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    Features

    Marketing Nutraceuticals: Functional Foods: A Healthy Market?

    Recent activity tells both sides of the story.

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    Greg Kitzmiller11.01.99

    Is the functional food market a growth industry or a fad? With Campbell's stopping its 'Intelligent Quisine' test last year and Kellogg pulling back on its 'Ensemble' product test, some are asking if the functional foods business is more hype than fact. Add rumors that sales of Bayer's "One-A-Day" herbals, AHP's "Centrum" herbals and Warner-Lambert's "Quanterra" are not nearly meeting expectations and there is more fuel for the fire of naysayers.

    On the other hand, Kellogg purchased Worthington Foods, a maker of soy-based products. Heinz not only promotes lycopene for its tomato products but now has formed an alliance with Hain Foods, which makes and distributes traditional health-food products. Dean Foods announced an alliance with White Wave, America's number one soyfoods company. Danone launched a new line of soy and oat-based products in France with the "Sevea" brand name and purchased a stake in Lifeway Foods. All of these are proof that there continues to be substantial activity globally.

    Recent Events Fueling Growth


    There have been a number of acquisitions and alliances. Kellogg announced on October 1 that it had reached an agreement to acquire Worthington Foods for about $307 million (for more details, see page 6). Worthington is the world's largest company devoted solely to the manufacturing and marketing of vegetarian and other healthy foods, with its leading brand being "Morningstar Farms." Carlos Gutierrez, Kellogg's new president and CEO, has plainly set the company on a new course. Earlier Wall Street Journal articles noted that the company has been losing global marketshare for more than a decade. Mr. Gutierrez, who took the helm in April, has indicated in past moves and speeches that the functionality of foods is in Kellogg's future. It is interesting to note that this is also part of the company's past. The only reason for less luster in the firm is a general decline in consumption of breakfast cereal and Kellogg's losses to low-end competition. Now they are attempting to move ahead with new brands. Ensemble, still in test, would be a major new brand if it makes it and Kellogg takes a leapfrog move into meatless products with Worthington's brand names.

    Heinz also moved into the health food arena with its deal with Hain Food Group. While the pickle and tomato packer takes only a minority stake in Hain with 19.5%, it provides new outlets for Heinz and a closer tie to the natural product distribution channels. In fact, you might think this was a move for Hain to increase mass market distribution, but according to the news release, Hain will provide the marketing, sales and distribution services while Heinz provides procurement, manufacturing and logistics. William Johnson, Heinz CEO, explained, "Thisthrusts Heinz into the natural and organic food segment, which is among the fastest growing in the international food industry."

    Dean Foods also took a minority position in a natural products company with its White Wave Alliance. CEO Howard Dean proclaimed, "we are investing in the future of soyfoods" Probably the best known product of White Wave is the "Silk" brand of soy milk, which has shown 100% growth in each of the last three years. It seems like a good fit that the nation's leading dairy processor would buy a leading soy milk producer.

    Thus, it is clear that major U.S. food companies are continuing their activities in functional foods and nutraceuticals, even in the face of some toe-stubbing in the arena. Even we make mistakes. In the last issue of Nutraceuticals World, we reported that Kellogg was expanding the Ensemble brand to Europe. We picked up the story from another publication that reportedly took comments out of context. Yet it is still clear to see Kellogg's aggression in the area.

    But What About The Consumer?


    Recent merger activity notwithstanding, what does the consumer believe? Well, if they trust Consumer Reports magazine they've read, "Most 'functional foods' function mainly to boost manufacturer's profits, not to improve your health." The magazine correctly points out that adding a single ingredient to a high-fat item, for example, does not make it good for you and that some products fortified with herbals have such low levels that it is unlikely they would provide any effect. In addition, while some herbal supplements now provide contraindication warnings, CR states that no food products containing herbals provide any warnings. In a related comment, the analysts at Nutrition Business Journal looked at one year of publicity on supplements and discovered that there were two times more negative publicity reports than positive statements. Is the consumer becoming concerned?

    As NBC News reported, an American Dietetic Association survey showed that while four in five Americans believe nutrition affects their health, only two in five believe they are doing all they can to eat right. So is the consumer not really behind the nutraceutical trend?

    Information Resources, Inc. reveals that its New Product Pacesetters study shows that four of the top ten largest growth categories in the consumer packaged goods field were what they call "better for you" categories. This study reports that vitamins/supplements was the number one growth category. The other three categories were bottled water, weight control and protein supplements and fresh salad and coleslaw kits. In these "better for you categories" IRI says 40% of growth comes from new brands. This clearly indicates that consumers are buying healthier.

    So what should we believe is the future for nutraceuticals/functional foods trends? The first factor, the demographics of aging baby boomers, is clear. This is a major age shift based on a group that questioned a war in Vietnam; they've challenged values and they question the healthcare system. That leads us to the second major factor, consumers' belief in wellness. Wellness is not disease prevention, but a holistic belief in staying well. Even though we live in a "microwave, gotta have it now" society, consumers are seeking wellness within the boundaries of their control and their abilities to make lifestyle adjustments. The third major factor is the expansion of the scientific body of knowledge. As science understands better the connection between wellness and food consumption, the public and healthcare providers can take action. These are not short-term trends. These are major demographic, sociological and scientific drivers that will propel the market for nutraceuticals well into the 21st century.

    NW


    Greg Kitzmiller is a marketing faculty member at Indiana University's Kelley School of Business, Bloomington, IN. He is also on the Board of Advisors and is part of the faculty for the Johnson Center for Entrepreneurship at Indiana University 's Kelley School of Business. He combines international and domestic strategic and marketing management experience with university teaching, professional speaking, executive education and consulting. Mr. Kitzmiller can be reached at 1309 East Tenth St., Bloomington, IN 46405-1701; 812-855-1004; Fax: 812-855-6440; E-mail: gkitzmil@indiana.edu.
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