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Forward Thinking: Seven Key Trends For 2004

What?s in store for the global functional foods industry over the next 12 months? Julian Mellentin predicts seven key areas of change for 2004, while arguing health benefits are not the only component of a successful product

One of the key functional foods lessons of the past ten years is that nutritional products usually perform as niche products—few have evolved to become mass-market products, and few are likely to.

One of the main reasons for this is that consumers have increasingly decided to make up their own minds about which foods and diets work best for them in the context of their own lifestyles. This is despite confusing and apparently contradictory information about health from the media and the food industry. The result of this highly individualised approach to health is a fragmentation of the market for products that deliver health, as consumers pick the particular messages that accord with their own definition of what?s healthy.

As a result, we shouldn?t be surprised at the popularity of low-carbohydrate diets. The consumer driver is very simple—these diets actually seem to work in the context of modern lifestyles. Most ?low-carbers? are people who have already tried unsuccessfully to follow conventional approaches. This is why sales of Unilever?s SlimFast brand, which was worth more than $300 million in 2002, are now down 17 per cent in 2003 as people switch diets.

It is also now clear that consumer-oriented product characteristics are as important as health benefits, if not more so, when it comes to nutritionals. Orchard Maid drinking yoghurt, for example, became a successful brand within a year of launch, but not because of its novel probiotic straw (an innovation from Swedish R&D company BioGaia, which delivers a dose of Lacto-bacillus reuteri). In fact, market research revealed the brand?s appeal was that consumers saw it primarily as a nice-tasting, single-serve, on-the-go product—and many didn?t even notice that it was probiotic. Focusing on the functional foods industry as a whole, there are seven key trends that food companies should bear in mind over the next year.

1. Liquid Dietary Supplements
According to the Food Marketing Institute, nine out of ten American shoppers prefer to use foods rather than dietary supplements to get health benefits. This is not surprising considering that dietary supplements offer no pleasure or taste benefits. In fact, a good proportion of supplements languishes neglected and half-consumed in the backs of cupboards after they have been bought.

The trend of providing health benefits to consumers in a more portable, tasty and on-the-go format is leading to the inexorable rise of liquid dietary supplements. From now on, the beverage aisle will compete more and more with the supplements aisle for the attention of health-conscious consumers.

The launch of Wellman High Performance drink from Vitabiotics illustrates this trend. Wellman drink is an extension of Vitabiotics? highly successful Wellman dietary supplements brand and it?s the first time in the UK market that a supplements brand has been extended directly into a beverage format. The product is aimed solely at men (the same target as the dietary supplement) and is designed specifically to meet the nutritional needs of men. Ingredients include fruit juice, B vitamins, guarana, ginseng, artichoke, green tea and zinc.

Commenting on the launch, Vitabiotics senior brand manager Peter Morton summarised the potential opportunity for many supplements brand owners: ?By utilising the existing values of the Wellman brand, which is already well established and trusted by male consumers, we hope to extend the success we have already experienced in the supplements market.?

Wellman is just the tip of an iceberg. Take the example of lutein, an ingredient that for many years could be found only in supplements. In 2002, Kemin Foods? FloraGlo lutein brand leap-frogged into beverages and can now be found in products marketed by Sunsweet (prune juice) and Ensure dairy-based meal replacements from Ross.

Beverage companies also have the $690 million US market for glucosamine-based dietary supplements in their sights. Two glucosamine-based drinks targeted at joint health—Joint Juice and Motion Potion—are marketed on the US West Coast. The NuVim brand, meanwhile, also offers a beverage solution to joint pain, based on Stolle milk, which is a hypo-immunised milk produced by Fonterra in New Zealand and developed and marketed by Stolle in the US.

Shrewd ingredients companies, looking to offer new nutrients with joint-health benefits, should ask themselves this question: ?Why go head-to-head against the established ingredients in dietary supplements when the only argument to get consumers to switch from one supplement to another is a promise of higher efficacy (always difficult to communicate in marketing) or lower price?? Why not, instead, partner with beverage companies to create totally new propositions that let consumers address their joint-health needs more conveniently (and deliciously) than through supplements? What?s more, this approach may attract totally new customers who are interested in joint health as a wellness issue but aren?t motivated enough to be regular pill-poppers.

2. Omega-3 Comes Of Age
One ingredient breaking out of the supplements aisle faster than many is omega-3 fatty acids. After several false dawns, omega-3 products are at last starting to become more common and to achieve higher sales in some markets, notably in Australia where DHA producer NuMega has been particularly skillful at helping companies formulate its ingredient into a wide range of products.

