Can functional products revive a mature oils and fats market?
Health concerns and the demise of home-cooked meals have resulted in declining oils and fats sales in most developed markets. Can functional ingredients put a halt to this development? Euromonitor investigates.
High levels of product maturity, rising consumer health concerns coupled with ever decreasing interest in home-cooked meals and a concurrent increase in the usage of ready meals and processed food have led to a steady decline in the sale of oils and fats. Globally, the market recorded a decrease in US dollar value terms of over 9% between 1998 and 2002.
Consumers shunning fat
With the rate of obesity on the increase in the US and in Western Europe, consumers are intent on reducing the intake of the most 'visible' and pure form of fat, that is to say oils, butter, margarine and spreads, resulting in a general decrease in consumption levels. During 2002, per capita consumption of oils and fats in Western Europe and in North America decreased by 5% and 9% respectively.
While consumption of oils and fats generally declined, some sectors were more seriously affected than others. Cooking fats and margarine suffered the steepest declines, while spreadable oils and fats (in particular low-fat variants) and oils with purported health benefits such as olive oil and certain vegetable and seed oils performed better.
Functional spreads buck the trend
With the overall trend of declining consumption, the dynamic performance of one sector clearly stands out, that of functional spreads. Between 1998 and 2002, global volume sales rose by over 100%, and value sales recorded a near 300% increase. Rising consumer awareness and concern regarding high cholesterol have led to increasing interest in functional spreads, and manufacturers in turn aimed at further increasing awareness of cholesterol and its impact on health and wellbeing through 'infomercials'.
"US consumers won't pay the premium for functional spreads"
Spreadable oils and fats with such active health benefits are primarily targeted at the older population, most typically at consumers over 50 years old, while younger consumers are often satisfied with low-fat variants of regular spreads. Manufacturers have nevertheless recently begun to target a broader audience by segmenting their product offerings further. In France, for instance, Uniq's subsidiary Vedial offers St Hubert Omega, which is targeted at consumers aged 35 to 50 years, and St Hubert Ilô targeted at those over 50 years.These target groups are perfectly suited for such functional products, as they are typically more health conscious, while at the same time having relatively high disposable incomes, and as such they are willing and able to afford the high premium these products currently command.
Nevertheless, functional spreads remain mainly confined to the European market. Western Europe currently accounts for over 60% of total sales, with North America and Australasia accounting for the majority of the rest.
Functional failure in the US
While the outlook for functional spreads in Western Europe and Australasia remains positive, sales in North America reached their 'peak' in 2000 and have since been declining. Currently, functional spreads account for just 1% of total oils and fats value.
After initial interest in the product, it has clearly not lived up to US consumer expectations and they consequently did not feel such a high premium was justified (functional spreads are priced at US$16 per kg in the US, compared to just over US$3 per kg for regular spreadable oils and fats).
Only recently introduced legislation that will make the listing of trans fats mandatory on all packaged foods from 2006 could result in a resurgence in functional spread sales. However, it will more likely benefit butter, which is more natural than spreadable oils and fats and, most importantly, cheaper.
Boom of 'healthcare' oils in Japan
Similarly, functional spreads, while increasing in popularity, remain of only marginal importance in Japan, albeit for a different reason. Due to entirely different eating habits, Japanese consumers have much less use for spreads generally. Growing popularity of functional products is nevertheless also apparent here.
In particular the functional oil Enova, introduced in 1999 under the name Healthy Econa, has become very popular and is starting to make forays outside its domestic borders. The oil is made from soy and rape seed and has diacylglycerol (DAG) as 80% of its constituent. With only two fatty acids rather than three attached to the fat molecule the DAG variant is more likely to be burned for energy directly by the body rather than stored as fat. Kao's Econa brand has become the single most important development in the Japanese oils and fats market in recent years.
"Consumers are shunning "visible fats""
Nevertheless, while functional products have so far failed to revive a declining market, functional ingredients add the necessary value to very mature and commoditised products. Moreover, they will continue to provide pockets of growth for manufacturers unwilling to succumb to price wars and looking for 'healthier' methods of differentiation.
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