Health-conscious consumers are driving the demand for products that aim to promote better health, increase longevity and prevent the onset of chronic diseases.
Food and beverage makers have long fortified their products with vitamins and other nutrients to enhance their health benefits. Advances in nutrition science and food manufacturing are now moving the industry from identifying and correcting nutritional deficiencies toward creating foods that promote optimal health and wellness as well as reduce the risk of chronic disease.
Functional foods include essential nutrients that often go beyond the initial purpose of fostering normal growth and development. These supplements can be added to other foods to impart specific health benefits.
Advances in food and medical science, as well as changing consumer demand and demographics, are fuelling growth in the functional foods market. The industry is already responding to healthcare trends such as anti-obesity and anti-diabetes and is well positioned to respond to the challenges of personalised medicine and medical cost reduction.
Many large multinationals, often in collaboration with specialised ingredient makers, are already established in the market. Yet smaller participants are successfully creating and defending niches in the market. From a sales perspective, soft drinks and dairy products are leading product categories; while if we look at the market by health benefit category, energy drinks are the top category.
Changing demographics, in particular the ageing baby boomer population, are helping to set the foundation for future growth. Healthcare trends, including pharmaceutical investment and research into diseases and chronic conditions that are rapidly gaining greater significance, are a further source for potential growth.
The first fortified food products resulted from public health endeavours. Vitamin B-enriched flour was introduced in the 1940s to combat pellagra; iodine-fortified salt substantially decreased incidences of goitre; and vitamin D-enriched milk virtually eliminated rickets.
More recent initiatives, however, are emerging wholly from the private sector.
Functional foods are used, distributed and regulated differently from medical foods and drugs. The primary distinction is that functional foods may be consumed freely as part of everyday life. Medical foods and drugs are used in specific cases to treat or manage a condition under medical supervision.
After the US, Asia-Pacific is the next biggest market for functional foods. Together, the US and Asia-Pacific are estimated to account for approximately three-quarters of the current global market for functional foods. Recent estimates for functional food sector growth range from 8.5% to as much as 20% per year, which is well ahead of the overall food industry where growth is estimated at 1% to 4% per year.
Soft drinks and dairy products constitute 60% of the market among foods. The soft drink category includes enhanced water, which has grown in popularity as consumers seek alternatives to carbonated beverages.
Dairy is gaining in popularity, driven in large part by innovations in yoghurts. By now, enough consumers are likely aware of the helpful bacteria naturally present in yoghurts, increasing receptiveness to the idea of probiotic and prebiotic yoghurts. Moreover, consumers do not need to markedly change their behaviour to reap the benefits associated with functional yoghurts - a single yoghurt portion may be sufficient. In contrast, phytosterol-infused margarines are meant to be consumed three times a day - a behavioural change that may be undesirable to many consumers.
Energy is the single largest segment by health benefit
Foods claiming to boost energy levels constitute 29% of the market categorised by benefit. These products tend to have attributes that the consumer can quickly feel, which has contributed significantly to their popularity.
Products in the gut, bone and heart health categories comprise a sizeable share of the market and have traditionally been purchased by older consumers. Other functional foods include products with claims to help manage weight, sharpen mental faculties and improve infant health.
Products for enhanced cognitive health, such as omega-3 fatty acids, are expected to be a $7 billion market by 2011 according to Packaged Facts. Other areas to watch are products for weight management, mood enhancement and those that promote healthy, beautiful skin.
Products with an easy-to-feel effect, such as an energy boost, are likely to be more successful (at least in the short term) than a product like omega-3 milk which provides an important nutrient but fails to give consumers instant gratification.
Globally, beverages are forecast to be the fastest-growing segment and to assume the largest share of the market (56% in 2013). Two key drivers are consumer preference for the convenience and versatility of beverages and the relative ease of creating tasty products and innovative packaging. Both aspects are generally more difficult in the case of food.
Energy drinks are expected to remain popular because consumers can quickly ‘feel the benefit’ of the product. In particular, certain kinds of energy drinks and isotonics (beverages that replace lost electrolytes or rehydrate) are cited as growth niches.
Innovative packaging can also differentiate products and enable premium pricing. Consumers need to grasp the health benefits associated with a given nutraceutical in order to appreciate its relevance and premium pricing. Manufacturers of functional foods need to consider what actions they can take to better educate potential customers and provide this level of understanding.
Food and beverage conglomerates are reshaping to reflect these fundamental demand trends. Five years ago, Nestlé declared it was “moving from an agrifood business to an R&D-driven nutrition, health and wellness company.”
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