Functional foods, the report notes, have moved away from herbal enhancement. Instead, consumers are finding significant benefits for heart health, digestive health and other health advantages, making vitamins, minerals and special ingredients more popular. Mintel defines functional foods as fortified, processed products with a definitive health claim or health positioning.

The groups most likely to purchase functional foods are in growing segments of the population, including older consumers (especially women), and aging Baby Boomers actively taking responsibility for their own health. Furthermore, disposable incomes in these markets continue to grow.

The food industry has great opportunity in functional foods, but a willingness to educate consumers is necessary for long-term success. Manufacturers need to translate FDA claims into tangible consumer benefits, and to explain how functional foods can replace or complement drugs. Retaining an audience requires products which will cover all the bases—health benefits, taste, convenience and price points.

As a general rule, the marketplace appears to demand that functional foods be priced roughly equivalent to non-functional items. This may well inhibit the growth of functional foods, but manufacturers with a compelling case for their products might overcome this demand.

In their research, Mintel segmented the functional foods market into four major groups—bakery and cereals; bars, candy and snacks; dairy and margarine; and others. As the category grows, it is expected that the functional foods market will continue to diversify until it resembles the many segments found in the regular food industry.

Grain Matter

Bakery and cereals compose the largest functional foods category ($728 million in 2001, 14% growth from 1999 based on current price). Consumers are accustomed to a health positioning on cereals and, to a lesser degree, breads. Already, a number of brands have met with success, including General Mills' Harmony cereal, Quaker's Nutrition for Women cereal, Earthgrains' Organics Small Batch breads line and Pepperidge Farms' LifeWorks bread.

Cereals have witnessed two important developments in recent years. First, the new health claim language allowed by the FDA permits cereal manufacturers to make their health benefits more well known. Second, a number of manufacturers have taken the opportunity to develop specifically formulated functional cereals, intended to broaden healthy-eating's appeal to a variety of target audiences.

Bakery's role in maintaining health has been less clear. Nevertheless, the last several years have seen multi-grain, whole-grain and artisan breads enter the fray, marketable as both a gourmet/upscale product and as a healthier option.

The Bar Scene

Bars, candy and snacks have seen a number of new product introductions of late. The segment, as a whole, features such well-known products as McNeil's Viactiv line of soft calcium chews, Harmony Foods' Planet Harmony Functional Fruit Snacks and Clif Bar's Luna bar. The category accounted for $259 million in sales in 2001, a growth of some 105.6% from 1999.

Much action in the functional foods category has been in bars—snack bars, that is. These small packages serve all the needs of the modern consumer, providing convenience, portability and high nutrition. Cereal, energy, granola and specialty bars continue to grow in acceptance among consumers and, as the category increases, specialty targets have begun to emerge. These include sports enthusiasts, consumers looking for a meal replacement in the office, women seeking to meet their own special needs, and those who are engaged in a weight-loss initiative.

Consumers accept fortified snack bars as a delivery vehicle for a range of nutritional benefits. Therefore, further extending bars to include soy or herbal fortification should be acceptable to consumers.

Another element of this segment is convenience, as functional candies are a natural fit with consumers' desires for foods to eat on the run. A number of candy manufacturers are keeping a close eye on this market—in the U.S. and Europe—as functional candies are an area with an intriguing potential for growth.

Dear Dairy

With $96 million in retail sales, the dairy and margarine segment has grown by 96% since 1999. Currently, the category includes margarines and spreads designed to help lower cholesterol, but they have yet to achieve the success expected by manufacturers. McNeil's Benecol has not found the success the company was anticipating, but the company has confirmed its commitment to the product. Stonyfield, on the other hand, has found quite positive results with its YoSqueeze and Yo Self brands. Certainly, the yogurt category appears to fit well with consumer expectations.

Yogurt has been ripe with functional improvements, particularly in its probiotics group. These yogurt varieties are fortified with beneficial bacteria and/or with other substances which promote the growth of beneficial bacteria within the digestive system. More ambitious and far-reaching functional foods in this segment feature plant stanol esters and are designed to reduce cholesterol.

The Others

All other processed foods account for sales of $280 million, up 44% from 1999. No particular product type in this category has managed to achieve critical mass, but many brands are experimenting throughout the store.

Products with no history of fortification will require more work and educational efforts to allow the consumer to see the benefits. Cereals, for example, are well-known for fortification, so a “super-fortified” cereal will not be a stretch for consumers. However, fortified pasta sauces are not as common. Bestfoods has taken on this challenge with its Mueller's brand of fortified pasta.

Major mainstream companies entering the functional foods arena will bring expanded marketing budgets and product development systems. Each of these will be a catalyst for the market's growth. Marketing, in particular, will increase the visibility and eventual trial of functional foods by the public. As Mintel notes, “Translating these short-term gains into a permanently vibrant category will require aligning all the key factors, such as price, taste, convenience, and clearly communicated health benefits.”

A more extensive examination of the market may be found in the complete report from Mintel. “The U.S. Functional Food Market” covers market drivers, the size of the market and its trends, its segmentation and supply structure, as well as advertising and promotion strategies, retail distribution, and a look at the current consumer and possible future of the industry. The report is available from Mintel International Group Ltd., 213 W. Institute Place, Suite 208, Chicago, IL 60610, phone: 312-932-0400 or e-mail: info@mintel.com.

Website Resources

www.herbalgram.org — American Botanical Council
www.eatright.com — American Dietetic Assoc.
www.ahpa.org — American Herbal Products Assoc.
www.americanutra.com — American Nutraceutical Assoc
www.crnusa.org — Council for Responsible Nutrition
www.nnfa.org — National Nutritional Foods Assoc.