New market directions

Functional foods have enjoyed a compounded annual growth rate of 6 per cent for the past five years, and a full 65 per cent of consumers now use these foods. But change is under way. A Elizabeth Sloan, PhD, explores the latest trends, including speciality grains and blood sugar-friendly foods

The North American healthy foods market is changing direction. After years of explosive growth, sales of three categories long synonymous with functional foods — nutrition bars, meal replacements and soy foods — fell into decline.

Organic sales continued to soar as devotees filled their carts with a wider array of new products, but the number of households actually purchasing organic foods quietly declined. While sales in the $32 billion low-fat/fat-free segment rose yet another 2.5 per cent, Americans turned to 'good fats' and increased consumption of healthier oils.

Light and single-serve strategies began breathing new life into carb-decimated categories, inadvertently setting 100-calorie standards for healthy snacks. Diabetics and cholesterol-compromised Americans exhibited long-closeted indulgence behaviours; marketers realized the potential of cross-marketing prescriptions and foods; and parents finally began focusing on reducing serious risk factors for their kids.

Perhaps most importantly, achieving desirable end-health benefits via naturally occurring nutrients and physiologically active bio-components — frequently tabbed 'inherent' or 'intrinsic' nutrition — moved centre stage. And, Quaker Oats set the pace featuring three of the most sought-after health claims — weight control, cholesterol-reduction and blood-pressure management — on its Quaker Oatmeal Weight Control cereal; the introduction of Milk Chillers, a lower calorie/sugar flavoured 'real' milk fortified with calcium and seven nutrients; and, most recently, a healthy breakfast cookie!

Ups and downs
Information Resources Inc's (IRI) most recent Pacesetters report, which identifies the most successful new US products (including those that hit the $100 million dollar mark in year one) reveals that right after 'new variety, flavour or recipe,' top-performing products offered a reduced-calorie benefit followed by added nutrients (eg, vitamins, soy, calcium). Both appeared more frequently than an 'extra convenience/portability/ready-to-use' benefit. Also among the top 15 product benefits were more natural/organic; a diet aid; less, reduced or fat-free; and increased energy/protein.

The Natural Marketing Institute (NMI) reports that functional foods have enjoyed a compounded annual growth rate of 6 per cent for the past five years and are at a level where 65 per cent of US consumers used them in 2005 ? and 67 per cent used fortified foods.

Within the good-for-you segment, organic and low-sugar products have proven to be the most sustainable categories long-term. Those generating consistent year-over-year sales gains include flax/hemp up 13.6 per cent, whole grains 7 per cent, no/reduced lactose 5.6 per cent and no/reduced calorie 2.5 per cent. Low/no sodium products sales fell -0.9 per cent overall and soy fell -1 per cent in mass channel sales.

More than half of North American consumers are regular purchasers of whole grain/high fibre foods, 41 per cent cholesterol-reducing oils/margarine, 32 per cent fortified fruit juices, 22 per cent yoghurts with Acidophilus cultures/probiotics, 10 per cent soymilk and 4 per cent fermented drinks with 'good bacteria,' reports ACNielsen's new Functional Foods and Organics global report.

Weight loss (68 per cent) tops the list of reasons Americans give for controlling their diet, followed by cholesterol level (32 per cent), fat intake (21 per cent) blood sugar level (20 per cent), maintain weight (19 per cent) and hypertension, reports Mintel/Simmons.

Americans are increasingly gravitating to 'light' product categories. An analysis of 17 major categories offering light alternatives by IRI found that light product sales growth (excluding low carb), while still modest at 2.5 per cent, far outpaced total category gains of 0.6 per cent. Low-carb sales dropped about 33.7 per cent in 2005. Light represents one-quarter (24.7 per cent) of all yoghurt sales, while 'light versions of snacks and desserts — excluding low carb' have experienced strong growth in otherwise flat markets.

Packaged Facts' 2005 Understanding Consumer Attitudes About Food Safety report found that two-thirds of US adults are actively trying to avoid caffeine, 43 per cent mercury in fish, 41 per cent pesticide residues, 39 per cent artificial fats, 38 per cent hormones in meat/poultry, 37 per cent hydrogenated oils, 35 per cent antibiotics.

