Financial ambiguity driving demand for value and authenticity
Suppliers of functional ingredients, and the companies producing the foods, beverages and supplements that contain them, will have one big, common challenge to confront in 2009 — global economic meltdown.
Governments worldwide have taken radical, unprecedented steps to contain the crisis. But the operative word here is 'contain.' It is a question of limiting the damage caused by the financial collapse, rather than averting it altogether.
In this climate, how can those marketing functional ingredients, functional foods and beverages, and dietary supplements insulate themselves against the crisis in 2009?
A feel-good market
Julian Mellentin, editor of New Nutrition Business magazine, said one way will be to ensure that you are selling a product that allows consumers to "feel the benefit." This, he asserted, will prove to be "the best selling tool for hard times."
"One of the biggest marketing advantages a product can have is to deliver a benefit that the consumer can quickly see or feel," he said. "This will become even more important in 2009, in an economic environment in which people are becoming more careful than ever about how they spend their hard-earned cash."
In a new report, called 10 Key Trends in Food, Nutrition and Health 2009, Mellentin has identified digestive health and energy as two of the most significant opportunities for 2009.
"The categories that deliver a tangible benefit quickly — such as digestive health and energy drinks — are already the largest segments of the functional-foods market worldwide. Energy drinks, like all the best-performing functional foods, deliver a health benefit — an energy shot — that is immediately effective and detectable. If the 24-year-olds who want to party all night long can feel that benefit, they become — as they have done for Red Bull and other energy brands — loyal consumers.
"Marketers of products with a digestive-health platform have the same advantage. With digestive health you very quickly know if a product is effective or not, and if it gives you the benefit of better digestive health and, therefore, an improvement in your quality of life.
"In addition to digestive health and energy, products connected to weight management and sports nutrition should also benefit from offering an easy-to-feel effect.
"Conversely, the lack of a quick and easy-to-feel effect is an inhibitor to most people buying a cholesterol-lowering product. You cannot, after all, see or feel your cholesterol going down. Similarly, the lack of a tangible and easy-to-experience effect is also an inhibitor of the growth of omega-3-fortified foods and beverages."
In tune with this analysis, research by HealthFocus International indicates that, in 2009, consumers worldwide will be increasingly concerned about the kinds of health problems that can be tackled by functional ingredients — those providing quick evidence of their effectiveness.
The research — which, it should be noted, excluded the US — indicated that rising health concerns include digestive problems, tiredness and lack of energy, lack of mental sharpness, and stress. Falling health concerns include diabetes, hypertension, cancer and cardiovascular disease.
"Globally, shopper concerns about major medical illnesses have declined, while interest in more daily performance and feel-good items shoppers believe they can control are on the rise," said Barbara Davis, vice president scientific strategy at HealthFocus International. "Opportunities exist for functional ingredients that help shoppers manage these issues."
So should every company in the functional market switch to products whose benefits are easily felt? Not necessarily, said Mellentin. But if they don't, they must take alternative steps to give their active ingredients credibility.
"I'm not suggesting that a quickly felt benefit should be your only strategy. There are many, many benefits that are not immediate but which motivate consumers strongly and have growth potential, such as the perceived benefits of antioxidants. But a tangible benefit is a good insurance policy in tough times when consumers are looking for value for money. If your benefit is longer term in effect, or can't readily be seen, invest in marketing techniques that demonstrate the effect, such as the Anlene bone scans."
This initiative, Mellentin explained, was pioneered in Asia in the 1990s by Fonterra Brands in support of its Anlene high-calcium milk. Marketed throughout Asia, it has been clinically proven to prevent bone loss. Anlene provides consumers with a bone-scanning service. Teams of trained health professionals visit clinics, supermarkets and shopping malls, where they set up bone-scanning machines and offer free bone scans to passersby.
"It's a safe and reliable way for people to find out about their bone health," Mellentin said. "The reward for this initiative has been that Anlene has built and maintained market leadership in value-added milks across Asia."
Before functional-foods and dietary-supplements companies rush to focus their 2009 strategy solely around products that provide immediate, noticeable benefits, they might want to look at a piece of research conducted recently by Belgium-based ingredients supplier Orafti.
Results from surveys carried out by Orafti in the UK, France and Spain found that 'protects your heart' was the benefit with the most appeal in all three countries.
'Builds stronger bones,' another benefit that could hardly be described as immediately noticeable, was ranked second most appealing in the UK and Spain, and fourth in France. Meanwhile, 'keeps your digestive system healthy' was ranked third in all three countries.
This shows consumers are still interested in ingredients that offer longer-term benefits. But, of course, as has been pointed out, how these benefits are marketed and communicated is likely to be key.
