Yellow fats Are we returning to nature? June 2009

Issues in the market Sales value increased by 16% in 2008, to reach £1.1 billion, mostly driven by high price inflation, due to dairy and energy price rises. Butter continued to grow ahead of spreads, with robust growth at Country Life and Lurpak. Growth of 8% is expected in 2009, to take market value to £1,190 million. The projected rise in home cooking and consumption of bread in the economic downturn will benefit yellow fats, although easing price inflation is expected to dampen value growth. Are inaccurate consumer perceptions hampering usage of yellow fats? How will the economic downturn impact the market? What are the differences in attitudes towards yellow fats across demographic groups? How is brand activity changing the market?

Summary Market Performance Growth of 40% in value sales over 2004-09 will see the yellow fats market reach an estimated £1,190 million. The rise of more expensive spreadable butters has contributed to growth in recent years, with price inflation a major driver of value growth in 2008. Butter has been gaining ground in the market at the expense of spreads, thanks to growing consumer preference for a holistic approach to food, and for natural foods, as well as activity by major brands. Opportunities for growth Perceptions of both butter and spreads seem to lag behind their genuine qualities in areas like taste and naturalness. Communicating these more effectively could tap into some current key consumer trends. While NPD in the UK has been subdued, international trends suggest possibilities in areas like new health benefits, flavoured spreads, and products tailored for cooking and baking. Future of the market Sales are expected to reach £1,391 million in 2014, on the back of 17% growth (6% in real terms) over 2009-14. Brand activity, including NPD and marketing, will remain a central growth driver, although changing eating habits in the downturn (such as more people making packed lunches for work) could also support yellow fats in the short term.

Internal Market Environment Cooks and indulgers support yellow fats The rising interest in cooking (55%) and the steady share of people who like to indulge in less healthy foods (46%) point to opportunities for butter in particular. Natural trend still strong Positioning as natural or pure will continue to appeal to the two in five consumers (41%) who would pay more to avoid artificial additives, particularly the over-54s. Slimming an opportunity for lighter variants Nearly 45% of adults were trying to get slim in 2008, up from a third in 2005, potentially creating opportunities for lighter butters and spreads.

Broader Market Environment AB population still growing The expected rise in the numbers of ABs, with a keen interest in health and naturalness, poses a challenge to yellow fats brands. Over-64s – engaged but slipping The number of over-64s is projected to increase by over 1.3 million by 2014. Core consumers of yellow fats, they are also the most likely to have cut back on consumption for health reasons. Price inflation moderating Rising farm gate milk prices have been a major factor for all dairy-related markets since mid-2007, the pressure now showing signs of easing.

Strengths and Weaknesses Volume consumption of yellow fats is likely to hold up in the short-term, barely changing in the last five years. Bread is expected to do well in the downturn, despite its long-term downward trend, also supporting yellow fats in the short term. The trends towards more home cooking and traditional comfort foods should benefit yellow fats in the downturn. Consumer perceptions seem to lag behind reality in naturalness and taste of yellow fats, with potential to boost interest by reminding consumers of their true credentials. Yellow fats are one of the many foods in the spotlight under the rising health focus. Edible oils are usurping yellow fats in cooking, seen as high in monounsaturated fats and antioxidants. Spreads with added benefits continue to be negatively impacted by consumer confusion and scepticism and poor perceptions of taste. The over-54s are gaining share within the population. Key butter users, they are also the most likely to be cutting back on yellow fats due to health concerns. Product innovation has been notably limited in recent times, due largely to the market’s maturity.

NPD activity by launch type, 2006-08 Who’s Innovating? NPD activity by launch type, 2006-08 Yellow fats have experienced low levels of NPD compared to many other food sectors in the UK, reflecting the nature of the product and the mature market. New products accounted for only two in five launches over 2006-08, as ‘safer’ range expansion by the major brands has accounted for much of NPD International trends suggest more room for innovation in areas like functional, flavoured and specialised cooking spreads. A shift from spreads with added benefits towards premium butters has occurred in NPD over 2006-08, in line with the broader shift towards a focus on naturalness and flavour. Source: Mintel

UK retail value sales of yellow fats and growth index, 2004-14 Market Size and Forecast UK retail value sales of yellow fats and growth index, 2004-14 Source: Mintel At an estimated £1,190 million in 2009, market value is expected to rise 8% against 2008 and 40% on 2004. Growth of 17% (6% in real terms) is forecast over 2009-14, with sales expected to reach £1,391 million in 2014. The projected dip in PDI growth and expected easing of price inflation are likely to dampen value growth in the short term, while changing consumer preferences in the downturn may benefit yellow fats.

