Regulatory Concerns Cloud Functional Food, Nutraceutical Markets

The term 'nutraceutical' has been part of the industry lexicon for almost a decade. Unfortunately, it still seems mired in a tangled web of complementary definitions, regulatory watchdogs and consumer confusion.

According to the American Nutraceutical Association (ANA), nutraceuticals are "functional foods that have potentially disease-preventing and health promoting properties. They are also naturally occurring dietary substances in pharmaceutical dosage forms ... as well as comparable substances unintended for oral ingestion."

A fairly broad definition, to be sure. Most industry members explain that however the term is defined, it comes down to marketing. As the market research firm Promar International said in a recent report, nutraceuticals is defined through the marketing of products that have health benefits beyond basic nutrition. It can be seen as an umbrella marketing term overseeing dietary supplements, functional foods and other health-promoting products.

The Dietary Supplement Health and Education Act (DSHEA) did set up a regulatory structure for dietary supplements, giving them a different space for regulation by the Food and Drug Administration (FDA). They are neither foods nor drugs, but a unique gray area-- partially because FDA has not promulgated specific regulatory guidance. Under the definition of DSHEA, dietary supplements can even be in conventional food form. This has helped grow the market for functional foods.

The U.K. report, "Key Players in the Global Functional Foods Industry" by Leatherhead Food RA, calls functional foods the "third generation of healthy foods." This follows the general health food movement in the 1970s followed by the low-/no- foods of the 1980s. It noted, "Consumers are increasingly aware of the relationship between their diet and their health, and the long-term benefits of maintaining a healthy lifestyle. As a consequence, consumers have become increasingly interested in the use of health claims on foods."

But even the report that is tracking the category finds it hard to pin down. It noted that functional foods cut across a range of product categories, broadly when it includes health foods without claims and narrowly when it is specific on claims. When estimating the size of the functional food market (which could include nutraceuticals), its value is placed somewhere between $5 billion and $250 billion.

What makes a food "functional"? It could be as simple as calcium-enhanced orange juice or as complex as a juice or bar with additional botanical ingredients. "Functional foods provide a health benefit beyond the normal nutrition in a food," said Mary Mulry, an industry consultant with FoodWise. "Yogurt, for example, is a functional food, because its biggest health benefit comes from probiotics, which is not a recognized RDI nutrient." It is the promotion of these health benefits through marketing that helps the category stand out. Mulry pointed out that broccoli isn't usually a functional food, but could be marketed (and regulated) as one if sold for its sulfurofane content.

However, the fastest growing area of functional foods has been those with added botanical/nutritional components. DSHEA opened the market to dietary supplements and has raised the profile of ingredients such as echinacea and kava to consumers. That understanding is what functional food marketers are counting on. "Consumers are looking for these ingredients and rather than figuring out how to use them, they're in something like a drink," said Kim Mayone with Fresh Samantha beverage company.

It is this increased profile of functional foods, together with the broad definition of the nutraceutical category, that has brought increased interest from regulators. "How a product is defined by its company and marketed gives guidance as to which regulations to follow," said Diane McEnroe, counsel with Sidley & Austin. Unfortunately, the regulatory differentiation between foods and dietary supplements is not even clear with the FDA.

Regulatory Conundrum

The heat has been turned on in recent months for the FDA to set up those regulations. In July, the U.S. General Accounting Office (GAO) issued a report titled "Food Safety: Improvements Needed in Overseeing the Safety of Dietary Supplements and 'Functional Foods.'" It said it issued the report because functional foods and dietary supplements are a growing industry that has drawn consumer interest. Unfortunately, it concluded that the industry is not well regulated nor necessarily proving the safety of its products.

"FDA's efforts and federal laws provide limited assurances of the safety of functional foods and dietary supplements," the report stated. "While the extent to which unsafe products reach consumers is unknown, we believe weaknesses in the regulatory system increase the likelihood of such occurrences. ... FDA officials recognize these weaknesses but say a lack of resources has precluded them from taking actions to correct them."

One of the major issues GAO took issue with was ingredients, such as botanicals, that have not been listed with FDA as a food additive nor put on the agency's list of 'generally recognized as safe' (GRAS) ingredients. Companies also have the option of self-determining the GRAS status of ingredients they use in products; they are not required to notify FDA of their GRAS determinations. Technically, it is illegal to put in a food an ingredient that is not GRAS, or approved as a food additive, or that the company has not self-affirmed as GRAS. "FDA has not been enforcing heavily, but some companies have received warning letters," McEnroe said.

