To capitalize on growth drivers and secure a promising future in alternative dairy production, today’s manufacturers need to spend their capital dollars wisely with a focus on four key considerations.
If you’re in the mood for a plant-based burger, you may go hungry a while longer. McDonald’s recently halted their rollout of the McPlant burger in the USA, while Burger King is scaling back plans to expand their plant-based offering. Alternative meat is still hot—it’s just not sizzling, at least not on the fast-food griddle.
Alternative (also referred to as plant-based) dairy, on the other hand, is a different story.
Demand for alternative dairy products has ballooned. Some analysts expect the global market to grow by more than 10.1% over the next four years, reaching a projected $43.6 billion by 2028. Several interconnected drivers are behind this surge, giving both large and small manufacturers an opportunity to capture enormous gains—if they can conquer enormous competition first.
Alternative dairy production growth drivers
A shift from “I need dairy alternatives” to “I value dairy alternatives.”
Consumers with lactose intolerance or other dairy-related health concerns gave alternative dairy its start, but the landscape has expanded dramatically since then. Many consumers with alternative dairy products in their cart are intentionally choosing brands that they perceive as healthier, more sustainable, and more animal-friendly. This “values based” consumer represents a broad and enthusiastic target market; in fact, analysts have suggested that alternative dairy products are popular among close to 40% of American adults.
Improved diversity and quality of alternative dairy products
This surge in consumer demand has ignited competition in the alternative dairy industry, which in turn is fueling rapid innovation cycles. Quality continues to rise, closing the gap between alternative and traditional dairy products in terms of taste, texture, and nutritional value. Meanwhile, new products are coming to market all the time, offering consumers alternatives to just about any product with dairy-based ingredients.
New distribution channels
In addition to new and improved products, alternative dairy manufacturers are finding untapped avenues for distributing their products to the consumers who want them. A push for more equitable and inclusive nutritional programs in schools is one example, particularly in light of the fact that students of color are more likely to be lactose intolerant.
Alternative dairy production strategy
To capitalize on these trends and secure a promising future in the alternative dairy marketplace, today’s manufacturers need to spend their capital dollars wisely. That means understanding the role that their capital assets play in reaching consumers, outpacing competitors, and fostering an environment of innovation and continuous improvement.
To achieve these goals, start by focusing on four key considerations.
1. Optimize for your target market
Behind any capital investment, you’ll find a diverse team of executive leaders, engineers, process architects, and end users, all contributing to the success of the project. One of the most important contributors, however, isn’t on the project team at all. In fact, they don’t even know that your project is underway, and yet their influence can—and should—directly impact your business plan and capital spending decisions. We are talking, of course, about the end consumer.
In a market as competitive as alternative dairy, there’s always another manufacturer eager to take your place on store shelves. Taste and other physical attributes play an important role here, particularly as consumers have more products to choose from, but a large proportion of alternative dairy consumers are driven by more personal and intangible factors. In other words, you can bring the best-tasting plant-based mozzarella to market, but if you can’t persuade your target consumer that you align with their core values, they may pass your product by.
What does this focus on the consumer mean in terms of capital spending decisions? The answer relies on the art and science of strategic facility planning, which is all about linking your business drivers with your front-line operations.
As an example, consider an alternative dairy manufacturer who’s about to invest in their first commercial manufacturing plant. They’ve done their market research, and they understand what motivates their target consumer.
Consumer insight:
Our target consumer is willing to pay a premium for products that they believe contribute to reduced climate impacts and improved sustainability outcomes.
This manufacturer incorporates their understanding of the end consumer into their capital spending decisions by considering questions such as:
Who are our suppliers?
Supply chain transparency is key. By working with suppliers whose own agricultural practices align with your brand positioning and your target consumer’s values, you can tell an authentic, consistent sustainability story that may set you apart on grocery store shelves.
Where will we locate our alternative dairy production facility?
It’s hard to defend a sustainability-forward position if your facility and your suppliers are linked by an extensive network of carbon-emitting transportation infrastructure. Instead, by locating your manufacturing plant as close as possible to producers of the agricultural commodities you rely on, you can potentially strengthen your position as a sustainable brand.
How will raw materials, people and waste move through our facility?
