In the wake of low-carb dieting and the obesity epidemic, major manufacturers are racing to enhance the nutritional profile of their portfolios. Meanwhile, functional foods are still growing at a healthy pace. The editors of Nutrition Business Journal look back at the past year
The food industry had a lot on its plate in the past year. The obesity epidemic, trans fats, low-carb diets and a revision of the food pyramid have all required strategic responses and diverted corporate resources.
How are companies responding? Major players have been reviewing the nutritional profile of their portfolios — taking out fat, calories and carbohydrates from selected products. Kraft, for example, says it has improved five per cent of its North American portfolio, with more to come. Nestlé now not only tests for taste but also screens its products for health benefits. Frito-Lay has switched to healthier oils, and shoppers can now buy Kellogg?s Frosted Flakes with a third less sugar and drink Nestlé?s Nesquik with nearly 40 per cent less fat.
While the immediate response has often been to ?delete the negatives,? racking up healthier line extensions has been another response. Food corporations are clearly grappling with the notion of customisation. ?Smart variety? is part of Cadbury Schweppes? corporate vision; ConAgra develops products with an awareness of ?hybrid eating? patterns; Nestlé has made personalised nutrition one of its long-term goals; and Frito-Lay follows an ?add-more? strategy to offer more product options. Never before has food packaging boasted such an array of fortification, health claims and wellness benefits appealing to such a wide range of consumer demographics.
That said, as food marketers respond to the latest consumer trends and government mandates, consultants suggest that functional foods are temporarily taking a back seat. ?Marketing departments are driving product development,? says Gary Miller, an independent food consultant formerly with ADM and McNeil Specialty Products. ?There is less emphasis today on functional foods, driven by lack of internal resources and prevailing consumer interests.?
Functional foods ebb and flow
Has the spotlight gone off functional foods? ?I think it has,? says Richard Brandt, senior director of the food and beverage business at Linguagen, a biotech company backed by DuPont, Cargill, Dansico and GlaxoSmithKline. ?The spotlight goes on what the consumer is hot for.?
But Nancy Childs, a professor of food marketing at St. Joseph?s University, believes that while low-carb foods and obesity have grabbed the headlines, there hasn?t been a retrenchment in functional foods. Childs notes that, based on IRI data, functional versions of products did exceptionally well in the past year. For example, soy milk is up 15 per cent vs a decline of one per cent in the base white fluid milk category. Vitamin waters are up 51 per cent while bottled waters are up 21 per cent. ?Functional and fortified products are now critical for success in key categories,? Childs concludes.
NBJ figures indicate that functional foods are still growing at a healthy pace, expanding 8.8 per cent in 2003, following annual growth of 8-10 per cent since 1998. NBJ classifies foods into one of four categories: functional, natural and organic, market standard, and lesser evil. Functional, and natural and organic, are four per cent and three per cent, respectively, of the $555 billion US food industry. The lesser-evil category, at 11 per cent, includes products with ingredients removed predominantly for health purposes.
Beverages lead functional foods in both total sales of $11.9 billion, or over half of functional foods, and penetration of conventional food at 12 per cent of the total. Breads and grains (led by cereals) and snack foods (led by nutrition bars) represent eight per cent penetration rates of their conventional counterparts and are second and third in functional foods dollars, with all other categories well under five per cent penetration.
In 2003, growth in functional foods was led by snack foods (up 12.6 per cent, paced by bars), beverages (up 12.4 per cent, led by functional water, energy drinks, soy milk and sports drinks), and condiments (11.6 per cent). The largest major categories were beverages at $11.9 billion, followed by breads and grains ($5.2 billion), and snacks and bars ($2.3 billion).
Suppliers invest in R&D
As consolidation is chipping away at their R&D resources, food companies look to suppliers to shoulder a greater responsibility for product development. ?Ingredients companies play a much more significant role in innovation and now have to sell concepts,? Miller says.
BASF Corp, a global supplier of vitamins, carotenoids and polyunsaturated fatty acids, is investigating combinations of products in both foods and supplements for their effects on obesity. According to Mike Doyle, director of human nutrition, BASF is also engaged in commercial testing of mechanisms for replacing fats in foods. ?These products would be used as texturisers to replace fats. We think there will be significant demand for that,? he says.
Doyle anticipates that lutein, lycopene and vitamin-antioxidant combos will be seen in more functional foods. And PUFAs ? now winning acceptance in infant nutrition — will become more broadly accepted in foods for adult populations, notably for their effects on cognitive health.
The 2004 Prepared Foods Exclusive R&D Trends Survey looking specifically at weight-control formulations sees dietary fibre top the list of ingredients that respondents believe are beneficial (69 per cent), followed by soy protein (54 per cent) and whole grains (52 per cent). Asked which ingredients he expects to be in the spotlight, Steffen Weck, president of Food Business Consulting, says, ?There probably is a role for fibre long term, but there?s been a role for fibre ever since people got excited about bran. Heart benefits are going to be a big, big opportunity.?
The interest of the American public in wellness is gathering momentum, but a survey of 4,000 consumers published by Deloitte & Touche found that, despite stated interests, many people eat what is most convenient rather than what is most healthy. ?Consumers today have a heightened sense of need to eat nutritional foods,? but ?ultimately consumers are pretty evenly split on the issue of eating healthily,? the survey authors conclude.
According to The Health & Wellness Trends Database 2004 published by The Natural Marketing Institute, 48 per cent of people with normal cholesterol say they would use supplements to prevent, and 55 per cent to treat, heart disease. But in the group with high cholesterol the score is lower, with only 39 per cent saying they would use supplements to prevent, and 42 per cent to treat, heart disease. ?Belief in functional products needs to be examined specifically by the target group,? observes Maryellen Molyneaux, NMI president. ?In this case, believability goes down as the seriousness of the medical issue goes up.? Consumers are showing increased preferences for nutritional products boasting an explicit benefit, according to NMI. For example, 53 per cent of consumers state it is important for their stores to carry foods with a specific health claim. Nearly three in 10 consumers are exploring the functional benefits of foods and beverages.
In terms of products purchased in the past six months, energy/nutrition bars rank highest at 36 per cent of the general population, followed by low carb (34 per cent), fortified foods or beverages (24 per cent), and foods or beverages with a specific health claim (22 per cent), according to NMI. In terms of the importance of functional attributes to purchase decisions, 80 per cent say fortification with vitamins and minerals is important, ahead of ?specific health claim,? which scores 57 per cent. Both score ahead of ?low glycaemic index? (42 per cent) and ?contains soy? (32 per cent).
In the lesser-evil foods arena, fat content still dominates the list of nutritional concerns (48 per cent of consumers rank it as their main issue), according to FMI?s Trends in the United States 2004. However, carbohydrates rose to 20 per cent, up significantly from 2000, with sugar content (18 per cent) almost on par with carbs.
Childs concludes that continued functional foods activity is now ?carefully paced and placed with consumers — too many fast and novel moves have backfired in the past. Today?s market reflects both past learning and respect for the importance of getting health claims marketing right.?
However it evolves, it is clear the food manufacturers and their suppliers have moved beyond functional foods as a tightly defined niche and seem prepared to embrace healthier foods in a broader context.
Excerpted from Nutrition Business Journal?s 2004 Healthy & Functional Foods Report. More information: www.nutritionbusiness.com