The New Snack Pack
Media attention upon the obesity epidemic—and the consumer trend toward healthier eating that has followed—have made healthy snacks a hot development area for manufacturers. However, “healthy snack” is a highly subjective term, as nearly any food can be eaten as a snack, and healthy can mean different things to different people. In “Healthy Snacking,” Chicago-based Mintel defines the market using guidance from a consumer survey in which respondents were asked to name all foods they eat as healthy snacks. Foods named by at least 5% of respondents were classified as healthy snacks, specifically: crackers, cheese, yogurt, nuts and seeds, cereal, snack bars, dried fruit, popcorn, better-for-you chips and cheese snacks, pretzels and trail mix. Mintel also includes rice cakes and fruit snacks in the market—though cited by less than 5% of respondents—because they are, by definition, healthy snacks, though evidently less top-of-mind with consumers. Not surprisingly, fresh fruits and vegetables topped consumers' lists, but were not included in Mintel's report, which focuses exclusively on packaged snack foods.
Using Mintel's definition, the healthy snacks market generated $14.6 billion in food, drug store and mass merchandiser (FDM) sales in 2004, an increase of 7% from 2002. For most of the foods listed above, Mintel included total FDM sales for each when determining the healthy snack market size, assuming that the foods are consumed primarily as snacks. However, four of these foods—cereal, cheese, yogurt, and snack bars—often are consumed either as a meal replacement or as part of a meal (for instance, a yogurt for lunch or a slice of cheese in a sandwich). Therefore, for these categories, Mintel included a portion of sales representing the “snacking market” for each food, based on the average percent of eating occasions that the food is consumed as a snack, according to a June 2005 consumer survey. (See chart “Defining 'Snack.'”)
Healthy DriversMarket growth has been driven by two key consumer trends: healthier eating and convenience. Prompted by extensive media coverage of the obesity epidemic—as well as U.S. government-sponsored initiatives like 5-A-Day for Better Health aimed to combat obesity and rising health costs—Americans are taking steps to improve their diets and prevent their children from becoming overweight. Yet today's hectic lifestyles allow little time for traditional, sit-down meals. More people are shifting from eating three square meals to eating several mini-meals or snacks throughout the day.
Meanwhile, manufacturers are seeking ways to improve their public image and avoid lawsuits like the one brought against Kraft in 2003 for not disclosing the amount of trans fats in its Oreo cookies. (The lawsuit was dropped, but Kraft soon launched a low-fat version with no trans fats.) To defend themselves, manufacturers are launching scores of new and reformulated better-for-you products featuring low-sugar, reduced-fat, organic, all-natural, high-fiber and whole-grain claims. They also are making products more portable to ensure they stay relevant amidst the eating on-the-go trend. Recent quick-and-healthy introductions include Nabisco 100-calorie packs of Wheat Thins, Cheese Nips and Fruit Snacks from Kraft; Nature Valley Healthy Heart granola bars with plant sterols from General Mills; Twistables fruit snacks from Kellogg; and Quaker Fruit & Oatmeal cereal bars with 25% less sugar from PepsiCo.
The low-carbohydrate diet trend was at the height of its popularity during Mintel's review period (2002 to 2004) and strongly impacted the performance of the individual healthy snack segments. With few exceptions, foods that fit into a low-carb lifestyle fared well, while carb-laden products suffered. The biggest winner in the healthy snacks market was the nuts and seeds segment, where sales climbed 30% over the period to over $1.5 billion. In addition to being a darling of the Atkins diet, nuts got a boost from the FDA's July 2003 approval of a claim linking certain nuts to heart health. The cheese and yogurt segments also saw strong growth, increasing sales 13% and 15%, respectively. Both segments benefited from new research showing a connection between eating dairy foods and maintaining a healthy weight. In 2004, the dairy industry leveraged these findings in a “3-A-Day” ad campaign that urged consumers to eat at least three servings of milk, cheese and yogurt a day to help promote weight loss.
Carb CurbThe Atkins diet trend was not as kind to carb-based snack foods: sales of breakfast cereal fell 4% from 2002 to 2004, while cracker sales remained flat despite a flurry of innovative new products. The pretzel and popcorn segments also experienced declines. Only two carb-based categories managed to buck the downward trend: sales of better-for-you chips and cheese snacks (defined as only light, reduced-fat, organic and all-natural varieties). Snack bars grew 20% and 16%, respectively, over the period. The chips and cheese snacks market seemed to be impervious to the low-carb diet trend—consumers either dismissed their carb content as insignificant compared to bread and pasta, or simply were not willing to give up their beloved salty snacks. The emergence of a better-for-you sector helped grow the category. Better-for-you varieties account for only around 15% of chip and cheese snack sales; however, they are growing at a much faster rate than the total market, which grew only 2% in current dollars from 2002 to 2004 in FDM. In the last decade, chip and cheese snack suppliers have launched dozens of better-for-you products (e.g., baked, light, organic), which has helped change consumers' longstanding perception of chips as “junk food.”
Four large companies dominate the healthy snacks market: Kraft, General Mills, Kellogg and PepsiCo; all have broad product portfolios spanning multiple segments. Together, these companies account for nearly half (48%) of all healthy snack sales. Each has demonstrated an increased commitment to health and wellness initiatives to meet growing consumer demand for healthier products and to improve their public image. They are improving the nutrition of existing products—removing trans fats, reducing sugar and reformulating with whole grains—and launching new better-for-you offerings. Two companies, PepsiCo and Kraft, have launched labeling programs through which better-for-you products are marked with a symbol (a Smart Spot for PepsiCo, Sensible Solutions flag for Kraft) to help consumers locate healthier products in their portfolios. According to PepsiCo's 2004 annual report, Smart Spot products accounted for 10% of Frito-Lay's 2004 revenue and 36% of total PepsiCo N.A. revenue. Going forward, the company expects at least half of new product revenue to come from Smart Spot products.
In addition to changing their product portfolios, food and beverage companies are shifting their advertising mix toward better-for-you products. Restrictions on food advertisements targeting children are under consideration and, while they have not yet been enacted, at least one major company has voluntarily stopped advertising “junk” food to kids. Kraft announced in January 2005 that it would stop TV advertising of certain products it deemed unhealthy to children under 12, focusing instead on healthier offerings. While other market leaders have not yet followed suit, they are spending more ad dollars on better-for-you products. PepsiCo is promoting its “Smart Spot” products in its advertising, while General Mills launched a major campaign touting the whole-grain content of its cereals.
Mintel expects the healthy snack market to continue growing as Americans become more aware of the link between diet and obesity, and manufacturers continue to increase the amount of R&D and marketing dollars dedicated to better-for-you products. In addition, the U.S. government is striving to educate consumers about the new 2005 U.S. Dietary Guidelines, which advise increased consumption of whole grains, fruit, nuts and low-fat dairy products like cheese and yogurt, all of which play into the healthy snack market. The focus of the market will evolve as consumers shift to a more balanced approach to eating and manufacturers turn their focus to whole grains, fiber, organic, heart health and portion control.