Another 33 per cent are avoiding artificial sweeteners, 32 per cent preservatives, 30 per cent GMOs, 26 per cent MSG, 24 per cent food colouring/dyes and 22 per cent nitrites/nitrates.

According to SPINS/Soyatech's Soyfoods: the U.S. Market 2005 report, the soy foods market matured in 2004, with overall growth slowing to 2.1 per cent and projected to remain in the 2-3 per cent range for the next four years. Sales of energy bars, representing 22 per cent of total soy sales, fell 9.8 per cent, while soymilk had a historically low rate of 7 per cent in mass channels, and a 4.8 per cent decline in natural supermarkets sales. Sales of soy-based meat alternatives and meal replacements also fell. Flavoured soy beverages, projected by the Beverage Marketing Corp to reach $300 million by 2009, are a very bright spot.

Strong sales growth in single-serve beverages illustrate the growing number of occasions were foods and beverages are consumed on the go. Within carbonated soft drinks and chilled juices/drinks, single-serve dollar sales far outpaced total category growth, but represent a small proportion of sales.

Single-serve now represents 81 per cent of the energy drink category, 55 per cent of ready-to-drink coffee, 45 per cent of sports drinks, 38 per cent of ready-to-drink teas, 12 per cent of carbonated soft drinks and 8 per cent of chilled juices/drinks.

Among more indulgent snacks, single-serve and/or multi-packs of single-serve products are experiencing strong growth in mass channels, even in mature and carb-decimated categories. But perhaps, most surprising to some, is the 20 per cent drop in mass channel sales of nutrition bars, when the healthy snack market is hotter than ever.

Rice snacks, granola bars and breakfast bars have all posted respectable sales gains. But, problems have been brewing in the bar market, in addition to the heavy reliance on low carb.

More than three-quarters of Americans (79 per cent) are not regular bars eaters, according to Mintel's Nutrition Bars 2005 report; 39 per cent have never tried a nutrition bar; and the rest are concerned with expense, taste or 'don't think a bar is real food'. Those over age 55 and minorities also index very low for bar consumption. Many perceive calorie levels as too high, fortification levels excessive for children and many bars far too similar to candy bars.

The FDA drives new directions
Oil: Trans fat labels and qualified health claims for olive oil, nuts and omega-3s are training consumers to avoid specific types of fat and to add in good fats. HealthFocus reports that a 'low in saturated fat' label claim is now the most appealing fat claim and is extremely/very important to 41 per cent of shoppers, followed by no trans fatty acids at 39 per cent, cholesterol-free at 36 per cent, low-fat at 36 per cent and fat-free at 32 per cent.

Nine out of 10 (91 per cent) consumers think that olive is the healthiest oil, followed by soybean (87 per cent), sunflower (82 per cent), canola (82 per cent), safflower (79 per cent) and corn oil (67 per cent), reports the US Soybean Board's 2004-5 survey.

Food marketers are capitalizing on this. Mintel reports 423 new canola products in the US in 2004, 243 new oleic or olive oil-containing foods, and 84 with high oleic safflower oil. Hellmann's Canola Real Mayonnaise by Unilever, made with canola oil, promises to be 'an excellent source of omega-3 and omega-6 fatty acids' on its label.

ProductScan noted 244 new omega-containing foods in the first nine months of 2005. Arnold Foods Co's Arnold Smart & Healthy 100 per cent whole wheat bread contains DHA/EPA omega-3s, as does Barilla's Barilla PLUS multi-grain pasta brand. Mintel reports 41 new US product introductions in 2004 touted dososahexaenoic acid (DHA), 21 medium-chain triglycerides, 18 conjugated linolenic acid, 16 gamma-linolenic acid and 28 eicosapentaenoic acid (EPA).

Allergies: The FDA's Food Allergen Labeling and Consumer Protection Act, which required manufacturers to declare any ingredients containing protein derived from milk, eggs, fish, crustacean shellfish, tree nuts, peanuts, wheat and soybeans on the label — has helped to skyrocket the food-sensitivity market mainstream.

Although about 11 million Americans are estimated to suffer from true food allergies, untold millions increasingly blame food sensitivities for their everyday feelings of ill health. The Food Marketing Institute reports that one in five grocery shoppers have a household member suffering from a food allergy or sensitivity. Ian's Natural Foods Allergen Free Chicken Nuggets and Fish Sticks are among the first breakthrough allergen-free foods for children.

