Health and wellness (HW) has been one of the biggest drivers of packaged food innovation and sales in recent years and continues to dominate industry discourse, as well as general strategic direction.

As such, many leading industry players have re-positioned themselves from being not just ‘food' producers, but purveyors of ‘nutrition' and health. This semantic shift continues to have significant ramifications for the industry's present and future development.

Better-For-You (BFY) packaged food remains the single, largest health and wellness format. Despite its relative maturity, especially compared to ‘hot' new categories such as functional food, BFY has found renewed momentum as manufacturers explore opportunities in salt reduction.

Looking more closely at specific HW formats, fortified/functional food has disappointed somewhat. With so much industry focus on developing new value-added offerings, consumers suddenly, but understandably, have become more cautious and skeptical about functional/fortified food options since 2009. Economic factors have merely reinforced such attitudes.

What Now For Health and Wellness Food?

2010 has proved a challenging year for health and wellness packaged food, with its previous momentum coming under considerable strain from regulators and consumers alike. Nevertheless, health and wellness is likely to remain a driving force for packaged food, especially as economic prospects improve and consumers get older and fatter.

That said, health and wellness will have to re-invent itself - as it is now doing - in order to adapt to new realities when it comes to regulation and consumer preferences. As such, the importance of having a clear, clinically supported product message will become even more crucial. While sound scientific backing will become more necessary for any packaged food making a health claim, manufacturers must also take care to not go overboard in this regard, for fear of scaring off or otherwise alienating consumers.

Lower Food Prices Resulting from Partial Economic Recovery

Lower commodity prices coupled with weaker demand for more premium and health-orientated packaged food could slow the growth of retail unit prices or even contribute to an even greater drop from 2009 to 2014.

Similarly, lower disposable income stemming from only a partial recovery could slow demand for higher-priced staple food items such as functional milk and further depress already low commodity and retail unit prices between 2009 and 2014.

Retail unit prices for ready meals are also likely to be affected by weaker economic growth, as consumers tend to go for more affordable frozen formats on the back of a limited economic recovery. Furthermore, consumer demand for convenience could be constrained by weaker-than-expected employment levels, which could prompt manufacturers and retailers to reduce prices even further to stimulate sales.

Urban growth in emerging markets set to increase milk sales

Global consumer demand and overall sales of milk, in both retail and foodservice, will be underpinned by a strong performance in emerging Asia-Pacific economies from 2010 to 2015. This robust performance will be driven not only by strong economic growth but also population growth in urban areas, which accounts for the largest proportion of processed milk consumption.

Total volume sales of milk in India are predicted to grow by 33% from 2010 to 2015. The urban population in this country will increase from 348 million in 2009 to around 400 million in 2014, while GDP is projected to grow by around 50% in constant terms between 2009 and 2014. The expected increase for both urban population and disposable income will play a key role in the projected expansion of processed milk sales in the medium term.

Another market where demand for milk will be driven by population and economic growth is China. GDP growth is predicted to increase by 60% in constant terms from 2009 to 2014. Meanwhile, the urban population will grow by around 75 million people during the same period. Alongside this, total volume sales for milk are projected to grow by 29% from 2010 to 2015 in China.

Strong demand for milk in emerging markets, running on the back of global economic recovery will underpin a moderate but sustained recovery in raw material costs. Failure to quickly adapt production to stronger global demand could result in shortages and thus price hikes like the ones seen across much of the globe in 2008.

Stepping up R&D investment will be crucial, as only specialised premium lines will maintain or expand their shelf space, especially in mainstream supermarkets and hypermarkets, without suffering a further squeeze on their margins. Manufacturers that tap into mounting consumer demand for ethical products, and that are also less sensitive to fluctuating prices, should also maintain reasonable margins and medium-term profitability.

Parallel to boosting specialisation into potential growth niches, milk manufacturers should also take into account the fact that moderate supply chain cost increases for standard milk in the short to medium term will likely not be assumed by retail chains given their strong bargaining power. As such, diverting more of their production to the supply of private label might help manufacturers reduce costs given the greater economies of scale at play. Using part of these savings to invest in value-added lines would help them maintain market share and ensure their market survival in an increasingly competitive and cut-throat milk market.