Some companies have sought to avoid this area by promoting their conventional foods with such ingredients as dietary supplements. DSHEA does permit dietary supplements to take the form of conventional foods, with all that entails (such as allowing structure/ function statements). In February of this year, FDA issued a final rule on structure/function statements that said, in part, that a "conventional food may make structure/function claims under section 201(g)(1)(C) of the Act as long as such claims are truthful, non-misleading and derive from the nutritive value of the food."

Unfortunately, the nutritive value is often not why a food product is being marketed as "functional," which leads back to GRAS determination. "FDA has made it clear that they don't want ingredients that we put in dietary supplements to be in the general food supply," said Anthony Young, a partner at Piper, Marbury, Rudnick & Wolfe. Consider that Robert's American Gourmet received warning letters about its snack products containing ingredients such as echinacea, or Hain Foods removed its "Kitchen Prescription" soups (which contained botanicals and were marketed as dietary supplements) off the market often receiving an FDA letter last year.

The GRAS issue, together with concerns about general safety of products, led the GAO to make several recommendations to Congress and FDA to enact more regulations on the oversight of nutraceuticals. For example, it asked Congress to amend the Federal Food, Drug and Cosmetic Act to require makers of functional foods to meet the same requirements that currently apply to dietary supplements. And it asked FDA to develop regulations and/or guidance on how to document the safety of dietary ingredients.

FDA's response? The GAO report noted that FDA agreed with the recommended actions, but didn't plan a timeline for implementing them. And a spokesperson with the agency said that FDA is working on a document that will clarify the regulatory guidelines for functional foods and nutraceuticals, but there is currently no definition of the terms.

After the issuance of the report, there was major media follow up, as industry groups lobbied for position. The Center for Science in the Public Interest (CSPI) was first off the block, filing a 150+ page complaint list about functional food products with FDA. "Food companies are spiking fruit drinks, breakfast cereals and snack foods with illegal ingredients and then misleading consumers about their health benefits," said Bruce Silverglade, CSPI director of legal affairs. "It's shameful that respected companies are selling modern-day snake oil."

On the other end were groups such as the National Nutritional Foods Association (NNFA) and even the Grocery Manufacturers Association (GMA). "Functional foods are just that: foods," said Stacey Zawel, Ph.D., GMA food scientist. "They already have to meet stringent federal food safety regulations. FDA already has sufficient authority to take enforcement action against products it deems to be unsafe. Food companies have a constitutional right to make health related information available to consumers." This has been GMA's position for many years, as food companies have sought the right to make structure/function claims like dietary supplements can.

Even as the United States tries to categorize these changing areas, other countries around the world are doing so with little hubbub. Japan, for example, was the birthplace of the functional food category; in that country, the Foods for Specified Health Use (FOSHU) law regulates the industry. According to Leatherhead Food RA, the Japanese market for functional foods sees more than 100 product introductions annually and is valued at about $14 billion. And the Functional Food Science in Europe project hopes to establish a regulatory approach that would be used across the European Community.

Future Plans

As the regulatory framework evolves, companies will have not only the challenge of staying abreast of legal requirements, but still meeting consumer demands. "Consumers are the ones driving the interest in the category," McEnroe said.

The reason for their interest comes back to an increasing awareness of wellness. "Consumers don't make a distinction between drugs and dietary supplements and foods," Mulry said. "They want to fix a problem and they'll blend products into a health regime to find what works."

This does offer potential to marketers in many categories. While the current hottest area may be functional beverages (which posted a 22.5 percent increase in sales in 1999, according to SPINS/ACNielsen), there are many options available. "When launching a new product or promoting existing products, marketers have the opportunity to clearly define and communicate what they want consumers to believe about their specific product," said Wendy Wehr, senior vice president at the marketing firm Colle & McVoy.

Indeed, natural products retailers are well positioned to help their customers navigate the shelves of functional foods and dietary supplements to find the products that work for them. "People in natural products stores are trained to talk intelligently about products," Mulry said. "It's not just real estate. So using incrementalization--taking it in steps to introduce products--can help position stores as information centers."

This can also mean working together with the medical community. Consider the time it took for Benecol and Take Control to find a market. "It took the medical world to make the idea of a butter spread to lower cholesterol a viable market product," McEnroe said. This is echoed by Claire Madden, vice president of marketing at MarketResearch.com, which recently released its study "The U.S. Market for Nutraceuticals." "Americans now expect their physician to be knowledgeable about all methods for treatment and prevention of medical problems," she said. "In turn, consumers welcome products that satisfy hunger and promote good health simultaneously."