Market fragmentation paves the way for niche marketing

Consumers create their own health definitions
There is one trend that drives all the others: information. Consumers are being bombarded with information about health as never before—from TV, magazines, newspapers and the Internet. Health and well-being fills thousands of column inches in magazines and newspapers, but rather than having the intended educational effect, instead consumers say they find information they read about food and health confusing and contradictory.

Their response has been to simply make up their own minds about what they think works best for them in the context of their own lifestyles and then choose the foods and diets that suit them. So we shouldn't be surprised at the popularity of, for example, high-protein/low-carb diets. There are an estimated 35 million Americans trying to reduce carbs, and the market gives evidence for that. Annual sales of low-carb foods are estimated by New Nutrition Business at $2 billion.

Even in restaurants and hotels, customers are cutting out the carbohydrates. In one recent report, the Los Angeles-based hotel chain Loews Hotels found 25 per cent of its guests who order food want carbohydrates eliminated from their dishes. This is affecting consumption patterns. Products like bagels and muffins have declined in popularity while eggs have shot up, with hotel guests ordering eggs without toast, meat without potatoes.

The debate over the merits of low-carb diets reached something of a milestone in September 2002 when Anheuser-Busch introduced Michelob Ultra, the first major beer to stake a low-carb claim.

High-protein/low-carb diets are popular because some consumers have found that it works for them. Other dietary philosophies appeal to different groups of consumers as being healthy: vegetarian, Mediterranean, organics, low-sugar, wheat-free, gluten-free—the list goes on. And everywhere in the US and Europe, foods that can connect to various consumer diet preferences, whether truly healthy or not, show strong sales growth.

The upshot is a fragmentation of the market for products that deliver health. Functional foods and other products perceived by consumers to be health-enhancing increasingly perform well as niche brands, whereas companies that think they can create new brands which will rapidly achieve mass-market scale—as Swiss pharma group Novartis thought it could do for its now-failed Aviva range of functional foods—may be sorely disappointed. Consumers, for now, control the game.

The obesity crisis
However, one mass-market opportunity for which producers have the advantage and that will be sure to grow is for products that address weight loss or weight management.

Obesity incidence has doubled since 1980, and 61 per cent of the US population is now overweight or clinically obese. Put another way, that's 171 million Americans who are overweight, among whom 77 million are clinically obese. So bad is the crisis that people of the correct weight are now a minority. And being overweight is the most common health problem facing American children, with an estimated one in four overweight and 11 per cent obese.

Obesity is also fast becoming an epidemic in Europe. According to the respected International Obesity Task Force (IOTF), Europeans live in an 'obesogenic environment' that makes it easier to be fat than fit. Such is the scale of the obesity crisis, says the IOTF, that a practice of five physicians with 10,000 patients between them—a common ratio in Europe—would find themselves, because of the escalating epidemic, dealing with 80 new obese patients every year.

It will become vital for companies to respond to the obesity crisis, if they want a place in the market, by reformulating their products to become healthy 'as a standard.' PepsiCo's Frito-Lay unit, the world's largest maker and marketer of salty snacks, dropped a bombshell in October by announcing that as well as eliminating trans fats from its Doritos, Tostitos and Cheetos product lines, it is introducing reduced-fat versions. "We're taking several steps that will change the way America snacks," said Al Bru, president and chief executive officer of Frito-Lay North America. The move is part of a growing collaboration between PepsiCo and experts and companies that can help it expand further into healthy product lines.

And it is not only PepsiCo. McDonald's recently announced that it will begin cooking its fries, Chicken McNuggets, Filet-O-Fish sandwiches and other products in a new oil that reduces trans fatty acids by 48 per cent and saturated fat by 16 per cent.

When companies like these put health at the centre of their strategy, it's time to sit up and pay attention. They recognise that health 'as a standard' is the future for the food industry. And for those companies that decline to accept this reality, there's the prospect that recent court cases, which have seen individuals successfully take fast-food chains to court, blaming them for their obesity, are just the beginning of a trend, because some of the lawyers behind these moves are the same ones who successfully led the legal actions against the tobacco industry.

The rise of the glycemic index
Once widely regarded as controversial and of relevance only to diabetics, the glycemic index (GI) is now even backed by Harvard Medical School as a useful tool to help consumers make healthy diet choices. And soon, Australian consumers interested in managing their blood-sugar levels are to get additional help making healthy choices following the launch of a new and unique on-pack logo that will tell shoppers at a glance the GI of a food.

The new logo, called the GI Symbol, is the brainchild of the University of Sydney, which has formed a non-profit company to build awareness of the symbol and license its use on food products. Companies that take part in the programme can have the symbol and a food product's GI value listed on the label and can use the symbol in their marketing.