Beyond the benefits of their ingredients, and in spite of the global economic downturn, companies operating in the functional-ingredients arena should not lose sight of the ethical agenda in 2009, said Peter Wennström of Sweden-based consultancy Wennström Integrated.
Wennström, a global brand strategist in the functional-products sector, says "consumers are buying change." In addition to convenience, premiumisation and health, this represents "the fourth global megatrend in food and health," he argued, adding: "Consumers will act in the supermarkets to change the world, rather than in the streets or via organisations like Greenpeace."
Wennström conceded the power of ethics will be "temporarily weakened" during the global financial crisis, but warned: "Global transparency is here to stay and this will be a new standard."
Across the European Union the biggest trend functional-ingredients companies will have to confront in 2009 is the move to tighter regulation.
The Nutrition and Health Claims Regulation, arguably the most significant piece of legislation the European functional-ingredients industry has ever faced, will advance toward full enforcement over the course of 2009. Businesses will be waiting with bated breath to find out whether the claim they make for their ingredient or product is on the European Food Safety Authority's Community List of Authorised Health Claims.
"This will be very important for the entire industry, for suppliers of both functional foods and supplements," said Miguel da Silva, adviser at Brussels-based consultancy EAS. "This positive list of authorised health claims has to be adopted in January 2010, so in 2009, there will be a lot of scientific debate about what claims should be included."
Also in 2009, the nutrient profiles that will govern whether products are allowed to carry health claims will be drawn up. These will set thresholds for saturated fat, sugar and sodium levels.
Another significant piece of legislation working its way through Europe in 2009 will be the Food Information to Consumers Regulation, which is designed to harmonise labelling provisions across the EU. This contains a contentious proposal that all mandatory information on a pack should be printed in text no smaller than 3mm.
Along with food and drink, dietary supplements will be covered by this provision, if it is ultimately adopted, which could be problematic. "Supplements come in very small packages, so if you have to indicate all the mandatory information in the minimum font it will be, well, almost impossible," warned da Silva.
Businesses will also have to keep track of discussions regarding the establishment of harmonised maximum levels for vitamins and minerals added to food and supplement products. With upper limits varying wildly between member states, this is not a straightforward process. Nonetheless, the European Commission said it expects to table proposals on this subject in 2009.
Where to focus?
It is clear that regulation will shape the European functional-ingredients market significantly in 2009, but what will be driving consumers? There is strong evidence that weight is becoming an increasing concern in Europe, which could provide functional-ingredients companies with a rich vein of opportunity.
Davis of HealthFocus International said: "In our 19-country HealthFocus International study [which did not include the US], overweight and obesity did not even make the list of top 10 health concerns globally. Notably, though, all seven of the EU countries studied — France, Germany, Poland, the UK, Italy, Spain, the Netherlands — did list overweight as a top-10 concern. The degree of concern in the EU has also increased, from 19 per cent in 2003 to 31 per cent in 2008."
Mellentin has identified weight management as one of his 10 key trends for 2009. "Weight management is an embryonic market that is still new enough for companies to create opportunities in a way that is no longer possible in more mature sectors," he said. "Some brands in Europe have already shown what is needed to be successful."
In Asia, experts believe 2009 will herald a major focus on the safety of manufacturing supply chains —and in particular those in China, which was the source of two deadly scandals in 2008.
First, scores of deaths in America were linked with a batch of the blood-thinning drug heparin, which had been made from ingredients sourced in China and was found to have been contaminated with over-sulphated chondroitin sulphate.
Then, the world watched in horror as Chinese milk tainted with the chemical melamine left four babies dead and more than 50,000 small children sick.
In 2008, we saw the Chinese government attempt to come to grips with its safety problems. Measures have included putting a new Food Safety Act before the Chinese National Assembly, and this could yet be toughened up in the wake of the melamine crisis, said Jie Hu, adviser at the Singapore office of EAS.
"China's government is committed to a new integrated food safety-management system," said Hu. "This is considered important not just for the health of Chinese citizens, but also for the health of its ties with trading partners."
Food-safety systems are getting a makeover in India, too. The government there is establishing a new body in February 2009 to oversee food safety, to be called the Indian Food Safety Standards Authority. It will operate in a similar manner to the European Food Safety Authority, Hu says.
Elsewhere in the region, the 10 countries in the Association of Southeast Asian Nations (ASEAN) trading bloc will thrash out how to harmonise regulations and standards covering traditional medicines and dietary supplements. "By 2010, the ASEAN countries must have agreed on common technical requirements," Hu said.
Beyond food safety
Food safety aside, what commercial opportunities await functional-ingredients businesses operating in Asia? Mellentin said digestive health, the biggest single functional-foods sector worldwide, still holds opportunities in the region, particularly beyond the mature markets of Japan and Korea.
