Foods and beverages that provide immediate benefits, such as energy, do better than those in the short term, such as those providing omega-3, according to a new PricewaterhouseCoopers (PwC) report on leveraging growth in the functional foods industry. Successful products address and communicate a specific health benefit linked to a common ailment, or offer multiple desirable benefits in a single product, such as Kraft's LiveActive bars, the first mass-distributed shelf-stable probiotic nutrition bars, which appeal to consumers seeking the benefits of probiotics without the need for refrigeration.
PwC's report shows functional foods' annual sales at between $20 billion and $30 billion, representing approximately 5 percent of the total U.S. food market. Reasons for the overall growth of the category include concern about preventing disease, the FDA's simplified approval process for health claims on functional food labels; emerging food processing technologies leading to new methods of stabilizing ingredients, optimizing texture and improving taste; and premium pricing potential. (Functional products typically require greater R&D investment and ingredient cost, but pricing premiums can reach 30 percent or higher.)
By food category, soft drinks (including enhanced waters) took the lead with $9.6 billion in '07 sales, followed by Dairy (including yogurts) with sales of $6.8 billion, bakery and cereals at $4.6 billion, confectionary at $2.3 billion, savory snacks at $.5 billion, and other at $3.4 billion, were the most successful. As for product benefit, energy products dominate, with $7.9 billion in sales in '07, followed by heart health ($5 billion), bone health ($3.7 billion), gut health ($.7 billion), and other ($9.9 billion). Up-and-comers: Products that enhance cognitive health, such as omega-3 fatty acids, projected to reach $7 billion in sales by 2011, according to Packaged Facts; as well as weight management, mood enhancement and skin enhancement products.Niche players remain active, but major CPG's dominate. They include: PepsiCo (Quaker and Gatorade) on top; Coca-Cola (Vitamin Water, Odwalla); followed by General Mills (Cheerios, Yoplait); Kellogg Co. (Special K, Kashi); Kraft (Capri Sun, Balance Bar); Nestlé (Nesquik, PowerBar); and Danone (Activia, Essensis).