With no regulatory category for functional food in the U.S., the category definition is open to debate. In “Functional Foods,” Mintel (Chicago) defines the foods as “those with added ingredients or an act of processing that allows manufacturers to make a specific health claim.” Keep in mind that Mintel's strict definition of functional foods differs from that of certain other groups. For instance, the International Food Information Council (Washington) regards them as “beyond basic nutrition,” while the Nutraceuticals Institute (New Brunswick, N.J.) prefers to say, “Nutraceuticals (often referred to as phytochemicals or functional foods) are natural, bioactive chemical compounds that have health-promoting, disease-preventing or medicinal properties.”

Mintel admits that its definition leaves a degree of ambiguity on several levels: it is not a foolproof means of determining which products are included; manufacturers have difficulty meeting government requirements for stating claims and consumers are confused in a couple of areas. They may not understand the claim itself and, furthermore, may be unclear on exactly how much needs to be consumed to derive the functional benefit.

Despite this wealth of confusion, consumer interest in healthier lifestyles leaves the category with plenty of promise, much of it unfulfilled thus far. The science of food and nutrition is heralding a variety of new compounds claiming to address a swathe of health issues. Interestingly, while the government seems primarily concerned with combating obesity, consumers are looking for answers to a variety of health woes, be it heart health, cancer prevention or joint pain relief. In spite of this, manufacturers must confront a troubling fact: the marketplace's inherent skepticism about product claims.

According to Mintel, foods may be considered “functional” by either a) being enhanced in some way--say with added ingredients or through the act of processing or b) having added ingredients to produce a specific health benefit as defined by the FDA, which brings forth another notable point. The FDA has approved a number of types of claims that a product may mention on its packaging--for instance, “Diets low in fat and cholesterol that include 25g or soy protein a day may reduce the risk of heart disease.”


Mintel's strict definition still leaves a functional foods market valued at $10.4 billion in sales in 2004, yet growth has stalled due to stagnant sales in functional cereals and bakery items. This segment, the largest in the category, remains hampered by an inability to hit the consumer trifecta--taste, convenience and healthfulness. Also curbing the segment's growth has been the decline in the sit-down breakfast and the low-carbohydrate trend.

Functional bakery and cereal comprises 77.6% of the market share of the category, but Mintel believes the greatest growth is in the bars and snacks segment, which grew an estimated 31.7% through 2004 to command a 16.3% share of the market. While still a distant second, the segment's rapid growth indicates the power of the low-carb diet trend and the consumer preference for convenience, speculates Mintel.

The dairy and margarine segment of the functional foods market may be small, but it has managed to grow at more than twice the overall rate of the category--7% versus 3% through 2004. The $217 million segment should outpace the rest of the category, with the release of cholesterol-reducing margarines and the introduction of new cheese and yogurt items.

While those margarines gave some degree of impetus to the segment during the early years of the period reviewed by Mintel (1999-2004), their growth has stagnated and is expected to have fallen slightly in 2004. Some hope for sales growth does exist in the form of yogurt, namely those varieties with soy, prebiotic and/or probiotic ingredients. These are resonating both with children and women, says Mintel, and will drive what little growth the segment will muster.

Also experiencing a decline, functional cereals and bakery products remain the largest segment, but the 12% drop in sales between 1999 and 2004 does not bode well. A slight bump in sales in 2002 was due, largely, to two products: Special K Red Berries from Kellogg (Battle Creek, Mich.) and Post's (Kraft Foods, Northfield, Ill.) Honey Bunches of Oats. As a whole, the segment is facing the same fate as the overall cold cereal market--namely, decreased sales. In response, the top three manufacturers--Kellogg, Kraft and General Mills (Minneapolis)--have increased prices and advertising efforts.

Similar to the mainstream cereal market, one segment's loss is another's gain, and sales of functional bars and snacks are on the rise. Growing out of the athletic bars of the 1970s, this segment now touts snacks, meal replacements and diet bars for health-oriented consumers and has recorded 167% sales growth since 1999 (136% in real terms). The products first made their mark in the mass market in 2001 but showed signs of maturation in 2003. “The 12.6% growth from 2003 to 2004,” cautions Mintel, “is both a sign of continued growth potential and a warning to manufacturers to pay close attention to consumer concerns about nutrition and the efficacy of functional bars and snacks.”

