liquid dairy is growing. They are teaming-up with distributors who have a track-record of working closely with traditional stores and they are using appropriate transport, like bicycles, to distribute products.

 

Making products attractive to DiP consumers, who focus on providing the best for their children and often reduce other expenses before compromising on basic nutritional food such as milk, is the final challenge. Companies need to generate significant sales to achieve the economies of scale required to provide value for money and quality nutrition to DiP consumers, according to Tetra Pak.  They also need to create brand awareness and excitement around products for kids who buy dairy drinks and snacks with pocket money.