Nutraceuticals are functional foods are
defined as products derived from natural sources, whose consumption is likely to benefit
human health and enhance performance. These foods are in the form of a
supplement/ingredient or as a complete food. Their primary use is to enhance the
performance and state of the human body. Most of the times they are associated with
improving a specific function.
The major applications for nutraceuticals
are as products to nourish human body after physical exertion or as a preventive measure
against ailments.
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US Nutraceutical Markets, a Market Engineering report from Frost & Sullivan, has studied
the U.S. markets for nutraceuticals and functional foods. The segments considered were
nutritional supplements, activity based foods, and functional beverages.
Figure 1.1 presents the base year (1998)
revenues and growth rates for market segments covered in this report.
The market size is defined in U.S. dollars.
This definition is followed throughout the report. Since unit shipments or volume depend
on the product type it is difficult to determine the veracity of the data. Hence, figures
for unit shipments are not provided in this report. The forecast period is from 1998
through 2004. The base year is 1998. The compound annual growth rate (CAGR) for revenues
is calculated for the period 1998 through 2004.
Summary of major findings highlighted in the report include:
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By GlobalData
Market growth, opportunities and
total forecast
The total U.S. nutraceuticals and
functional food market was estimated at $4.51 billion in 1998. It is expected to grow at a
CAGR of 14 percent for the period 1998 through 2004, with revenues reaching $9.89 billion
in 2004.
Strategic analysis and forecasts
by major segment
Nutritional supplement market
In 1997, the U.S. nutritional supplement
market was estimated at $ 3.21 billion. The CAGR for the period 1997 through 2004 is
computed to be 15.7 percent.
Market drivers:
- Increasing nutritional awareness drives
supplement markets - Increasing self reliance in healthcare
decisions - Consumer acceptance of 3 G’s: Garlic,
Ginseng and Gingko - Acceptance in Europe lends credibility to
supplements in U.S. - Standardized extracts allow stricter product
quality control - Private label supplements cater to large
household needs - Health and specialty food stores cater to
individual buyers - Diet influenced diseases remain the leading
cause of mortality - Peer usage helps increase product awareness
- Growing acceptance of alternate medicine
remedies
Market restraints:
- Increasing consumer concerns over legitimacy
- Supplement abuse can cause nutrient toxicity
- Consumers are not very brand savvy
- Increasing industry regulation likely to
restrict growth - Lack of patentable products
- Nutritional benefits from genetically
modified foods - Lack of consumer education
- Possible fallout against nutritional
supplements - Inability to meet advertising budgets and
stocking costs - Impediments to product stability
Activity based foods
In 1997, the U.S. nutraceutical and
functional foods market for activity based foods was estimated at $350 million. The CAGR
for the period 1997 through 2004 is computed to be 12.3 percent.
Market drivers:
- Increasing levels of public health
consciousness - Trends towards consuming “food on the
go” - Increased nutritional awareness
- Ease of use
- Role of diet in disease prevention
- Peer usage
- Increasing role of self-reliance in
healthcare decisions - Relaxed regulatory environment
- Symbiotic growth with sports and alternative
medicine market - Increasing interest by larger food companies
Market restraints:
- Concern over product legitimacy
- Nutrient Toxicity through Supplement Abuse
- Consumers are not very Brand Savvy
- High Price to Performance
- Changes in Industry Regulation
- Lack of patentable products
- Bio-engineered and Regular foods
- Processing Difficulties limit Organoleptic
Properties - Lack of Consumer Education
- Possible fallout against Dietary Supplements
Functional beverage markets
In 1998, the U.S. nutraceutical market for
functional beverages was estimated at $ 950 million. The CAGR for the period 1997 through
2004 is computed to be 8 percent.
Market drivers:
- Increasing Health Consciousness
- Interest in thirst quenching nutritious
beverages - Link of natural ingredients to good health
- Peer Usage
- Associative growth with increase in Sports
and Physical activities - New Product Development by large beverage
companies - Relaxed Regulatory environment
- Self Reliance in healthcare decisions
- Increasing Customer Confidence in Natural
Beverages - Media Coverage of Nutraceutical and
Functional Beverages
Market restraints:
- Product Proliferation
- Lack of customer loyalty
- Product Legitimacy
- Price to performance
- Industry Regulation
- Bio engineered foods
- Product processing and Stability
- Consumer Education
- Possible Fallout against natural foods and
beverages - High Advertising budgets and Stocking costs
Competitor analysis
The individual market segments vary in the
type and number of players that sell their products. The nutritional supplement industry
is dominated by larger companies that are either chemical or herbal supplement
manufacturers. Activity based foods are dominated by smaller sized companies with revenues
of about $ 20 to 30 million a year. The functional beverage market has both large beverage
companies as well as smaller sized herbal beverage manufacturers.
