Though the U.S. is still mired in a slow economy, functional food and beverage sales continue to grow as consumers look for even more natural products.
Now more than ever, the functional food and beverage market is extensive and massive. Despite being stuck in an economic downturn, functional food and beverage product development has been on the rise in the U.S. According to USANA Health Sciences. Inc. (Salt Lake City, UT), in 2009, sales from functional foods and beverages totaled $31 billion, a six percent increase from the year before.
The U.S. functional foods market is estimated to be the largest in the world and is projected to total $43 billion by 2013. Further, according to Mintel’s Global New Products Database, 785 foods and beverages with functional claims were launched in the U.S. in 2008 and 770 came out in 2009—up from 431 in 2007 and 193 in 2006.
Functional beverages range from niche sub-categories such as heart and digestive health drinks, to generic sub-categories such as energy And sports beverages. Combined, according to Packaged Facts, these subcategories make up a $23 billion functional and natural RTD (ready-to-drink) market. Based on the strength of these growth categories, Packaged Facts estimates that, despite the economic recession, the entire market enjoyed a compound annual growth rate (CAGR) of almost six percent since 2006.
The functional food market, meanwhile, is a relatively young market (less than 50 years old), said Shai Karlinski, vice president of marketing at Anlit Ltd. (Hefer, Granot, Israel), but has flourished due to an entrance of big companies that invest huge sums in educating the consumer. “The potential of the market is huge due to fact the more people understand the prevention (functional food) is better than the cure (medicine).”
Recent trends indicate that consumers are demanding healthier food and beverage options without compromising taste. Movement also indicates that consumers are looking for beverages that offer unique and specific functions, rather than general or broad functional categories, said Russell
F. Fager, co-founder of The Chill Group, Inc. (Los Angeles, CA). “People still desire supplements, but when given the choice between taking supplements in capsule form, or a beverage that not only offers them the benefits of supplements, but also tastes great and quenches thirst, they normally choose the beverage,” said Fager. Health is of utmost importance, agreed Andrew Aussie, cofounder and president of Earnest Eats (Solana Beach, CA). “We’ve continued to see the market appeal widen and deepen as more consumers are becoming aware of what’s available now and are asking for more health benefits from their diet,” said Aussie. “We wonder if the economic slowdown has impacted some of these more mainstream and less traditional core consumers as they face the typical price premium of many functional foods, or if the concurrent trend to eat more at home is outweighing it.”
“It’s been interesting to track the functional juice trends we’ve been seeing over the past few years,” added Chris Cuvelier, founder and CEO at Zola Açaí (San Francisco, CA). “Originally, it was the health conscious and those who participated in extreme sports who consumed the majority of these drinks. Now it appears that the category has widened and become more mainstream, appealing to anyone interested in taking advantage of the health benefits offered.”
Marilyn Bartels, owner of TnK Health Food Store (Waterloo, IA), is one retailer who preaches the importance of healthy Eating and drinking, going as far as banning certain products from her store that, according to her, are falsely deemed healthy. “I refuse to stock Splenda or NutraSweet because they are not natural,” she said. “Plenty of studies have been done to show their negative side effects. Personally, I’ll use stevia and have never had any difficulty with that.”
There’s been a steady trend toward personal health as well as a greater demand for healthy products, added Dan Macuga, vice president of marketing, public relations and social media at USANA. The LOHAS market, a segment of the consumer population that is particularly invested in personal care and health alone, represents over $290 billion in consumer sales. A recent study done by the Organization for Economic Cooperation suggests that three out of four Americans will be overweight by 2020 and that, as obesity rates continue to rise, “weight management” was found to be the seventh most significant food trend, said Macuga.
“Beverages are forecasted to be one of the fastest-growing segments in functional foods,” he continued. “Products that can deliver an ‘easy-to-feel’ benefit, such as energy drinks, are also expected to trend upward. Other trends include foods that are gluten-free, contain antioxidants, use all natural sweeteners (such as stevia) or promote digestive health.”
Debbie Knapp, corporate grocery buyer of Vitamin Cottage (Lakewood, CO), said her store holds the belief that all foods function as nutrients, “and that’s a belief our customers tend to share.” Knapp made it clear that if her customers choose to add guarana (a stimulant) or melatonin (a hormone) to their diets, those ingredients are available only in supplement form—rather than in foods and beverages—so customers can carefully monitor the amount they ingest and see how it affects them. Also, “If customers choose to drink caffeine, we offer that in its regular form, such as a cup of coffee or bottle of iced tea. We don’t want anyone picking up a beverage or food and being unpleasantly surprised that extra milligrams of caffeine have been added for a jolt they might not be expecting.”
While the functional food category certainly covers a broad area, manufacturers are continuously looking for new ways to develop innovative products. Many successful functional foods are coming from whole food ingredients, such as Earnest Eats’ Baked Bars, which according to the company, have four grams of fiber per serving—four times the typical amount in bars and equivalent to the typical bowl of raisin bran, without any fiber fortification. “Our base of organic oats, seeds and fruits provides a natural source of fiber at what we would describe as a functional level,” said Aussie.
Organic ingredients have also become more trendy and, according to Len Zanni, marketing director of Honey Stinger (Steamboat Springs, CO), his company is experiencing strong growth in its Organic Energy Chews, which offer added vitamin C, and Organic Stinger Waffles, which feature high-quality ingredients and are available in easy-to-eat, singleserving packaging, a combination that Zanni said is selling well at retail.
