Prepared Foods Exclusive: Growth in Functional

Foods fortified with nutritional and disease-preventing qualities are invigorating the U.S. food industry. Health-conscious consumers are driving the demand for products that aim to promote better health, increase longevity and prevent the onset of chronic diseases.

Careful consideration of the competitive landscape and consumer dynamics will help prospective investors filter attractive strategic opportunities from trends that may ultimately fizzle. In the report linked below, PriceWaterhouseCoopers has created an initial guide to the functional foods arena, while also identifying potential areas of opportunity and consideration for companies seeking entry.

Changing demographics, in particular the aging baby boomer population, are helping to set the foundation for future growth. Healthcare trends, including pharmaceutical investment and research into diseases and chronic conditions that are rapidly gaining greater significance, are a further source for potential growth. At the same time, inorganic growth to date has been largely driven by acquisitions, licensing and partnership agreements.

Private-label brands may be poised to gain traction in the functional foods market during the current recession. These brands tend to gain unit market share during recessionary times because of their appeal to price-sensitive consumers looking to pay less for comparable items. From 1990 to 1991, unit share for these brands increased from 17.6% to 20%, and from 2001 to 2003, from 20% to 21.8%. The trend appears to be holding in the current downturn. In 2008, sales of private-label food and other consumer products increased 10%, compared with 3% growth for branded products.

Determining the right opportunity depends largely on strategic priorities. A review of recent deal drivers, the fastest-growing products and innovation trends can help businesses identify the most promising entry points to this market.

For the entire PriceWaterhouseCoopers report, click the pdf link below.

From the August 31, 2009, Prepared Foods E-dition