Functional Foods: Health and Marketing Potential

Innovative food and beverage products may well help individuals as well as companies' sales.

By Michael Zacka, President/CEO of Tetra Pak U.S. & Canada

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Nutrition science is moving past 'identifying and correcting nutritional deficiencies to designing foods that promote optimal health and reduce the risk of disease'

– Institute of Food Technologists

What country offers its residents the best access to balanced, nutritious diets?

Not the U.S., which ranks 21 out of 125 according to Oxfam’s just-released study, “Good Enough to Eat,” which evaluates diets worldwide. That study puts the U.S. behind the Netherlands, almost all of Western Europe and Australia. But even more disturbingly, the report notes the U.S. ranks 120 out of 125 when the researchers look at its diabetes and obesity rates.

Of course, diet influences health, so this helps explain why not only obesity and diabetes, but also cardiovascular disease, chronic lung disease and more are on the rise in the U.S. A 2013 National Institutes of Health (NIH) study, “U.S. Health in International Perspective: Shorter Lives, Poorer Health” confirms this unequivocally.

There is a silver lining here that deserves our attention: These very public efforts to improve health and prevent disease by eating right have also spurred the food and beverage industries to develop promising and innovative products that will help individuals as well as stimulate companies’ sales. In fact, these products constitute a whole different industry category known as functional foods and/or nutraceuticals, which are devised to improve nutrition and immunity; aid weight control and digestion; and promote overall wellbeing.

It’s an idea whose time has come. Food has long been used to improve health, such as oranges and chicken soup to fight colds or the proverbial "apple a day to keep the doctor away." But now, companies are enhancing the food’s beneficial properties to improve its efficacy and maximize its potential. Nutrition science is moving past “identifying and correcting nutritional deficiencies to designing foods that promote optimal health and reduce the risk of disease,” notes the Institute of Food Technologists (IFT).

Can these functional foods really make a difference for obesity and the myriad of health-related ailments it spawns? Substantial research shows they are a move in the right direction and can yield tremendous benefits. For instance, an Expert Report from IFT, “Functional Foods: Opportunities and Challenges,” notes, “Research has proven that food and isolated food components can reduce the risk of disease, from the effect of vitamin A from eggs on blindness to the effect of zinc from high-protein foods on the immune system.” And it maintains “functional foods fit into a continuum that ranges from health maintenance/promotion to disease treatment.”

Some notable examples of this trend are already considered mainstream, such as probiotics, which introduce friendly bacteria into the gut to aid digestion and boost immunity; fiber-rich foods to boost colon health; and calorie-specific packages and portions with reduced amounts of salt, sugar and fat.

Consumers have responded favorably. Globally, nutraceutical sales were an estimated $142 billion in 2011 and are expected to grow to $180 billion by 2017, according to a PwC report, “Food as pharma.”

BCC Research says the growth will be faster and higher, estimating the nutraceutical market will top $207 billion by 2016.

Currently, the food industry’s revenue growth is being driven by this consumer mega-shift, notes TriplePundit sustainability blogger Bill Roth, just back from the Natural Products Expo West in March. This once-niche event has grown to become “one of the most heavily attended events ... across industries,” he reports, noting “healthy food has leaped from a marketing niche to a revenue growth engine for the foodservice industry.”

But here is what may be most interesting from an industry perspective: Nutraceuticals and functional foods command an average 25 percent profit margin, which is “well beyond the single-digit percentages that food companies make on many of their consumer products,” notes Pharmaceutical Market Europe magazine.

So as the global population continues to age, preventive and curative nutritional products will continue to gain market share with older consumers. Yet ironically, “younger adults aged 25-34 are seen as the key demographic group that will drive functional food and drink sales over the next three years,” notes “Global Functional Food Survey-Trends and Insights 2014-2016,” a new report from market research firm Canadean.

Other promising forecasts from the report include:

  • A projection that enhanced energy/sport drinks, cereal and energy bars and juice and soft drinks are the product categories that will witness the biggest increase in demand over the next three years.
  • An assertion that demand for functional food and drinks in grocers, hypermarkets and supermarkets will outpace demand in specialty health stores over the next three years.

This portends a promising and healthy future for the food industry, Americans and the rest of the world. Though big players, such as Nestlé, Pfizer and Dannon, have been among the first to get in the game with whole divisions devoted to functional foods, the space is open for companies of all sizes. Here are some points for companies to consider when capitalizing on the trend:

  • Keep an eye on science to leverage the health properties of regular foods. For example, cranberry juice has long been a go-to staple to treat urinary tract infections. This conventional wisdom got a significant scientific boost from recent research in the Canadian Journal of Microbiology that showed cranberry juice acts to retard the spread of infections, which can shorten their duration.
  • Strive for a smaller balance of the less-good-for-you ingredients in product formulation. Nutritional label reading is on the rise, and more and more consumers are giving them closer scrutiny. Consider segmenting products with healthier versions that feature lower sodium, less sugar and more fiber or no gluten.
  • Consider adding popular nutra-foods to product formulation and market it. Ginseng, palmetto extracts, ginkgo and ginkgo biloba have well-known healthful properties, and additional fiber or protein also can improve a product’s nutritional bottom line.
  • Explore partnerships to reduce development costs and barriers to entry. Partnerships between food and drug companies offer opportunities to maximize the upsides and minimize the downsides for each. Food companies bring experience with formulation, packaging, marketing and distribution, while pharmaceutical companies have mastered the maze of meeting health claims and other regulations. Companies can cut costs and time-to-market by not trying to reinvent the wheel.

To be fair, the federal government is taking the U.S. population’s health and obesity issues seriously, as evidenced by First Lady Michelle Obama’s "Let’s Move!" initiative and the proposed new label design to give the Nutrition Facts on packaged foods and beverages their most sweeping update in more than two decades—programs that have drawn tremendous attention from the mainstream media. The next step is for food and beverage companies and consumers to follow suit. Then, that attention can translate into lower numbers for all food-related ailments.

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