The GI symbol matters not only to diabetics but to everyone, because a diet with an excess of high GI foods is strongly indicated as an increased risk for obesity and related conditions. And even if some scientists are still not sure about the mechanism, consumers have already made up their minds. American consumers have bought 800,000 copies of The Glucose Revolution: the authoritative guide to the glyemic index, co-written by Jennie Brand-Miller, PhD, the world's foremost researcher on GI and one of the brains behind Australia's new symbol.

Products that can help people manage their blood-sugar levels are set to grow in popularity. Prima Liv yoghurt, for example—the first food in Sweden to have its health claim approved under that country's new health claim regulations—is a product that helps regulate blood-sugar levels. In the US, Shaklee has introduced a dietary supplement for blood-sugar regulation.

The power of convenience
But health alone is never enough to sell a product, and consumers are increasingly demanding convenience as a standard in healthy foods. The development of cartons and squeezable tubes enables chilled desserts and yoghurts to be consumed on-the-go. One of the most interesting examples of recent years is the massive hit achieved by Go-Gurt, a regular yoghurt packaged in a tube that makes it portable and eliminates the need for a spoon. Go-Gurt has become a $100 million-plus brand for its owner, General Mills.

If you want to build a successful new brand, put it in a single-serve before you put it in a one-litre pack
It is convenience—particularly that provided by hand-held, on-the-go, single-serve products—which helps underpin many of the most successful nutrition brands such as Yakult, Danone Actimel, Naked Juices and other smoothie brands, Red Bull and other energy drinks, and Emmi Energy milk, as well as the entire energy bar business.

If you want to build a successful new brand, put it in a single-serve before you put it in a one-litre pack.

Booming beverages
Look around at which functional brands are the most successful and you'll see that it's functional beverages rather than functional foods that have been the success story of recent years. Added together, the sales of successful new functional beverage brands dwarf those of successful new functional foods brands. Beverages have health on their side. Most deliver their health ingredients in carriers that have an intrinsically healthy image with consumers—juice or yoghurt, for example. What's more, they also have convenience on their side—the most-successful brands are usually also ultra-convenient, single-serve products that you can grab for a morning or afternoon snack and that don't require you to change your habits.

The next decade will see beverages continue to outstrip foods in the functional stakes. What's more, beverages seem positioned to take over from foods as 'liquid foods.' In fact, many are already marketed with that message. More will focus on offering a 'complete breakfast'—as does the Hero juice company's 'five second breakfast' in Germany; or offering a 'liquid breakfast,' as does Up & Go in Australia; or offering a way to get your RDA of vitamin C in a single chug, as does Innocent in the UK; or offering a way to get one of your five-a-day portions of fruit and vegetables without the mess or fuss, as does Just Juice in New Zealand.

Beverages will increasingly be seen as the more-convenient substitute for meal occasions—principally breakfast—or for snacks, but one day it will in all likelihood be lunch and dinner too—at the expense of traditional breakfast cereals and other categories.

Eye health for life
An increasing number of ingredients that have hitherto been found only in dietary supplements will also begin to become more popular in beverages. The driver, at least in the near term, will be baby boomers and their desire to hold off the ageing process.

Kemin Foods has skillfully facilitated this transformation with lutein, a substance that occurs naturally in leafy green vegetables such as spinach and that has been scientifically established to play a vital role in eye health and in particular can reduce the risk of age-related macular degeneration (AMD). Kemin has touted its FloraGlo lutein for inclusion in many functional foods and beverages. Lutein has been marketed in dietary supplements since 1994 and this year entered beverages for the first time, one of the brands adopting lutein being pharma group Abbott Laboratories' highly successful Ensure nutritional beverage.

For now, products containing lutein will likely perform as niche brands, but over the coming decade the baby boomers will be entering their 60s, the years when eyesight deterioration can start to become a serious lifestyle issue as well as a medical problem. Then we can expect to see eye health products really start to take off.

Joint health
It's a similar story for joint health ingredients such as L-carnitine, glucosamine, chondroitin and so on. For now they can be found largely in supplements. But that has begun to change, and they have debuted in beverages in Germany and in the US—where Joint Juice by Joint Juice Inc is marketed on the West Coast.

Joint health is one of those conditions, like gut health, for which you can very quickly feel whether a product is working for you. That means that products that don't have the science to relieve joint discomfort will quickly be found out by consumers—and rejected as ineffective. Products that can combine efficacy with convenience, delivered in an intrinsically healthy form, such as a juice, will be able to ride up the growth curve as increasing numbers of boomers, their joints worn out by a lifetime of tapping on computer keyboards, seek a remedy for their discomfort.