Further, Anlit’s Karlinski noted that while the conservative supplements (capsules, tablets, syrups, etc.) still maintain their popularity, she’s noticed more supplement companies are introducing functional foods into their product line. Anlit is one of those companies, as its Chewable Bears for children are “a proprietary treat platform that we developed that can retain and stabilize active ingredients while keeping the great taste of a candy. We give parents the confidence of high quality products and give the child the friendly experience of a supplement—contrary to the ‘pill-swallowing’ experience.” Retailer Bartels added that she has been recently trying harder to avoid pushing supplements on customers, but is instead urging them to buy natural foods such as Udi’s Gluten Free Bread, Ezekiel Bread and raw brazil nuts. Bartels said she wants her customers to learn the importance of healthy eating, especially if they are suffering. “If I have a diabetic customer, I urge them to eat well and maintain their sugar balances. Instead of sitting down and drinking pop, maybe drink green tea with natural ingredients. I try real hard to teach that.”
The functional beverage market is no longer just protein shakes and sugary energy drinks, but has expanded to include condition-specific products for consumers looking to not only boost their nutritional intake, but also attack a particular issue. According to Shaun Roberts, founder and CEO of KonaRed (Kalaheo, HI), functional beverages appeal to active and health-conscious people who are more aware of what they put in their body. This segment of the market is exploding as consumers strive to enhance their athletic performance, boost their overall health and meet the demands of today’s stressful lifestyles, he said.
KonaRed is a natural antioxidant beverage derived from the red, ripe, cherrylike fruit of the coffee plant, said Roberts. Clinically tested and proven, KonaRed has an extraordinarily high content of nutrients and bio-available antioxidants that are absorbed at the cellular level and are known to help prevent disease, delay aging and provide a long-lasting mood boost. Additionally, in the functional beverage market, there’s no doubt that stress relief is an area consumers are looking for help in. Just Chill’s Natural Stress Relief drink answers consumers’ demands for a healthy, functional and great-tasting beverage, said Fager. “Our unique, non-drowsy, stressreducing proprietary blend sets us apart from most of the kava and melatonininfused relaxation beverages on the market because they cause sedation, while Just Chill is safe to drink throughout the day.”
Brain focus is another area in which functional beverage manufacturers are developing products. “The cleanest functional drink we found that fits this category is Brain Toniq by Tru Toniqs, And our sales on that have been quite good,” noted Vitamin Cottage’s Knapp. Brain Toniq is a non-caffeinated clear sparkling beverage, lightly sweetened with agave, containing supplements to increase brain focus and clarity, and it has an excellent taste, said Knapp.
Of course, when formulating functional beverages, manufacturers have to be concerned with taste and consumer preference. Zola Açaí’s Cuvelier said he’s noticed that consumers are becoming increasingly familiar with functional juices and are now more open to new and exotic products, making the conversation around Brazilian super fruits and açaí much easier and more comfortable for consumers.
Thus, Cuvelier said Zola is best known for its award-winning taste, which is attributed to three factors: the quality of its açaí (called Açaí Especial); its 12-hour Harvest-to-Process Guarantee™ (which locks in the nutritional benefits, fresh taste and bright color of each berry); and lastly, that Zola controls every step of its processing, from berry to bottle, to ensure its authentic Brazilian taste.
One hurdle that manufactures have had to overcome is dealing with the lack of Natural ingredients available, said KonaRed’s Roberts. “We are seeing this a lot with coconut water. There is a limited supply coming out of mostly third world countries where one negative event can greatly disrupt the entire supply chain,” he said.
Manufacturing a beverage is a very complex process, added Just Chill’s Fager. “One of the largest challenges is coordinating the logistics of sending multiple ingredients from multiple vendors and cans, all around your co-packers line time, which often isn’t set until a few weeks before everything is due to arrive. In addition, varied ingredient lead-times and shortages further exacerbate the logistics, making it very hard to consistently plan.”
“Anytime you are trying to achieve significant levels of nutrients and nutrition, there are hurdles to face such as taste, ease of manufacturing, ingredient cost and shelf life,” agreed Earnest Eats’ Aussie. “All are challenges we have faced in using whole food ingredients that achieve functional levels of nutrition. Clearly, having strong food development and supply chain partners is critical here, and can help avoid issues at commercialization that simply working on our own we would not have anticipated.”
It is important that manufacturers and retailers have a close working relationship. Honey Stinger’s Zanni said that his company works closely with its retail partners to determine the programs, assortments and in-store display or location that will help increase product sell-through. However, every retailer is different, and manufacturers need to keep that in mind. “What works for one natural foods grocer, for example, may not work for another, so we try different things with each account and work closely with our buyers.”
Earnest Eats tries to help retailers on two primary fronts—in the store and through social media outreach. In-store, the company provides free samples sizes of its bars for giveaway to consumers, but they also do giveaway prizes on retailers’ own social media including their Facebook, Twitter and e-newsletters.
“We find it really generates excitement and attention, bringing people into the store, engaging with staff and Asking to learn more about products beyond even our own,” said Aussie. “In our own social media—Facebook and our website, blog and e-newsletter—we [not only] offer coupons redeemable in our retailers’ stores, but we [also] try to educate about what functional nutrition means and how our whole food ingredients can help them achieve their broad health benefit goals.”