An efficient facility is good for the bottom line, and it’s good for brand positioning, too. To capitalize on both advantages, invest in robust up-front planning during the capital delivery process, ensuring that your future facility is optimized for efficient energy use, product safety, minimal waste production and environmentally friendly best practices.
How will we package and market our product?
Some research suggests that consumers spend as little as a third of a second choosing a food item. For manufacturers, that means that a lot depends on immediate first impressions—in particular, the way a product is packaged, which instantly communicates your brand values to the consumer. Innovations in sustainable packaging abound, but taking advantage of them requires upfront capital planning and investment.
How will we design our distribution network?
A faster and more streamlined distribution network can signal freshness and transparency to consumers, potentially giving you a competitive advantage. Shelf stability is also a factor; by investing in product formulations that eliminate the need for refrigerated transportation, you can further minimize transportation logistics, reduce your expenses and amplify your message of sustainable, energy-efficient manufacturing to consumers.
2. Invest in innovation
Alternative dairy manufacturers may have first entered the marketplace with a focus on liquid dairy, but the industry has come a long way since then. Eager to beat each other to market with an ever-evolving offering of unique products and flavors, today’s leading alternative dairy manufacturers have set a brisk pace of innovation—and companies large and small are hurrying to keep up.
This is complex territory for any manufacturer. New entrants may find it difficult to manage the risks of investing in R&D activities that may or may not pay off. For established dairy producers who are expanding into plant-based production, the cultural shift may be the most difficult element; since lactose-free milk debuted in the 1980s, traditional dairy producers haven’t had to accommodate such rapid changes.
Whatever your size, this premium on innovation has direct implications on facility design. In particular, capital delivery teams should consider three key questions with long-term facility implications:
Where will R&D take place?
Some companies, particularly smaller manufacturers, may house their research lab and production operations under the same roof or work with innovation centers. Larger companies are more likely to separate the two, perhaps locating their R&D site in knowledge hubs like New Jersey or California while their production facilities operate closer to their agricultural suppliers. Planning an R&D strategy that works for your current and future business goals is key, ensuring that your investment in innovation will pay off.
How will your facility contribute to an “innovation mindset”?
Innovation isn’t just about establishing a well-equipped lab or implementing the latest production equipment—it’s also about team culture.
Influencing team culture is a challenging and imperfect art, though. Senior leaders play a role by establishing a company’s overall tone and creating an open-minded environment where employees of all ranks and skill levels are encouraged to identify opportunities for innovation, iterate on solutions, and accept failure as a step on the way to success.
Facility design matters, too. Life science companies know this already, providing many unique examples of architectural features that could help alternative dairy manufacturers design their own “innovation focused” facilities. Consider, for example, an art installation that celebrates recent company innovations, breakout spaces that encourage team brainstorming or an open atrium suitable for events that put senior leaders and front-line staff in communication with each other. All of these design elements can contribute to the overall tone of a company. This, in turn, can foster the type of innovative problem-solving that may put one company ahead of another in the race for dominance in the alternative dairy marketplace.
Is your production facility optimized for rapid and continuous change?
You may not know exactly what your product pipeline will look like in five years, but you’ll likely need to implement new processes, equipment, and people to keep up with the pace of innovation.
To make those changes rapidly and with minimal impact on existing operations, you need a facility designed to adapt from day one. That could mean:
- Prioritizing flexibility when selecting building materials and segments, such as walls that can be easily repositioned or removed.
- Allocating sufficient space for future expansions, so that you can build and install new front-end equipment in one area of the facility while continuing to operate an existing production line in another area.
- Designing infrastructure with future needs in mind, such as additional drainage capacity, HVAC hookups, etc.
- Preparing not just for product-related innovations, but for developments in specific areas of the facility, such as packaging. A move from individual to bulk packaging, for example, may position your company to reach a new consumer base (in schools, for example).
- Considering future workforce needs from the perspective of amenity spaces, locker rooms, parking lots, and more.
By thinking about your company’s innovation goals and tying those goals to your facility design, you can position yourself for rapid continuous adaptation as your pipeline expands, your consumer base grows, and new technologies emerge to make your manufacturing process more responsive and efficient.
The cost of short-term capital planning: a cautionary tale
An alternative dairy manufacturer recently approached us for help navigating a challenging moment in their growth cycle.
