Functional Foods, Drinks Stake Their Claim

In the post-recession world, consumers want control. And if the functional food and beverage industry wants to keep up, it must respond to shifting consumer attitudes.

Though the functional food market saw explosive growth in the first half of the decade, recent years have recorded more conservative annual sales. It's no surprise, though; with an unsteady global economy, consumers guarded their pocketbooks. Consequently, the 2010 market suffered slightly, and manufacturers released fewer products than in the previous yearunseen since functional foods catapulted in popularity.

"A lot of functional foods were priced at the higher end of the market, commanding premium prices, in a time when people were turning in greater numbers toward cheaper groceries," explained Jonathan Thomas, principal research analyst with Leatherhead Food Research.

But in 2011, the revitalized industry bounced backdespite an uncertain regulatory landscapeand posted optimistic sales and launch statistics. According to Leatherhead, functional food and beverage sales reached US$25.3 billion in 2011, up from 2010's US$24 billion. This figure, which is limited to products making specific functional health claims, marks a 31.5-percent increase from sales in 2007.

Thomas offered two intertwined reasons for an uptick in functional food purchases: increasing health awareness and the subsequent self-medication trend. Health-conscious consumers are ready to invest in their food choicesbut not before analyzing the value, said Maryellen Molyneaux, founder and president of Natural Marketing Institute (NMI). The general desire for functional foods has increased because consumers want to stretch every dollar.

"The recession has permanently changed how consumers shopwhat they buy and how they're willing to spend their money," Molyneaux said. "That includes the benefits they get from functional foods and beverages. Ultimately, this creates a larger pie for manufacturers to approach consumers with new ideas."

Food (and Drink) with Functionality

In a perfect world, manufacturers would add beneficial vitamins and nutrients to food products without a hitch. But creating a productand its subsequent salesrelies heavily on successful formulation.

"Formulation challenges are the biggest hurdle for us to overcome," said Cathy Arnold, senior formulation scientist, Fortitech. Fortitech works largely with premixes incorporating multiple nutrients, and scientists must pay close attention to taste, flavor and color of the product, in addition to solubility, bioavailability, pH level, safety, toxicity, bioavailability and stability of each ingredient.

As an example, Arnold offered the interaction between thiamine and a superfruit in a premix. Thiamine helps the body metabolize carbohydrates and fat. But the superfruit's carry-over of sulfur dioxide may cause an immediate degradation of the thiamineand its benefits. "The level of sulfur dioxide should be determined prior to fortification, and appropriate overages should be added to compensate for losses," Arnold said.

But formulation issues also apply to the food's physical structure, which can make or break sales, explained Eric Bastian, vice president, research and development, Glanbia Nutritionals.

"When we focus purely on the functional food aspect, we lose our ability to attack the market," Bastian said. For instance, manufacturers want to treat beverages with heat for shelf stability and safety. However, the process denaturizes proteins, causing particles to settle in a "very unappealing" agglomeration, Bastian said. In this circumstance, scientists must suspend the participles to prevent both a layer of sediment and an unsuccessful product.

"If we can create a functional food that has food functionality solutions, then you have a really strong market position opportunity," Bastian said.

Ingredion recommends manufacturers choose a supplier that can guide the product from development to launch, instead of blindly handing off ingredients. The company's food scientists ensure a manufacturer incorporates a functional ingredient and preserve the desired texture, consistency and mouthfeel. "Not only do we have the specific ingredients that allow them to positively affect their nutrition facts or make an appealing label claim, but the formulation is right," said Santiago Vega, senior marketing manager, Ingredion. "Ultimately, it gets products to market faster."

Ultimately, manufacturers must marry a functional ingredient and functionality in a way that makes sense. Foods with healthy connotations are good carriers for functional ingredients, such as yogurt and probiotics. "Everyone knows dairy is a high source of calcium and vitamin D, so when Danon came out with Activia, that message made sense to consumers," said Patrick Luchsinger, marketing manager, Ingredion.

Recently, companies have fortified chocolate with probiotics and omega-3s. The experiment hasn't taken off, and Thomas said it's obvious why: "People don't eat chocolate with the mindset that 'This is a healthy product.' " These off-base pairings contribute to the functional food and beverage market's extremely high failure rate, which Thomas said nears 80 percent.

Some functional food categories, such as cholesterol-lowering margarines, are facing consumer fatigue, which slows growth rates. Some brands have spent years researching and developing these functional margarines, including Benecol and SmartBalance, but the category reached saturation. "Functional margarines is still a fairly sizable market in some parts of the world, but getting the market to grow on a year-to-year basis is difficult now," Thomas said. "People who want cholesterol-lowering benefits are already buying into the market, so it's a challenge to broaden the consumer base."

The same is true for the probiotics market in Europe. While the category booms in the United States, "Per capita consumption of yogurt has traditionally been quite high in Europe," Thomas said. As a result, consumers are more familiar and Europe isn't experiencing the same explosive growth rate as North America.

Though some categories have stalled, the booming functional foods market continues to churn out new products, with both novel ingredients and inventive applications. In fact, the global industry launched 5,377 new products in 2011, Leatherhead reported. It's a welcome sign, considering the number of new products actually dropped from 2009 to 2010.

And consumers are respondingwith purchases in the billions.

In the protein market, Bastian cited innovation in protein blends. As whey and dairy prices rise, manufacturers turn to cheaper protein options, including vegetarian proteins. Pea, rice and canola protein have all risen in popularity, and benefits go beyond a lower price tag. "A vegetable on the label has a nice feel," Bastian explained. "It's friendly for the consumers."

Another lower price option surging in popularity: bulk concentrates. "Instead of buying a case of multiple ready to drinks (RTDs), people are finding self-serving doses from larger containers is more efficient," said Chase Hagerman, business and development marketing manager, Chemi Nutra. Even still, RTD beverages are hot commoditiesthanks to their on-the-go appeal. Powdered mixes in sachets or caps, such as Fortitech's PowerCap, and effervescent formulations round out recent beverage demands.

A recent onslaught of new productsfruit juices, fortified water, tea, coconut water, energy drinks and even a probiotic coffee from Daflorncontributes to the sector's success, Vega noted. "As people look for other, non-traditional delivery systems for fortified foods, beverages will be one of the most dynamic ones," he said.

Thomas believes the soft drinks category will continue to triumph, and he noted, "Beverages are going to account for a big chunk of the market because theyve shown to be good carriers of functional ingredients, and I dont think the same can be said for large parts of the food industry."

Hagerman offered another possible reason why the functional foods market may lag behind its beverage counterpart. Most foods are eaten in mealsmany as dishes prepared for more than one person. "This is an issue because even though formulators could add valuable joint health ingredients to a pizza and benefit parents," he said, "the ingredients will be of little value to kids in the family."

But in the United States, functional food still rules the roost, with three main categories making up half of the market's sales. As of 2010, foods outsold beverages globally, with the dairy section composing 38 percent of sales, Leatherhead reported. Bakery and cereal followed (23 percent), and beverages rounded out the top three (12 percent).

Manufacturers can look forward to continued success in plant-based products, superfruits, chews, demographic-specific bars and fiber-fueled, weight-management solutions. While many consumers are looking for a back-to-the-basics approachthink no added chemicals, colors, preservativesexperts also expect the confectionary and convenience segments to take off.

But regardless of whether foods or drinks will lead the industry, it's obvious the functional foods give consumers the controland valuethey crave.

Find more on functional foods and beverages in the INSIDER Content Library.