FRESH TAKES ON BIG IDEAS

Every year for the past seven years, I’ve helped lead a survey of dairy executives to understand what’s top of mind for them: their biggest concerns, where they see growth opportunities, and how they see the industry evolving. In this year’s survey, two themes stood out: AI and protein. One is changing how dairy companies operate, and the other is changing what consumers buy.

Let’s start with AI. Of course, these days you can’t have a conversation without talking about AI. Most dairy companies have ongoing AI pilots, mostly in back-office automation. An area where we’re seeing particular interest is process control, which is so important in this industry because dairy starts with cows—and every cow is different. Milk quality and composition naturally vary from cow to cow and from day to day, but of course consumers expect consistency. Since your primary input—in this case, milk—changes every day in composition and quantity, your process control needs to be sharper and more precise.

That’s where AI can be particularly useful. Dairy plants generate a ton of data—temperature, pressure, pH, flow rates, and so on. When a plant needs to monitor many factors simultaneously and understand the interconnections between them, AI models can identify which factors are influencing the outcomes and suggest how to tweak those factors so that the output is more consistent. For example, fermentation—which is key to many dairy products—depends on live probiotics, so every batch behaves a little differently. AI can spot subtle changes early and recommend the best time to end the fermentation process, helping maintain consistent quality and maximize yield.

The second major theme is protein. Protein is the magic word that has sustained dairy in recent years. If a dairy product has a label indicating high protein content, it sells better.
 
Nutrition trends have changed over time. Fat used to be the villain; everyone wanted to avoid fat. Then people realized that fat doesn’t actually make you fat—so carbs became the culprit. Protein, however, has always been a rock star. People have always said it’s good for you, and you should consume more of it. More recently, people have come to understand that the quality of the protein matters, too. Dairy proteins are great because they’re easily digestible and have an amino acid composition that closely matches the body’s needs, so they’re hard to replicate with plant-based sources alone.

“Protein is the magic word that has sustained dairy in recent years. If a dairy product has a label indicating high protein content, it sells better.”

There have been two big recent “events” in the dairy protein phenomenon. There was the boom in Greek yogurt, from 2000 to 2010. Greek yogurt is a strained yogurt—you remove some of the whey to concentrate the protein. The second significant event was the introduction of ultrafiltered milk, a product with more protein, less water, and less lactose. Both Greek yogurt and ultrafiltered milk are now multibillion-dollar industries. 

The protein trend has helped the dairy industry reverse the narrative. Just five or so years ago, plant-based alternatives were growing fast, and some people believed that within a few years the dairy industry would be dead. That hasn’t happened. There are still fluid plant-based alternatives, such as oat juice and almond juice, but they’re much less popular. When we survey US consumers, roughly two-thirds say they use only dairy, and about one-third say they use both dairy and plant-based products depending on the occasion. Less than 5 percent say, “I use only plant-based products—I never have dairy in my fridge.” 

Consumers today want a lot of dairy protein, especially whey protein, which is a coproduct of making cheese. It’s a versatile ingredient—used in baby formula, in sports nutrition, and in many other applications. And there’s been a lot of innovation in dairy protein. There’s now Icelandic yogurt, or skyr, which has even more protein than Greek yogurt. At some coffee chains, you can have your matcha, latte, or cold brew topped with a protein foam. 

Innovation can mean inventing new products from scratch, but it can also mean resurrecting old products. Cottage cheese is a perfect example. Two or three years ago, cottage cheese was associated with consumers the age of my grandmother. But for whatever reason, it started trending on TikTok. People discovered that it has a lot of protein. You can blend it, make sauces with it, and use it as a base for many dishes. Sales of cottage cheese took off. Manufacturers found themselves completely sold out and started expanding cottage cheese production lines, which they hadn’t done in decades. 

In the past three years, US dairy processors have invested an unprecedented $13 billion in building dairy plants. That investment reflects confidence in what lies ahead for the industry. Consumer demand remains strong, AI is helping companies improve performance, and high-quality dairy protein continues to open up new possibilities.

—Edited by Monica Toriello, editorial director, New York

ABOUT THIS AUTHOR

Ludovic Meilhac is an expert partner in McKinsey’s Connecticut office.