According to a new report the UK is set to
go healthy as new functional products take off over the next few years. This will drive
major changes in traditional consumer buying patterns. These shifts will come as consumers
make an effort to improve their dietary intake and manufacturers try to derive higher
margins from the relatively static UK market.

According to the report (Strategies in
Nutraceuticals, Functional Food and Drinks) UK consumers are increasingly aware of health
issues and will turn to higher value products that provide health benefits and, as a
result, the growth of functional food and drink products in the UK will greatly outstrip
that of ‘normal’ products.

The report highlighted that, despite the
rise of incidence in heart disease and cancer (the two major killers in the UK) and the
growth of less healthy food and drink categories like take away convenience food and
indulgent items, this is not indicative of a low consumer awareness of health issues. The
last five years have seen widespread changes in consumer attitudes to dietary intake,
driving rapid growth in the UK market for nutraceuticals.

Government initiatives, the BSE crisis and
manufacturers’ campaigns have made UK consumers highly sophisticated in their
understanding of the link between health and diet. This awareness can also be seen in the
parallel growth of organic products (over 20 per cent year-on-year) as consumers try to
moderate, to some extent, their intake of artificial and chemical additives.

According to the report, consumers are
working on a system of ‘credits’ and ‘debits’, alternating between
high sugar/fat products and healthy products. A large number of consumers look to
nutraceuticals to provide those nutrients or benefits that cannot be provided by their
diet. Previously, food trends had tended to revolve around weight loss, and low fat
products, which focused on a narrow area of the problem.

In contrast, nutraceuticals address a wider
area and provide a pro-active measure, such as helping to lower cholesterol (i.e. Benecol)
or containing ingredients that are thought to reduce the risk of cancer (e.g. insoluble
fibre, betacarotene). Nutraceuticals’ scope is even widening into OTC medicines. A
clear example of this was the successful launch of Wrigley’s Airwaves brand in the UK
last year, which redefined the parameters for the chewing gum category.

According to the report, one of the effects
of consumer uptake of nutraceuticals has been to drive value sales of the categories in
which these products operate, such as milk, yoghurt and sugar confectionery.

As such, nutraceuticals represent a
critical path of business development for both UK manufacturers and the powerful multiple
grocery chains like Tesco, Sainsbury’s and Asda. Consumers expect to pay premium
prices for additional benefits and, to some extent, equate the level of benefit with the
price.

Therefore, functional brands such as Red
Bull are positioned as considerably more expensive than non-functional competitors. This
will drive value growth for large parts of the food and drinks industries, as
manufacturers look to add value to their existing product portfolios and increase profit
margins.

According to the report, there will be a
clear difference in the value growth rates between functional and non-functional products.
In particular, the most impact is set to occur in the dairy market as vitamins, mineral
fortification and the use of live cultures become mainstream. The report forecasts average
annual growth of over ten per cent in the functional dairy sector, compared to just 1.6
per cent in the overall dairy market.

Forecast value growth rates (%) of
functional food and drink categories in the UK 1998-2002

Source: Datamonitor analysis

It is not only consumers and food and drink
manufacturers that are driving the nutraceutical market, but also pharmaceuticals
companies. Companies such as Warner Lambert (owners of Halls), Novartis and SmithKline
Beecham (which owns Lucozade) are all looking to exploit their core research competencies
by introducing nutraceutical products. One of the critical reasons behind this is that the
cost of drug development has more than tripled in the 15 years and pharmaceutical
companies therefore need to offset their R&D costs as much as possible.

Part of the growth of nutraceuticals will,
therefore, also be driven by the necessity for food manufacturers to introduce new
products in the face of moves by pharmaceutical companies into food and drinks.

According to the report, the next five
years will bring dramatic chances in the UK food and drinks industry, with an increased
focus on R&D by manufacturers and a rise in importance of ingredients companies as the
gateway to innovative, benefit-led products. Current high growth of functional products
will attract both new entrants and established companies looking to capitalise on the
improved profit margins and sales volume growth potential. Nutraceuticals will therefore
inject much needed dynamism into the largely stagnant UK market and help to redefine
consumer perceptions of the food we eat and drink.

Details of reports from Food Industry News Click Here