UK retail sales of yellow fats, by category, 2004-14 Segment Performance UK retail sales of yellow fats, by category, 2004-14 Source: Mintel Butter looks set to continue to outperform spreads in the near future, as consumers look for food that is natural, familiar, and to some extent, indulgent. The projected dip in PDI growth may see spreads gain favour as the lower cost alternative, the FSA campaign focused on saturated fats also potentially benefiting them. Brand activity will remain a key element contributing to growth, and a shift in marketing focus to spreads could fuel stronger growth than forecast here.

Manufacturer shares in yellow fats, 2008 Market Share Manufacturer shares in yellow fats, 2008 Nearly three quarters of the market is in the hands of the top three manufacturers, making for a high level of concentration. Arla has secured top position in yellow fats, thanks mainly to strong growth of Lurpak, benefiting from the recent popularity of butter. Unilever has lost share in the market, largely due to the shift in consumer demand away from spreads, impacting Flora. Dairy Crest enjoyed a strong 2008, partly benefiting from strong and successful advertising. A relatively small force in the market, own- label takes an estimated 16% stake. Source: Mintel

Main monitored media advertising spend on yellow fats, 2004-08 Brand Communication and Promotion Main monitored media advertising spend on yellow fats, 2004-08 Source: Nielsen Media Research/ Mintel With 90% of the total, the three leading manufacturers dominate adspend. Market leader Arla has been rapidly raising its adspend in recent years and now stands on a par with Unilever at 36%. More than four fifths (83%) of total main media adspend in 2008 was on just five brands, Flora alone taking over a quarter, as groups have focused their spending on key brands for maximum effect. At around 3%, the ratio of main media adspend to sales is relatively high in the context of food, signalling a competitive market. The high spending is an important driver for the market as a whole, partly through maintaining awareness.

Most valuable consumers for yellow fats, by age group, 2008 Consumer Usage Most valuable consumers for yellow fats, by age group, 2008 Some three quarters of adults use butter and spreads, but usage more than once a day is falling. Overall usage of butter is rising and of spreads falling, the former gaining from the latter, thanks to a more natural image. The over-64s contribute relatively the most to volume sales of both butter and spreads, in line with being highly engaged in the category. However, the youngest age group also stands out in volume terms, mainly thanks to high penetration across the age group. Brands might benefit from tailoring communications to each group, to encourage ongoing consumption among the former and broader, more varied usage among the latter. Source: TGI, BMRB/Mintel

Words associated with yellow fats, March 2009 Consumer Attitudes and Motivations Words associated with yellow fats, March 2009 Tasty and natural rank top among positive views of butter, but they are only held by just over half and two in five people respectively. Reminding consumers of these ‘built-in’ qualities of butter would tap into some current key trends, like demand for authenticity and trust. Spreads are seen as an ‘everyday’ food and rarely as too high in fat, although they are viewed as processed by two in five and as bland by nearly one in five. Educating people about the absence of trans fats in spreads and the naturalness of vegetable and seed oils could help combat the negative perceptions and encourage usage. Source: BMRB/ Mintel

Attitudes towards yellow fats, March 2009 Consumer Attitudes and Motivations Attitudes towards yellow fats, March 2009 More than one in three people have cut back on eating butter for health reasons, and nearly one in five on spreads. Health messages on the dangers of a high-fat diet seem to have made an impact, and reassurance may be needed that yellow fats are OK to eat in moderation. Added health benefits typically guide the yellow fats purchases of one in four users, however confusion, scepticism and taste perceptions remains issues. Attitudes to yellow fats seem broadly related to age, with less engagement but high brand loyalty among the younger end, and with health concerns rising with age. Source: BMRB/ Mintel

Target groups by attitudes, yellow fats, March 2009 Targeting Opportunities Target groups by attitudes, yellow fats, March 2009 The ‘Gourmets’ are brand loyal and drawn to premium butter, thus, they are a lucrative target. Natural credentials or flavoured butters could help engage them more. The ‘Everydays’ are very price-driven but highly engaged in yellow fats. They are likely to respond mainly to price promotions. The ‘Cut backs’ are very health-driven, with potential to encourage greater usage of added health spreads, and to reassure them of the role of yellow fats in a balanced diet. Source: BMRB/ Mintel

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