A Social Function

Those consumer concerns are serving as a roadblock in a number of the category's segments, even in the face of the health and lifestyle revolution begun in the late 1990s. Shoppers want foods that will increase energy levels, improve heart health or assist with weight loss. At the same time, they gladly would accept such specific benefits as cholesterol reduction, joint pain relief or vision improvements, but these efforts have been curtailed by confusion and skepticism--in either the efficacy or safety of these products.

In 2002, communicating any health benefits took a new tack, with the FDA's Consumer Information for Better Nutrition Initiative assigning health messages on product labels to one of three distinct categories: health claims, structure/function and dietary guidance. The only one that must be FDA-reviewed and -authorized, health claims specifically address the relationship between a substance or ingredient and a disease. For example, the FDA allows: “Calcium may reduce the risk of osteoporosis.”

Structure/function claims indicate how the ingredient supports the body (“Calcium helps build strong bones”), and dietary guidance claims address general dietary patterns toward good health (the “Five a Day” program). Both must be “truthful and substantiated” but not misleading and, since the FDA does not preview these messages, they are proving the route preferred by most companies. As of yet, there appears to be little financial incentive to trouble with the more-complicated health claim.

In a shock to no one, FDA efforts to reduce marketplace confusion have had little impact upon consumer skepticism. While many feel perfectly aware of the benefits surrounding such ingredients as ginseng, lutein or glucosamine, the average consumer has little regard for the efficacy of the ingredients. Mintel's research found 61% of respondents “not convinced of the benefits of functional food or drinks” and 56% who “would like to know more about them.”

Tasteful Matters

Skepticism is but one hurdle facing functional food manufacturers. Since the average consumer will not sacrifice flavor for nutrition, Mintel reasons, the majority of functional foods are eaten as breakfast, lunch or snacks. Noticeably absent from those eating occasions is dinner, a meal generally eaten strictly for entertainment or sustenance, not a health benefit. As such, functional foods geared toward an evening meal account for only a 2.6% market share. Even attempts at fortified side dishes have not fared well; according to CNN Money (Atlanta), one of the few efforts, Uncle Ben's (Masterfoods, Hackettstown, N.J.) Calcium Plus calcium-fortified rice, failed to garner much interest after launching in 1997.

The simple fact is that the other processed foods segment of the category has failed to capture the attention of the public. Between 1999 and 2004, sales of other processed functional foods grew 1%, a 10% fall in real terms. Soy-based meat substitutes, which Mintel regards as “functional,” comprise the bulk of this segment and managed a sales gain through 2002, but Information Resources Inc. (IRI, Chicago) data through July 2004 indicate these products also are beginning to suffer.

For more information on a topic covered by a Mintel report, go to www.Prepared Foods.com and click “Mintel Research Reports” on the left navigation bar. To reach the Functional Foods report, click on “eating habits, food trends.”

Going Global

Segmenting markets to identify new product opportunities is a fundamental marketing strategy. Unhappily, marketers in many countries can turn in awe to the growing population of diabetics. According to the May 2004 issue of Diabetes Care, an estimated 2.8% of the world's population in 2000 was estimated to be diabetic, and this is expected to increase to 4.4% by 2030. The diabetic population in India is expected to grow from some 31.7 million in 2000 to 79.4 million in 2030. In the same period, China's will grow from 20.8 million to 42.3 million, and Latin America/Caribbean's from 13.3 million to 33.0 million. One website, www.msnbc.msn.com/id/5809633/, notes that in Mexico, diabetes now is the leading cause of death (at 12%), having overtaken poverty-related infections.

Food companies are responding with functional foods specifically targeting diabetics. Mintel International's (Chicago) GNPD shows Swiss-based Chocolat Stella introduced sorbitol-sweetened Zitronen Waffeln Lemon Flavoured Wafers in India; German-based Veelman launched Butterkeks mit Fruchtzucker Butter Biscuits (sweetened with fructose and sweet whey powder [lactose]); and another German company, Frankonia Schokoladenwerke, also launched fructose and skim milk powder--containing chocolate pralines specifically for those with diabetes mellitus.

While a number of Hain Celestial Group Inc.'s (Uniondale, N.Y.) Estee-branded, fructose-sweetened products have been introduced recently to Mexico through Southwest International (Jalisco, Mexico), Mexican-owned companies are not standing still. Corporación Rehovot (Guadalajara, Jalisco) recently launched reduced-sugar peach and strawberry jams with pectin, inulin and starch for texture, and aspartame and acesulfame K for sweetness.

--Claudia D. O'Donnell, Chief Editor

See also www.who.int/diabetes/facts/en/diabcare0504.pdf