How Greek yogurt triggered the rebirth of a category—and the new opportunities it’s creating

Greek yogurt, like kale, cupcakes and quinoa, is one of the biggest buzzwords in food. But more than just a fly-by-night fad, Greek yogurt is backed by substantial sales and consumer interest and has awakened the long-sleepy yogurt category, launching it to new heights.

More importantly for investors, the Greek yogurt revolution has changed the way consumers and retailers think about the category, creating intriguing investment opportunities with many new small, but high-potential, target brands.

A decade ago, Greek yogurt made up less than 1% of all U.S. yogurt sales. Now it makes up more than half.

Following in the footsteps of original entrant Fage, Chobani has driven a significant portion of this growth. Its sales grew 32% in 2013—to more than $1 billion. Danone is also making a strong play with its Oikos brand—sales spiked 165% from 2012 to 2013.i Meanwhile, Yoplait is hoping its third foray into the Greek yogurt market sticks.

On the consumer side, Greek yogurt has not only helped Americans expand their per capita yogurt consumption but, more importantly, broadened their yogurt palates and opened their minds to new types of yogurt. Retailers have responded by carving out more shelf space for yogurt. In 2013, yogurt took up about 2.2 million linear feet of U.S. shelf space, up from about 1.9 million in 2011.ii

Given this activity, it’s no surprise that three of the top 10 CPG product launches of 2013 were yogurts— Dannon’s Light & Fit Greek yogurt, Yoplait’s Greek 100 and Müller’s Greek yogurt, which combined for $376 million in sales in 2013 alone.iii

Retailers are also starting to experiment with allocating shelf space to several new types of yogurt, including mix-ins, which are rapidly becoming the next major wave of yogurt innovation. Most of the large yogurt manufacturers have shifted their attention to mix-ins, which commonly include fruit, nuts, chocolate and granola.

German yogurt company Müller, a newer category entrant that has a joint venture with PepsiCo, is helping lead the push in the mix-in space, with Chobani chasing aggressively and Danone’s recent purchase of YoCrunch likely a sign that they will follow suit.

However, while the major yogurt brands focus on the Greek and mix-in segments, there is a huge white space opportunity for private equity investors to jump ahead of them and focus on buying brands that offer high-growth, differentiated positioning in other category segments that may become mainstream in the near future.

Why? For starters, there is still significant headroom for category growth. Packaged Facts estimates the category will continue growing—from $7.6 billion in 2013 to $9.3 billion by 2017. Analysts have compared today’s yogurt market to yesterday’s cheese market—relatively uniform and unsophisticated, but developing. It will only be a matter of time before the yogurt equivalents of organic, herb-encrusted goat cheese and fat-free feta grace most large supermarkets.

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Industry insiders are looking to Europe as an example of what the North American yogurt market could be. Although U.S. yogurt consumption has grown a staggering 800% since 1970,iv we still eat only nine pounds per person per year. In contrast, Canadians eat 24 pounds a year and Europeans eat 77,v as illustrated in Exhibit 1. Many European grocers have not just one but several aisles dedicated solely to yogurt.

Europeans eat so much yogurt in part because it’s not relegated to only breakfast. In fact, many Europeans eat yogurt for dessert at lunch and dinner and use it as a base for sauces and other cooking.

In addition to expanding yogurt’s role at the table, health and demographic trends should provide strong category tailwinds to help propel growth.

Many consumers view yogurt as a healthy snack. In fact, 70% of consumers eat yogurt for digestive health and 82% because it’s a good source of calcium.vi Hispanic and Asian respondents were far more likely than other ethnicities to eat yogurt and thought it was more important that the yogurt be healthy and all natural. Yogurt’s health benefits, namely its newfound focus on protein, are also helping grow its popularity among men, who traditionally consumed less yogurt than women but are now climbing onto the bandwagon.

Additionally, the heightened role of influencer grocery channels like Whole Foods, The Fresh Market and Sprouts creates avenues for emerging brands to develop a national footprint and grow awareness before moving into the mainstream market. And with Chobani’s recent exit from Whole Foods, the time is ripe for new, smaller brands to take its place in this key influencer channel.

These factors all collide to create a promising market for investors. We see two particularly compelling investment theses: focusing on lesser-known international yogurt upstarts, like Australian, Icelandic and Asian styles, and looking at alternatives to traditional cow’s milk yogurt, including lactose free, sheep’s milk, goat’s milk, soy and Chia Pods.

According to a Kurt Salmon survey of more than 1,000 U.S. yogurt purchasers in March 2014, most consumers are still purchasing regular and Greek yogurt, with these “secondary” yogurt types purchased by only 6% to 12% of respondents. (See Exhibit 2.)

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There are also many smaller brands—selling both Greek and traditional yogurt as well as many secondary types—that a majority of consumers are not currently purchasing but show strong growth potential. In fact, major brands are paying attention to these smaller players: Yoplait snapped up two fledgling but well-liked brands—Mountain High and Liberté—in late 2010.

Investors looking to grow these small brands or help foster the success of a lesser-known yogurt type in the United States have plenty of options. Prime acquisition targets include brands that currently have low awareness but high advocacy among consumers currently purchasing them. (See Exhibit 3.)

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Wallaby and Noosa represent two promising entrants in the Australian yogurt category, which are billed as Greek-style yogurts sweetened with honey. With its unique packaging (think one of those round deli to-go containers) and high-end positioning, it’s no surprise Noosa is one of the fastestgrowing yogurt brands in the country. In fact, its sales grew 130% from 2012 to 2013, and that’s with distribution on only about 35% of U.S. grocery store shelves.

Siggi’s is also one to watch. This Icelandic yogurt with unique flavors like orange ginger is less sweet and packs more protein than many others, Greek or otherwise, giving it tremendous appeal to healthconscious consumers. And while the yogurt is expensive—at nearly $3 for a sixounce container—Siggi’s has successfully broadened its distribution to stores from Whole Foods to Wegmans to Walmart. By 2010, Siggi’s was sold in 1,500 stores, up from just two in 2006, and had racked up $2.6 million in sales. By 2013, its estimated annual sales were approximately $17 million.vii It’s no surprise that private equity firm Revelry Brands bought a minor stake in the brand in 2009. (Revelry has since exited the investment, selling its stake to Emmi Group, a European milk processor and dairy.vi )

The yogurt market’s resurgence also paves the way for related categories to grow. This includes options like Chia Pods—containers of chia seeds, coconut and fruit that are dairy free and vegan—that are positioned to take advantage of the ever-expanding American palate.

These brands are all poised to benefit from growth in the Greek yogurt category and a resurgence of the category in general. Savvy investors can get in now and reap the sweet rewards as the market continues to expand.

i Mintel
ii The Wall Street Journal
iii IRI
iv U.S. Department of Agriculture
v Canadian Grocer
vi Mintel
vii Food Business News