Prior to our engagement with them, this manufacturer had designed a new commercial manufacturing facility to produce their flagship product. By the time their new facility was ready for operation, however, their product pipeline had grown—a sign of the rapid innovation cycle driving many alternative dairy manufacturers.
Unfortunately, their new facility and all of its utilities had been optimized for a single product line. There was no room for expansion. To increase their production capacity, this client had to invest significant capital and reimagine their facility’s layout and infrastructure. This hurt their bottom line and delayed their arrival in the marketplace.
Key takeaways:
- Future-proofing your facility may require more planning and upfront spending, but it’s an investment that will almost certainly pay for itself.
- With a future-proofed facility, you’ll be better positioned to respond quickly and cost-effectively as your product pipeline grows and new manufacturing technologies emerge.
- By planning for tomorrow’s opportunities today, you could potentially put yourself ahead of your competition at a critical moment.
3. Leverage co-packers for safety and flexibility
Contract packers, or co-packers, can play a beneficial role for alternative dairy manufacturers, especially those grappling with few resources and immense pressure to hurry new innovations into the marketplace.
By partnering with a co-packer, manufacturers can leapfrog straight from discovery to production without first investing immense time and money in capital scale-up. That opens the door to greater profitability in the case of successful products; it also gives manufacturers an opportunity to test and improve underperforming products without putting immense capital investments at risk.
In addition to speed-to-market, co-packers also offer the potential for increased food safety. By carefully choosing a co-packer with an established history of quality and regulatory compliance, manufacturers can focus on product development and brand marketing while leaving crucial manufacturing operations such as the all-important kill step and the application of aseptic processes and packaging systems to established experts.
Of course, to make a co-packer strategy work, manufacturers must overcome a few challenges along the way. For one thing, today’s demand for co-packer availability has outstripped supply. This has led to long lead times, which undermines the main benefit of a co-packer relationship: speed.
Some manufacturers address this challenge by producing their own base milk product in-house, leaving just the final formulation and packaging steps to co-packers. This approach can also preserve manufacturers’ control over proprietary recipes, though a robust vetting process should eliminate any co-packers with inadequate IP protections.
Incentivized by the potential for improved margins and greater quality control, many manufacturers aim to eventually integrate their complete manufacturing lifecycle in-house. It’s a move that could position manufacturers for higher-volume production, though it also means accepting a higher liability in terms of product safety and quality. Understanding your own long-term goals vis-a-vis vertical integration of manufacturing capacity can help you generate more value from today’s capital investments.
4. Get the right capabilities in place at the right time
Whatever your stage of development as a manufacturer, investing in appropriate capabilities as needed—and positioning yourself to continuously improve and expand on those capabilities—is key.
Some of these considerations come down to the basic requirements of dairy production, whether traditional or alternative, such as applying hygienic standards to ensure that your building and equipment are easy to clean and sanitize. The hygienic standards that apply to your facility depend in part on your product pipeline, so ongoing consultation with experts who are up-to-date on FDA rules and guidelines may be a worthwhile investment.
Other capability-related considerations are less easy to measure and observe. Do you have the capability, for example, to quickly seize on new opportunities as they emerge? This is where the ideas outlined in this article converge:
To succeed, each manufacturer needs to understand their consumer base, prepare for rapid innovation, and develop strategies that will help them get new, consumer-focused products to market quickly and safely, whether by relying on co-packer partnerships or by developing robust, future-ready facilities capable of flexible, high-volume production.
Bringing these elements together and translating them into an efficient manufacturing network takes skill, expertise, and diligent up-front planning.
Will you be part of alternative dairy production’s future?
The convergence of high demand from consumers and an appetite for speed and innovation among manufacturers has created a unique situation in the alternative dairy industry. Large, well-established food companies with an interest in alternative dairy production are finding themselves in competition with small, scrappy startups who are bringing great ideas, supreme quality, and a values-driven brand story to consumers’ dinner tables.
It’s a situation that’s rich in opportunity for any manufacturer with the right strategy in place. To count your own company among those who will turn this opportunity into success, start planning your robust, future-proof capital assets today—and get ready for an exciting tomorrow.
Let’s talk about how CRB can support your alternative dairy production strategy and operations
