The Nutraceutical Research and Education Act (NREA), which was introduced to Congress last year, is expected to be reintroduced in this year’s 107th session of Congress. If passed, the competitive dynamics of the functional foods market will change significantly according to a newly published study by Front Line Strategic Management Consulting, Inc. The NREA creates an exclusive category within functional foods in which companies, using clinical research, could promote a direct health benefit claim for marketed food products. In addition, the company would be granted 10 years of exclusive marketing rights to the claim.

During the past decade, the FDA has passed legislation to regulate health claims made on food labeling. The most prevalent use of these claims is in the ready-to-drink (RTD) beverage industry. Some of the brands employing such a marketing strategy include Tropicana® and Minute Maid®. In the ready-to-eat (RTE) cereals industry, General Mills has led the way with functional food brands such as Total® and Cheerios®. Additionally, General Mills is positioning itself for future growth in functional foods by forming a joint venture with an agri-chemical business, Protein Technologies, Inc.

Consumers are increasingly using non-pharmaceutical options such as functional foods to supplement and even treat diseases. The pharmaceutical companies, who are well-versed in clinical trails, are taking note of the shift in consumer behavior and the subsequent potential in functional foods. For example, Quaker Oats, a major player in RTE cereals, has formed a joint venture with Novartis, a pharmaceutical company called Altus Foods.

Subsequently, consumer awareness of diet-disease benefits is expected to lead to increased consumption of functional foods. Front Line Strategic Management Consulting forecasts growth in the functional foods segment from $18.5 billion for the year 2000 to $32.7 billion by 2005. The two most popular categories, RTE cereals and RTD beverages, will comprise $5.0 billion and $5.7 billion, respectively, according to the study.

While it is clear pharmaceutical companies will play a role in the functional foods market, if the NREA is passed, the role of pharmaceutical companies could vary from clinical trial to marketing. Scenarios such as this might recast functional foods as therapeutics and create a competitive environment similar to pharmaceuticals.

Front Line Strategic Management Consulting, Inc. is a market and strategy consultancy providing clients with strategic evaluations, recommendations and competitive assessments in the Life Sciences and Consumer Foods markets. This research was obtained and analyzed in the company’s 2001 report, Functional Foods, Market Dynamics and Opportunities. Free executive summaries of all Front Line studies are available to the press and free tables of contents and sample pages are available to industry.