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Milk Formula: Innovation and Segmentation Strategies Amid Entrenched Challenges

December 2020

Milk formula manufacturers face entrenched challenges due to unfavourable sociodemographic conditions. With reduced volume sales growth opportunities, premiumisation strategies driven by greater focus on innovation and segmentation will be increasingly necessary to sustain value sales. Special milk formula is increasingly seen as a key growth driver, while premium niches such as A2 milk formula and goat milk formula see a growing presence of global players, alongside organic milk formula.

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Key Findings

Reduced volume sales growth opportunities

Volume sales growth is expected to remain undermined by the long-term decline of birth rates in major emerging markets and the growing awareness of the health benefits of breastfeeding promoted by health authorities, which particularly hits standard milk formula. However, a rise in urbanisation in some emerging markets also gives manufacturers a potentially wider customer base. In developed markets, a greater prevalence of working from home and lower employment rates as a result of the COVID-19 crisis are also likely to contribute to undermine volume sales growth.

Premiumisation driven by greater focus on innovation and segmentation

The erosion of global volume sales growth in milk formula forces manufacturers to rely ever more strongly on premiumisation through innovations and segmentation strategies to build a competitive advantage and support value sales and profits. Despite economic pressure linked to the COVID-19 crisis dampening growth, demand for premium milk formula is expected to remain resilient, especially in Asia Pacific.

Special milk formula increasingly a key growth driver

Growing-up milk formula remains the main growth-driving category in milk formula globally, followed by special milk formula, which is driven by HA (hypoallergenic) milk formula, increasingly playing a key role in the growth strategy of major manufacturers, fuelled by a rising awareness about allergies and food intolerance among parents.

Involvement of major baby food players into A2 milk formula and goat milk formula

The growing niche of A2 milk formula offering recipes containing no A1 beta-casein protein targets parents of lactose intolerant babies and is set to be further boosted by recent launches by major global baby food manufacturers. Goat and sheep milk formulas also benefit from the rising number of parents seeking alternatives to cow’s milk and also see a growing presence of major global players.

Organic milk formula benefits from consumer trust

Organic milk formula benefits from strong consumer trust, notably in Asia Pacific, while in North America and Western Europe, its popularity is further driven by rising consumer concerns around environment and animal welfare.

Introduction

Scope
Key findings

Fewer Growth Areas in Milk Formula

Demographic challenges encourage shift in geographic focus
Declining birth rates trend in emerging markets set to accelerate
Lower volume sales growth prospect fuels push for premiumisation
Growing-up and special milk formula sole future growth drivers
Special baby milk formula: high growth in Asia Pacific and the US

Innovation and Segmentation Strategies

HA milk formula helps Nestlé and Reckitt Benckiser sustain growth
Rivals follow in the footsteps of the pioneer a2 Milk Company
Organic milk formula, no longer a niche, gains prominence in China
Goat and sheep milk formula: solid expansion in China and beyond
New challenges for growing-up milk formula targeting 2-5-year-olds
Milk formula for children aged over three to improve child nutrition
Product attributes: developed and emerging economies diverge
Conclusions: innovation and segmentation to build premiumisation
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