The consumer packaged goods industry delivered anemic growth in 2013, inching up 1.8%. The edibles category basically mimicked the trajectory of the whole industry (+1.7%), while nonedibles grew just over a percentage point and general merchandise was flat. But there’s more that meets the “I.” When manufacturers and retailers bring “I”nnovation to their categories, those departments enjoyed growth that far outpaced the market.

Overall leaders in terms of dollar volume for dairy continue to be milk, cheese, yogurt, juice and eggs. In the frozen category, dinner entrees lead the basket ring at the register, followed by ice cream, poultry, pizza and seafood.

But categories backed by innovation, including refrigerated spreads, iced coffee, butter and refrigerated dressings, grew much faster than non-innovators. Key leaders creating this “frozen fury” include fruits and frozen vegetables. Consumers are starting to “drink their meals,” and their use of fruits and vegetables to propel a convenient, good-for-me drink has helped lift these categories. Handheld breakfast is another booming area and driving growth for industry.

The top manufacturer across the dairy aisle is Kraft with over $5.2 billion in category sales. A number of manufacturers are in leadership positions because of their recent innovations. Chobani, which this past year earned a spot in the “billion dollar club”, and Eggland’s Best lead the pack with double-digit growth.  

A number of category growth leaders are using innovation to spark their upswings — particularly leveraging protein and on-the-go consumption to drive sales, sparking better-than-category growth for the likes of Hillshire, Tyson and Kellogg’s.

Consumers’ search for value has taken them away from grocery stores to more affordable channels like Walmart, Club, Dollar and Mass. Dairy has begun to experience a shift in channel preferences to source its broader assortment. While grocery has grown in terms of dollar share, it’s not growing at anywhere the pace of more value-oriented retailers.

But the real story here (and it is even more profound in the frozen category) is the double-digit growth explosion at dollar stores. Dairy essentials are winning big. Butter has spread its sales upwards by more than 75% due to its availability in this platform. (See table at right.)

“Better for you” is around us more than ever. More than $4.6 billion of successful new product launches can be attributed to some type of better-for-you positioning.  Our New Product Pacesetters report shows more natural and organic foods and those offering more fiber, more vitamins or with real fruits and vegetables. At the same time, the products contain less sugar and fat, and are offered in more controlled serving sizes.

Simplicity, wellness and excitement

Three emerging themes are driving many of today’s new product launches: simplicity, wellness and excitement. Some representative products are Chobani Bites, Bolthouse’s Mocha Cappuccino, Land O’Lakes Sauté Express and Laughing Cow, which reduced the fat in its cream cheese spread.

The passion for Greek is extending everywhere and anywhere. We believe it’s going to continue to ride this wave through smoothies, bars, dressing, dips and even some health and beauty products.

So, how do we see the future? We think that shopper targeting is essential. Knowing your customers’ passions and emotions is critical to success.

Niche innovation is critical to achieving longer-term success. We see a growing amount of targeted innovations, whether it is to an aging population or to a growing segment like Hispanics.

Thinking about tomorrow

Take a long look at your innovations and plan their second years and beyond. Far too often new products fail in their out years because the innovation teams have moved on to other launches and their “babies” aren’t supported.

And finally, be sure you have a good strategy to meet consumers in their quest for value. Shoppers are adapting and we need to be there with the right products, promotions and pricing to win this important segment.  

Sandy Krueger is Executive and Practice Leader and Larry Levin is Executive Vice President and Practice Leader at IRI (Information Resources Inc.), Chicago. This essay is adapted from their keynote address, “Driving Growth in Dairy and Frozen Aisles,” at the National Frozen & Refrigerated Foods Association’s Executive Conference in April.

Dairy Does Dollar

Butter                             76%

Yogurt                           51%

Milk                               31%

Margarine                     24.5%

Creamer                        23.1%

Processed cheese       15%

Annual sales increases of selected dairy products at dollar stores.

Source: IRI, Chicago