But companies targeting Asia with digestive-health products should consider marketing alternatives to dairy, he advised. "There are significant groups of consumers, particularly in Asia and Africa, who perceive dairy products as having disadvantages in terms of their content of fat or lactose, or who want a plant-based diet, or who simply aren't used to the taste of dairy."
"For the segment of consumers who want digestive-health benefits but want them in a nondairy form there are, in most countries, almost no alternatives — and certainly none that could be said to be convenient. This is the greatest untapped opportunity. It's my belief that fruit juice has the opportunity to be more successful than any other category and to take a strong second place to dairy products."
Latin America's economies have not always been famous for their stability. So how will the current financial turbulence affect the continent's business prospects in 2009?
"Recent indications are that Latin America is positioned more for a soft landing than a crash," said Paul Altaffer, vice president business and product development at New York state-based natural ingredients manufacturer RFI Ingredients.
"The market fundamentals in much of the continent are strong, led by Brazil and Mexico. Most of the Latin American countries have gone through a sustained period of economic growth, boosted by the development of strong democratic and economic institutions."
Likewise, says Altaffer, the markets for functional foods and natural products have experienced tremendous growth over the past five years. According to data from Euromonitor International, he said, Latin America's market for vitamins and dietary supplements grew by 223 per cent between 2002 and 2007.
"As these countries develop, and move from primarily rural, agricultural societies to more urban, industrialised societies, productivity and wealth have grown as well," Altaffer explained. "And as these economies emerge, consumers have greater life expectancies and are faced with a variety of health, dietary and lifestyle issues that make them prime consumers for healthy and preventive products."
He added: "While consumer trends are encouraging, there is some concern over the global economic crisis and whether countries like Brazil can continue to sustain the growth. Early indications are, however, that consumers will continue to invest into their health and well-being."
On the regulatory scene, the main preoccupation for governments in Latin America in 2009 will be health, said David Pineda, EAS?global regulatory affairs manager.
"Only Argentina has adopted regulation targeting obesity so far," he says. "But we are seeing in Brazil and Chile, for example, discussions about introducing extra labelling and restrictions on advertising of some types of products."
America's ageing population is likely to establish itself as a key market segment for suppliers of functional ingredients in 2009.
The number of US residents aged 50 and above grew from 77 million in 2000 to 94 million in 2008, an increase of 20 per cent, driven by baby boomers born between 1946 and 1964.
Euromonitor International, in a new report called Health & Wellness Food and Beverages in USA, said this trend is boosting sales of products with active health benefits.
"Unlike previous generations, baby boomers are unwilling to accept the fact that old age brings decreased physical abilities, a waning appearance and a sedentary lifestyle," said the report. "Foods and beverages are seen as important components of achieving health and wellness into old age. Older Americans have a high interest in foods and beverages with health benefits, and they are responding by purchasing more naturally healthy, high-fibre products, functional yoghurts and functional water."
The big increase in the number of older American consumers, and their willingness to consume functional products, is having a positive impact on the overall health-and-wellness food and beverage market, according to Euromonitor's report, which said US retail sales of products marketed in the health and wellness segment grew nine per cent in 2007 to $145 billion.
The importance of this market demographic will continue to grow in 2009 and beyond, said Euromonitor, with the number of US residents aged 50 and up expected to grow by 27 per cent to 119 million between now and 2020. In particular, rising medical costs will increase demand for foods with health benefits among this group of consumers.
"Health-care costs are expected to continue rising as the US deals with an older population and diseases such as heart disease," said Euromonitor. "Employers are expected to transfer more of the health-care costs to employees.
As a result, health issues will remain in the media spotlight for years to come, encouraging consumers to be more pro-active when it comes to their health."
With finances under pressure, stress is likely to be a major factor in the lives of many Americans in 2009. But is the functional-ingredients industry missing out on an opportunity here? One man who thinks so is HealthFocus International's Doug Healy, who says stress is a rising issue with American shoppers.
"Currently, more than two in five shoppers say that they are stressed and one in four admits to being personally depressed. Food has always played an extremely strong factor in mood, with shoppers reaching toward their favourite comfort foods when they're feeling melancholy or stressed out. Yet it's the drug companies that have taken the lead in fighting depression, while food companies sit on the sidelines.
"With science continuing to make connections between food ingredients and mood, food companies have a great opportunity to change mood food from being indulgent — sweets, comfort foods — to being functional — omega-3s, fibre, healthy blood-sugar levels, etc. Speak to the mood-elevating powers of foods and you'll succeed in pulling in shoppers who don't want to take pharmaceuticals to make them happier."