Greg Kitzmiller11.01.02
Functional Foods & The Fat Fad
What do consumers want?
By Greg Kitzmiller
Fat, functional foods or both? Do Americans buy into functional foods? Can firms really profit from health or is the “fat fad” here to stay? With functional foods we are quickly reminded that there seem to be plenty of fattening food choices in front of the consumer, while some highly touted functional food efforts from Kellogg to the proposed Altus Novartis/Quaker joint venture have failed. We might ask if Americans care at all about functionality or is it all about taste. Kelly D. Brownell, director of the Yale Center for Eating and Weight Disorders in New Haven, CT, was recently quoted in the New York Times (August 14, 2002) as saying it is almost impossible for people to cope with what he calls the nation’s “toxic environment.” “The average American child sees 10,000 food ads on television each year,” he said. “Bad food and its availability are as much a part of the American environment as clouds and trees.” He seems to think it is tough for the consumer to eat right with so many bad choices surrounding us. The Center for Science in the Public Interest (CSPI) has published a guide to restaurant food. Some of us may be shocked to find that food we thought was a better choice is loaded with salt, calories or fat!
Yet despite the prevalence of not so healthy foods there is good news. Certain functional food products are doing very well. Soymilk sales in supermarkets grew 57% last year, according to New Hope Communications. They report that soy yogurt and kefir more than doubled in grocery outlets, while continuing to increase in natural foods channels. Furthermore, another source reported soy food sales to have surpassed $3 billion last year.
Tackling the Issues
There are two issues. One is market segmentation. While our population on average is as obese as it has ever been, there are still a number of people going to the gym and watching what they eat. Segments of consumers are definitely customers of and future targets for functional foods. They may not see some of these products as functional foods or nutraceuticals, but they may view them as healthy alternatives or enhanced foods with health benefits.
As an example, PepsiCo is still doing quite well with its Tropicana plus Calcium, while White Wave continues to make tremendous progress with its Silk soymilk brand. Determining who their customers are, what the characteristics of that segment are and reaching customers is the role played by successful companies such as these.
The second issue is what I call “small gains.” As Altus Foods folded and Novartis sold its nutrition products line, it became obvious that these big firms were looking for big hits. As a result of poor market response to each firms’ products, it was decided that functional foods deviated from their core mission. Small gains are strategic successes that mean incremental business that may not make headlines but fattens the sales and profits of a number of companies. The heart healthy symbols and labeling on Cheerios may represent small gains. Cheerios has been around for more than 60 years. The cereal is promoted with racing, with fun and with health. The total cereal category for General Mills, makers of Cheerios, was only up 3% last quarter. The company does not report changes in the volume of each cereal. Still, Cheerios claims to be “…the only leading cold cereal clinically proven to help lower cholesterol in a low fat diet” (Cheerios website). Any incremental gain for this product through the health claim adds to sales. Is this a big hit? Maybe not. Is it helping General Mills move more cereals when fewer people are eating breakfast? Probably, and they’ll take the small gain.
There are literally dozens of companies making what seem to be appropriate health claims. I would suggest that if they understand their market and their product, they are making small gains, which is not bad in a stagnant economy. Does this mean big investments? For many of the firms it only means taking advantage of information publicly available on ingredients. In the case of one tomato products marketer it meant supplying enough tomato sauce for a clinical study, which provided a link to a reduced risk of cancer.
It doesn’t really matter whether business increases come from a big hit or from many small gains. Obviously, big hits are major new product introductions that are very successful—Swiffer and Febreeze from Procter & Gamble come to mind. While a big hit may be glamorous, the launch of a major new product is usually very expensive. And when one flops, it results in a HUGE write off. On the other hand, the change of packaging over time, along with a focus on a health statement in advertising usually results in a slight incremental cost. So the addition of small gains may be more efficient in the long run than a big hit.
Summary
The market choice does not have to be between fattening foods and functional foods. Don’t expect McDonald’s to be introducing functionality, even though there are strong strategic options for incremental sales and profits with functional foods. The current increase in healthy products, fortified products and use of health benefit statements points to continued activity and additional opportunity.NW