When, as expected, the US Food and Drug Administration gives the go-ahead for a qualified health claim for omega-3s and reduced risk of heart disease, the US market could also move ahead more confidently. That said, omega-3-fortified brands continue to sell mostly as niche products, their growth limited by low consumer awareness of omega-3s and their attendant benefits. Claims that consumer awareness in the US is at 55 per cent need to be taken with a pinch of salt—the sales of omega-3-fortified products in most countries just don?t bear this out. A huge consumer education job remains to be done.

Demand for fibre from food processors will continue to grow, but there?s little doubt that the market is at risk as supply outstrips demand
Part of that consumer education will be about the differences between various types of omega-3s. The market will be driven by an intensifying contest between producers of more expensive, but also more effective, high-DHA marine and microalgae-source omega-3s on the one hand, and the producers of much cheaper but relatively less effective plant-source omega-3s on the other.

In the marine and microalgae-source corner are companies such as Pronova, Nutrinova, NuMega, Martek, Roche, Wacker, Loders Croklaan, Ocean Nutrition and Denofa. In the other are a host of suppliers of omega-3 from sources such as flax. The marine-source companies will have their work cut out, because although DHA may be more effective than other types of omega-3s, the term DHA means nothing to most consumers. Print DHA on the label of a product and its presence won?t result in a single extra sale, which is why the more generic and better-known term omega-3 is used. The only problem, of course, is that this allows some brand owners to use cheaper and less effective forms of omega-3s than DHA.

Even Unilever, when fortifying its entire Becel/Flora brand of spreads with omega-3s, chose cheaper vegetable-source omega-3, even though there is scant evidence that it has anything like the same degree of effectiveness as marine-source omega-3s.

As omega-3s gradually increase in consumer consciousness, the battle to educate them about marine- and vegetable-source will take on renewed urgency.

3. Supplier Competition
Ingredients companies will find themselves increasingly challenged to be ever more innovative as the health ingredients market gets more crowded and their products are viewed as commodities.

With probiotics, for example, most consumers have little awareness of the scientific advantages of one probiotic versus another. In some countries standard probiotic yoghurts have become commodities—in Germany the probiotic yoghurt market actually declined in 2002 as consumers switched to other non-probiotic yoghurts that offered better taste or texture. Health had ceased to be a key differentiator.

The next candidate for ?commoditisation? may be dietary fibre. Around the world, ingredients companies are building their health ingredients portfolios and fibre, specifically soluble fibre, is one of the primary areas of focus (the other two being ingredients for heart health and bone health). A growing band of companies, ranging from two-man start-ups to global giants, are offering fibre, and traditional ingredients such as pectin are being re-positioned in order to leverage nutritional advantages.

Demand for fibre from food processors will continue to grow, but there?s little doubt that the market is at risk as supply outstrips demand. Many suppliers entering the market for the first time offer very little that is new other than a lower price than their competitors.

It?s very easy to fall into the trap of believing that just because your health ingredient has a proven high degree of efficacy, this constitutes an argument for brand owners to use it in their products. The efficacy of different types of fibre can be communicated by the ingredients supplier to the client?s NPD department. But, understanding drops off rapidly once it crosses the line into the marketing department, and by the time you get to consumers they don?t even know that there?s a difference between soluble and insoluble fibre.

Until now, companies like Orafti, the pioneer in the commercialisation of inulin and oligofructose, have been able to earn worthwhile margins on their products. Companies entering the market now and over the next year, when we should see many more dietary fibre suppliers coming on stream, will find price competition tougher.

It?s also a challenge for other ingredients, such as calcium. Product developers can use calcium carbonate, which is low in efficacy and price, or, with higher efficacy and price, marine-sourced calcium, produced by Ireland?s Marigot, or pure milk calcium, such as that from Glanbia. But consumers aren?t aware of the differences—to them calcium is calcium is calcium. Unsurprisingly, many product developers, faced with tight margins in their own markets, stick with the less effective but cheaper forms.

More than ever it will be necessary for health ingredients companies to differentiate themselves, not only on the science that underpins their products? health benefits, but also on their products? technical characteristics, such as ease of processing or taste benefits. Inulin, for example, is today included in more than 1,000 foods, ranging from yoghurt to biscuits and chocolate to baby food, yet its appeal is not just that it performs as a fibre but also because of its technical advantages.