Lactose-related claims now appear in 96 food categories with sales of fresh breakfast cakes/sweet roll up 128 per cent and frozen biscuit rolls/muffins 79 per cent vs a -4.8 per cent overall category decline. In the southern US, the H.E.B grocery chain's new MooTopia lactose-free milk features 60 per cent less sugar, 75 per cent more protein than other milks and is enhanced with vitamins A and D. Lactose intolerance is estimated to affect 30-50 million Americans and up to 75 per cent of blacks and 90 per cent of Asians in the US.

Gluten-free foods posted $396 million in mass channel sales for the year ending October 2005, reports ACNielsen. Whole Foods Market added its own gluten-free bake house in June of 2004. Wal-Mart asked suppliers to declare the gluten content of their products and launched its Great Values gluten-free line in August 2005.

Grains: Packaged Facts 2005 report on the US Market for Whole Grains and High Fiber Foods projects whole grains will be a $7.5 billion food category by 2009. Nearly 700 whole grain UPCs were added in the first half of 2005, according to ACNielsen's LabelTrends. The FDA's recent approval of a health claim for the role of beta-glucan soluble fibre from barley in reducing the risk of coronary heart disease will help highlight less-familiar grains and draw attention to their specific health properties. Expect a trend to heritage products utilising older forms of grains such as quinoa, amaranth and buckwheat to escalate.

Gluten-free will drive the trend to speciality grains and give soy a new lease on life
Gluten-free will help drive the trend to speciality grains and give soy a new lease on life. Along with corn, rice and potatoes, soy, buckwheat, millet, tapioca, quinoa, teff, amaranth and sorghum are also gluten-free. ConAgra's Orville Redenbacher's and Act II's microwave popcorn made from 100 per cent whole grain corn highlights what can be done with whole grains other than wheat.

A focus on speciality grains will also spur the dietary fibre market. Tropicana has introduced the first national orange juice with 3g fibre in every glass ? Tropicana Pure Premium Essentials with Fiber. Gluten-free and high-fibre products are also well positioned for the growing US market for sensitive tummies.

According to NMI, 30 per cent of all US households are trying to manage or treat acid reflux, 19 per cent indigestion, 14 per cent constipation, 25 lactose intolerance, 6 per cent gastritis and 7 per cent stomach ulcers. The Dannon Co introduced Activa in January 2006, the US' first probiotic yoghurt 'clinically proven to help naturally regulate your digestive system in two weeks, when eaten daily.'

Blood sugar: Blood-sugar management is clearly among the highest potential markets of recent times, going beyond diabetes/insulin to a means of managing weight, energy levels, mood swings, appetite and improved concentration. And, a very large market it will be. The Centers for Disease Control estimate that 47 million US adults and 1 million kids already have metabolic syndrome; 49-69 million are insulin resistant and 41 million have pre-diabetes. Considered an epidemic with 1.5 million new cases per year, the incidence of diabetes rose 14 per cent during the last two years; one in three Americans born in 2000 are projected to be afflicted during their lifetime.

The NMI reports that nearly four in ten US adults now express a desire for foods that can help manage blood sugar levels. In 2004, one-quarter (24 per cent) of consumers added some foods to their diet to keep blood sugar stable. The glycaemic index is fast approaching mass-market status.

Looking ahead . . .
Savvy health marketers are also recognizing the power of other channels. Today, about half (51 per cent) of all restaurant diners think about health when ordering, according to Technomic Inc.

With more than 100 million using a vending machine every day, savvy marketers are quickly moving to develop products for this ultimate grab-and-go format, long considered a stepsister to traditional channels. Dole recently introduced its Fruit Bowls for vending.

And, lastly, America's leading convenience store chain — 7-Eleven stores, which serve over 6 million people per day — has recently expanded its Pick Smart program, a line of fresh, low-fat and low-calorie foods. Mintel's Energy Drink report reveals that 50 per cent of energy drinks are now sold via convenience stores and off-premise grab-and-go food service outlets.

The future looks good! Mintel's 2005 Functional Foods report projects sales of functional foods to rise 23 per cent, functional beverages 27 per cent, and vitamins and minerals 13 per cent, after adjusting for inflation, by 2009. The two largest generational segments will skyrocket condition specific, risk-reducing, sports nutrition and energizing foods.

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