There are two ways of looking at the impact of what is often described as the ‘health and wellness’ trend in food consumption. It can either be about consumers deciding or being persuaded to take certain things out of their diet or alternatively putting more of other types of food into their diet.
Food manufacturers are participating in the former by reformulating their products and engaging in the drive to improve diet and health, but the latter trend arguably affords far more scope for creative thinking and innovation. The growth in the functional food market appears to confirm not only the consumer appetite for products offering health benefits but the relish with which the food industry has attacked this opportunity.
While there are examples of functional food brands, the functional sector is defined as much by the launch of healthier or functional range extensions to existing mainstream brands, and therefore has to be seen in the context of the NPD and innovation strategies of major companies.
A growing market
Assessing the exact size of the functional food market is a considerable challenge for researchers not least because it is a rather amorphous category, defined in a number of different ways.
In its strictest sense and simplest definition, functional foods are everyday food and drinks products, such as cereals, spreads, oils or baked goods, which claim a health benefit, such as being able to help the immune system, boost energy, lower cholesterol, or help maintain gut, bone and heart health.
Foods making less specific health claims but which are nevertheless positioned as being better for you, such as products fortified with certain vitamins, antioxidants or calcium, are often also referred to as functional foods.
The elasticity of the market definition is underlined by widely different estimates of market size. For example, market research organisation Mintel put the functional foods market in the UK in 2009 at GBP719m (US$1.2bn), while another researcher, Key Note, put the 2009 UK market value at around GBP1.46bn.
According to Leatherhead Food Research (LFR), the international market for functional food and drinks, defined as those making health claims, has increased by more than 31% between 2006 and 2009 to US$22.9bn.
As it is often seen as the birthplace of functional foods, it is no surprise that Japan remains the largest market. LFR estimates that the Japanese market for FOSHU-approved (foods for specified health use) food products was worth US$8.98bn in 2009. The same research put the US market at US$7.12bn in 2009, and Europe at US$6.54bn.
LFR forecasts that by 2012, the functional foods market will have increased to US$25.1bn, and by 2015 to US$27.1bn, with the US and European markets driving the growth.
Principal product areas
While many different food products can be modified or fortified to offer the potential for health claims, food companies have tended to focus on certain categories, leading to the establishment of what can be considered core functional food groups. The four largest product areas in the functional food market are dairy, baked goods and cereals, drinks, and fats and oils. There are also functional offerings in the meat, fish, eggs and soy sectors. The different product groups tend to target different areas of health concern.
As it includes probiotic and prebiotic products, which have been a particular commercial success, it is no surprise that dairy is the largest sector, accounting for around 40% of the global market by many estimates, and up to 70% of the market in the UK and Europe.
Clearly, the principal health issue of focus in the dairy market is gut health, and the dominant companies are those marketing probiotic yoghurts, such as Danone and Yakult. If a broader definition of functionality is used, calcium-fortified milk and milk beverages come into this sector, where bone health is clearly the predominating health issue.
Baked goods and cereals
Cereals and baked goods are generally considered to be the second largest sector, accounting by most estimates for between 20% and 23% of the market.
The baked goods and cereal sub-categories include fibre-enriched, probiotic and vitamin- and mineral-fortified lines, principally in the breads and biscuits categories, as well as fibre-enriched and wholegrain breakfast cereals and cereal bars.
Fortified breakfast cereals make up a sizeable proportion of this sector. It has also been a growth engine for the functional food market as cereal producers have sought to address criticisms about the health profiles of their brands. Vitamin fortification and the use of whole grains in mainstream cereal brands have been important innovation strategies for companies such as Nestlé and Kellogg.
Because of the overlap with dairy, estimates of the share of the functional food market represented by beverages vary considerably. However, the drinks market has been a particularly successful area for functional development, with products such as energy drinks generally counted as part of the same trend. It accounts for at least 12% of the functional food and drink market by value and considerably more if a broader definition of functionality is used.
Fats and oils
Concern over the effect of high cholesterol levels on heart health meant that the logical next step in the spreads sector after the development of products containing predominantly unsaturated fats was to move into spreads which actively help to lower cholesterol.
Benecol, produced by Finnish food group Raisio, was a pioneer brand in this sector and now extends over a range of products. Variants containing higher levels of Omega-3 fatty acids are also marketed as range extensions to popular spreads such as Unilever‘s Flora. Fats and oils account for between 8% and 10% of the global functional food market.
Meat, fish, eggs and soy
Products in the meat, fish and eggs categories principally comprise those fortified with omega-3 fatty acids on the proposition of promoting heart health and improving brain and nervous system function.
Soy products, such as soy milks, are often fortified with calcium with claimed benefits for heart and bone health.
The key market driver that precipitated the functional food boom has been the pursuit of better diet, prompted to a considerable degree by the particular concern over diet-related health problems such as heart disease and obesity. In addition to those core concerns, functional foods now address a wide range of health issues, some more serious than others. Across this gamut, the issue of how claims made on behalf of the products are substantiated scientifically and presented in packaging and advertising remains the dominant issue affecting this sector of the food market.
The amount of resources that organisations such as the European Food Safety Authority (EFSA) are devoting to functional foods underlines that it is also a major issue for regulators and policymakers.
How regulators address concerns that some products are making misleading claims or that a legitimate scientific basis for certain health attributes is being misrepresented or exaggerated in advertising will undoubtedly have a significant bearing on how the sector develops. The health claims debate is discussed in the next section of this briefing.