Major market challenges
- Slower growth in traditional food industry
increase category interest - Cost of regulatory compliance expected to
minimize smaller market players - Fragmented nature of the market leads to a
lack of strategic focus - Need for market players to associate with a
growing concern on personal fitness - Increasing incidence of diet related disease
enhances need for innovative nutraceuticals - Distribution strategies likely to determine
true market winners - Internet is likely to play an important role
in category success - Concerns over product legitimacy likely to
hinder category growth - Lack of patents makes product management
extremely critical - Capital limitations require creation of
strategic alliances
Conclusions
The key strategies for success in the U.S.
nutraceutical and functional food markets, as identified in the report are:
- High level of product and technical
innovation and technical service - Development of intellectual capital to
suitably address the needs of a diverse end-user segments - Large and cost efficient scale of
manufacture - Collaborations with large end users, and
small technology firms to maintain market share through customer satisfaction and
innovation - Keen understanding of international
substrates and processes to address customers shifting manufacturing sites - Development of efficient global distribution
systems
Fig 1.1
Total Nutraceuticals and Functional Foods
Market: Evenue Forecasts (U.S.), 1994-2004
| Year | Supplements ($ Million) |
Foods ($ Million) |
Beverages ($ Million) |
Revenues ($ Million) |
| 1994 | 1,790.30 | 203.60 | 691.90 | 2,685.80 |
| 1995 | 2,058.90 | 232.10 | 747.20 | 3,038.20 |
| 1996 | 2,429.50 | 264.70 | 814.50 | 3,508.70 |
| 1997 | 2,793.90 | 304.30 | 879.60 | 3,977.80 |
| 1998 | 3,213.00 | 350.00 | 950.00 | 4,513.00 |
| 1999 | 3,791.30 | 399.00 | 1,035.50 | 5,225.80 |
| 2000 | 4,473.80 | 454.90 | 1,128.70 | 6,057.40 |
| 2001 | 5,144.80 | 509.40 | 1,219.00 | 6,873.20 |
| 2002 | 5,865.10 | 570.60 | 1,304.30 | 7,740.00 |
| 2003 | 6,744.90 | 633.30 | 1,395.60 | 8,773.80 |
| 2004 | 7,689.20 | 703.00 | 1,507.30 | 9,899.50 |
| CAGR (1997-2004): | 15.7% | 12.3% | 8.0% | 14.0% |
| Key: CAGR = Compound Annual Growth Rate |
||||
Note: All figures are rounded.
Source: Frost & Sullivan
Total Nutraceuticals and Functional Foods
Market: Market Engineering Measurements (U.S.), 1998
| Measurement | Value | Trend |
| Market Age | Market Development | — |
| Total market size | $4,513 Million | — |
| Potential market revenues by year 2004 | $9,899 Million | — |
| Historical growth rate (1994-1997) | 15 percent | — |
| Projected growth rate (1997-2004) | 14 percent | — |
| Market saturation (current/potential users) |
35 percent | Increasing |
| Replacement Rate | High | Increasing |
| Price Sensitivity | High | Decreasing |
| Consumer Units | Low | Increasing |
| Number of products | High | Stable |
| Competitors (active market competitors for total market in 1998) |
> 100 | Decreasing |
| Degree of competition | High | Increasing |
| Degree of technical change | High | Increasing |
| Customer Satisfaction | Low | Increasing |
| Customer Loyalty | Low | Increasing |
| Market concentration (% market share of top two competitors) |
<30 percent | Stable |
| Price to performance | High | Decreasing |
| Product development time | 6 to 12 months | Decreasing |
| Time to market | 12 to 18 months | Decreasing |
| Major current distribution channel (direct/indirect) |
Indirect | — |
| Food Processing Company Presence | Marginal | Increasing |
| Pharmaceutical Company Presence | Low | Up |
| Independent product development companies | Low | Increasing |