4. A New Approach To Lowering Cholesterol
At the heart of many companies? business strategies is the idea that a bright future lies ahead for those functional foods that can make scientifically substantiated disease-risk reduction claims, connected with an important medical condition and sold at a premium price.

But there?s a cautionary tale that is making many re-think this dream and try new approaches in 2004. Four years after the launch of Benecol and Unilever?s Take Control cholesterol-lowering spreads in the US, sales are far below what was once forecast for them. Despite being able to make clear cholesterol-lowering health claims on labels and in advertising, these brands? sales have never gone beyond where they were four years ago (about $23 million each). In the case of Benecol, they have actually fallen by 12 per cent over the past year.

What?s more, results from Finland?s Raisio (the maker of Benecol plant stanol esters) for the first half of 2003 show that its Benecol business is still losing money. This comes eight years after the birth of Benecol and despite a presence in 20 markets around the world.

Faced with these realities, we will see some different approaches emerge in 2004. Coca-Cola?s Minute Maid business, for example, seems to have recognised the risk inherent in overpricing. Its recent launch of cholesterol-lowering orange juice—using sterols from Cargill—has the brand priced comparably with regular juices.

5. Dairy Debuts
We are also at the beginning of a new era for dairy-derived ingredients. New peptides from companies like DMV that can lower your blood pressure or make you sleep better at night, and new whey proteins, are joining lactoferrin and bovine colostrum in the line-up of nutritional dairy ingredients that are enjoying significant growth (over 100 per cent in the case of colostrums).

Hitherto, the cutting-edge dairy bioactives have largely been found in infant formulas, dietary supplements and powders, but the next 18 months will see them migrate to beverages and nutrition bars. Whey protein is a perfect example. Whey protein today is commonly sold in powder form for people to mix up at home. But suppliers will find that ready-to-drink protein beverages will soon become more common as companies supplying the sports market seek to add value by adding more convenience elements. Makers of isotonic sports drinks will also be attracted to the high-protein sector as a way of extending their brands as the sports drinks market, once a premium sector with few players, becomes ever more crowded and competitive.

The potential for innovation is immense, thanks to developments such as Fonterra?s ?crystal clear? whey protein isolate that enables juices, sports waters and energy drinks to be created with many of the nutritional benefits of milk—while looking and tasting nothing like it. Fonterra has already sold its ?crystal clear? whey protein ingredient to a maker of specialist sports supplements.

6. Children?s Nutrition
It?s the hottest topic in nutrition—the creation of foods and drinks designed to meet children?s dietary needs and remedy deficiencies. There isn?t a single major company that doesn?t have its sights set on NPD in this area. So far, new launches are few and far between—but all that is about to change.

A few companies, such as Tropicana with its Healthy Kids juice, have tapped into the trend remarkably well, but in general it?s still virgin territory. Calcium and most vitamins, as well as fibre, are all in short supply in modern children?s diets. But the challenge for companies, in sedentary societies where children are at greater risk of being overweight, is reducing the energy density of kids? foods while also making them appealing.

7. A Future Of Bars And Beverages
Perhaps the single most significant trend that has emerged over the last decade, and one that shows every sign of becoming still more powerful, is the popularity of functional foods in bar and beverage formats.

America?s energy bar market has gone from being worth next to nothing in 1995 to almost $1.5 billion in retail sales today. Europe?s ?daily dose? probiotic market has evolved from zero to $1.2 billion over the same period.

Look at this year?s health initiatives from Masterfoods and the trend can be seen at work. In Europe, Masterfoods has chosen a beverage format (a 65ml drink) as the medium for its heart-health flavanol-based product, Positively Healthy Cocoa Drink, while in the US the company has chosen to offer the heart-health benefit in a snack bar. It could just as easily have been the other way around.

But one thing is for sure, only a nutrition bar or a beverage was a realistic option in either continent because these formats match consumer convenience expectations, which was identified as a critical success factor at the beginning of this article. For ingredients companies demonstrating the efficacy of their ingredients and ease-of-use of their products, these two formats will be indispensable keys to unlocking future success.

Julian Mellentin is executive editor of New Nutrition Business. He is co-author of The Food & Health Marketing Handbook and The Functional Foods Revolution. He also serves as executive director of the Centre for Food & Health Studies in the UK.
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On The World Wide Web
Orchard Maid:

Food Marketing Institute:


Kemin Foods:

Joint Juice:

Motion Potion:








Loders Croklaan:

Ocean Nutrition:







Take Control:

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