The non-dairy opportunity
The American soy milk market—particularly the Silk brand—has been one of the success stories of the last five years. And it's no coincidence that sales of soy beverages have outperformed those of soy foods. Currently, large parts of the European food industry remain in denial about soy, saying that European consumers will not accept it. In the UK, however, where a cholesterol-lowering health claim was recently approved for foods containing soy protein, soy milk has already become one of the fastest-growing categories flying off supermarket shelves, though still a niche product.

But it's not only soy for which the future looks bright. There are excellent growth prospects for a whole range of non-dairy products, using a health platform. One of the best European examples is the probiotic fruit-juice brand Pro Viva, marketed by Sweden's Skane Dairy and featuring an intestinal health message. Pro Viva is one of the very few functional products to have successfully grown into a mass-market brand, with 8 million Swedes consuming 12 million litres of Pro Viva each year. Pro Viva is a true non-dairy probiotic product, using a lactobacillus from a vegetable source, its benefits supported by strong science, in a 'naturally healthy' fruit juice.

What's more, Pro Viva is marketed by a farmer-owned co-operative dairy. In fact, there's a strong argument for dairy companies, faced with declining liquid milk markets, to use their processing know-how and chilled distribution to maintain their market share by meeting the needs of the small but growing numbers of consumers who are either reducing the amount of dairy in their diets or choosing to add non-dairy alternatives. America's biggest soy milk brand, White Wave's Silk, is, after all, now owned by America's biggest dairy company, Dean Foods, and even New Zealand's Fonterra has launched a soy drink in Malaysia under its highly successful Anlene functional beverage brand—one of the functional success stories of the Asian market—which has hitherto been a purely dairy brand.

The successful companies and brands of the future will be the ones that can build their foundations upon multiple trends
Oats' day has come
And another of those non-dairy opportunities might just lie in oats. Back in 1998, when oats first gained an FDA-approved heart health claim, the only way of eating them for most consumers was in porridge or another cereal. But since then, manufacturers have found an increasing number of ways to enhance the convenience of oat products. Oat milk, for example, is on sale in Sweden, Finland, Spain and the UK; oat-based cereal and energy bar sales are increasing; sales of oat biscuits—a traditional food in Scotland—have taken off among consumers looking for healthy, wheat-and-gluten-free alternatives—and you can even find microwavable one-minute porridge. And according to a recent study, consumer awareness of the broad health benefits of oats—heart-health, fibre, wheat-free, gluten-free—is on the rise.

Marketing to women
Understandably, an ever-rising tide of marketing activity is aimed at women. After all, women buy or influence the purchase of 80 per cent of all consumer goods. Women also influence 80 per cent of all health care decisions and, of course, women are almost invariably the primary grocery shopper in the household. Women also do a better job than men at looking after themselves—and their thirst for information about how to keep themselves in shape and cope with life's stresses, which they inevitably preach to their husbands and children, is catered to by a host of women's magazines.

But, according to Faith Popcorn (née Faith Plotkin), the US futurist and market trends guru, marketers do not understand the power of what she calls 'EVE-olution'—that is, the way in which women think and behave and how it is impacting business. Food marketers will need to be clear, she says, which of a woman's many life-stages they want to appeal to—college, first apartment, career, early years of marriage, parenthood, second career, retirement. As Popcorn says: "For reasons that escape me, few marketers seem to be aware of how vital this dynamic is to their brands and their business." Connecting to women's needs and lifestyles is one of the biggest keys to opening untapped opportunities.

Linking trends
A final note: When peoples in the Third World adopt Western diets, obesity and ill health soon follow. Clearly, and without placing blame, a vast adjustment is needed, and it seems certain that functional foods and nutraceuticals will be key elements in that adjustment.

The 10 trends outlined above do not exist in isolation from one another. The successful companies and brands of the future will be the ones that can build their foundations upon multiple trends. Pepsi-owned Quaker Oats, for example, has created a highly successful and convenient oat-based product targeted specifically at women—thus connecting to three of the trends outlined above.

This poses an enormous challenge and an opportunity for product developers. Doing as Quaker has done and creating products which—seen from the consumers' perception—logically connect multiple trends will require the skills of a Rubik's Cube champion. The business of food and health will, if anything, become more complex, not less so, in the decade ahead.

Julian Mellentin is director of The Centre for Food & Health Studies and co-author of The Functional Foods Revolution. The Centre also publishes New Nutrition Business, Tel: +44 208 7589414.

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