The European market for non-dairy drinks such as soy milk and juice has grown by a fifth every year since the late 1990s, according to a new report from Organic Monitor.
The report says Germany has this year overtaken the UK as the Europe's premier market for dairy drink alternatives. The Spanish market has also risen quickly, it adds.
Yet, it is private label products that have so far been the big winners.
Mainstream retailers account for 64 per cent of Europe's so-called non-dairy drinks, while supermarket own-brands make up about 60 per cent of the UK's soy drink sales.
The reported partly attributed rapid growth in Germany to the country's discount stores launching several private label products. Dairy drink alternatives produced domestically also now account for about half the market, compared to 28 per cent in 2001.
The dominance of private label in the category has hampered branded players from building up market share. Recent statistics collected by Euromonitor show that all of the big soy milk brands lost market share in Europe between 2001 and 2003.
Either way, the rise of dairy drink alternatives is a worrying sign for dairy processors and shows such products are no longer only bought by consumers concerned about lactose intolerance, but also consumers with more generic health concerns.
Euromonitor said in its report that soy milk has benefited from rising consumer awareness that soy is high in fibre, protein and minerals yet low in saturated fat and free of cholesterol.
Isoflavins found in soy have also been promoted as reducing the risk of many diseases, including certain cancers, osteoporosis and heart attacks.
Yet, Euromonitor's figures suggest dairy alternatives are still on the fringes of the European dairy market.
The value of Western Europe's soy milk market has more than doubled to €375m (£249.5m) between 1998 and 2004, but a long way below the value of Western Europe's 'normal' milk market - valued by Euromonitor at €19.7bn in 2004.
Peter Dawson, policy director at industry association Dairy UK, said dairy alternatives may be a problem in the long-term. But, he said, their market share remained small and they were just another "competitive challenge that the industry will have to face".
Some dairy companies have started to add soy to their dairy drinks and desserts in a move to beat competition from dairy alternatives by embracing them. Both Danone and General Mills' Yoplait brand now offer yoghurts with added soy.
And Euromonitor's report says that cutting lactose in dairy products has become a top priority of many firms, faced with rising consumer concerns over lactose intolerance.