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    Features

    Key Trends in Functional Foods & Beverages for 2016

    Success in a fragmented market will require a long-term strategy that can tap into shifting consumer beliefs.

    Key Trends in Functional Foods & Beverages for 2016
    Shifts in consumer beliefs and behaviors drive trends and create opportunities.
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    Julian Mellentin, New Nutrition Business11.02.15
    The real test of whether something is a useful trend is whether you can connect your products to it and make a lasting difference to your business. The questions you need to ask of anything that someone claims to be a trend are:
    1. Does it enable you to get more volume, either of existing products or by creating new segments and categories with new products?
    2. And/or can you follow the trend to get higher prices and better profit margins?
    3. Will it stick around? No company can afford to connect its strategy to a trend that will have run out of steam two or three years from now.
    Shifts in consumer beliefs and behaviors drive trends and create opportunities. One of the strongest currents of consumer-driven change right now lies not just in what you sell the consumer but how you get it to them.

    The big lesson of the last 20 years of functional foods is that the environment of the supermarket can be a very tough—even impossible—place to make your product successful. 

    Supermarkets like quick results and quick volume—so they can be unforgiving of brands that show signs of slow growth or being “too niche.”

    However, most healthy new products take time to grow (you should have an 8-10 year plan for success, not 3-5 years). KIND bar may be a $300 million retail sales success today, but it has taken more than 10 years to get there.

    Many brands stay niche—and the more medicalized the benefit (in the eyes of the consumer) and the newer the ingredients, the more likely you are to have a niche (or micro-niche) on your hands. In Europe, for example, the first product to secure a regulator-approved health claim under the EU’s tough system (which has rejected 90% of health claims) is Sirco juice. Its patented technology gives people the benefit of better blood circulation—and it sells in only very small volumes, because the benefit only appeals to a limited number of seniors.

    E-Commerce
    Increasingly, functional and healthy brands are turning to e-commerce to create growth that would be difficult to achieve from traditional retail alone.

    Consumers’ adoption of e-commerce offers a window of opportunity. It’s proving to be a great way to take new ideas to consumers, to test their response to your product and create a loyal customer base.

    Companies are finding success through online retailers, notably Amazon, as well as the online operations of traditional retailers.

    What’s also working is offering products via e-commerce directly to consumers.

    One of the best examples in the U.S. is Hint Water. A no-added-sugar, fruit-flavored beverage, Hint debuted in California in 2005. However, it struggled to secure retail listings and sales were below investor expectations.

    This changed in 2013-2014, when Hint switched its focus to e-commerce and direct-to-consumer sales. Initially Hint focused on selling through Amazon. As a result sales grew 30% in 2013. In 2014 Hint launched a direct-to-consumer e-commerce platform.

    Hint’s revenues are now more than $40 million, with perhaps 25-30% generated by direct-to-consumer, the fastest-growing channel for the company.

    Some examples of brands that have exclusively online sales are the Protein World brand, which focuses on protein powders and mixes, and Organic Burst, which sells powders from acai, baobab and spirulina.

    Plant-Based Foods & Dairy’s Resurgence
    Alongside e-commerce, the two biggest growth opportunities in health and the two that are spawning the most new products and brands are:
    • Surging demand for plant-based foods,
    • The resurgence of dairy as a natural whole-food.
    At first sight, these seem like two very different ways of seeing food and health. Plant-based foods, some people argue, are about rejecting animal-based foods (including animal-based protein) and specifically avoiding dairy in general and lactose in particular. And that’s all true—to an extent.

    However, consumers are capable of holding two very different ideas in their head at the same time. This means that, as consumer research shows:
    1. Someone gives up drinking milk and instead uses almond milk in their smoothies, because it makes them feel better (by which they usually mean their digestive health is better) and they prefer the taste.
    2. The same person would still eat a thick, satisfying high-protein yogurt.
    People’s health beliefs and behaviors are complex and don’t allow for easy simplifications. 

    For example, most yogurts sold in the U.S. are low-fat, yet one of the biggest recent successes in yogurts is a brand which offers only full-fat products. Noosa, an Australian-style yogurt offers only a full-fat version. From zero in 2010, Noosa has generated $100 million in sales in 2015 and the company has no intention at this point of coming up with a low-fat variety: “The cool thing now is that dairy fat no longer is considered [bad for you],” said a company executive. 

    Naturally Functional
    Fragmentation and complexity of consumer beliefs about food and health is a massive defining trend force. It’s driven in part by technology—the same force that makes it possible for smaller brands to reach consumers enables people to use their mobile devices to search for information about diet and health wherever and whenever they want, and to draw their own conclusions.

    Hence, plant-based foods are capturing a bigger “share-of-mind.” And although more and more products use descriptors such as “vegan” or “vegetarian,” those eating styles are not the main driver (after all, 10% of U.K. consumers describe themselves as vegetarian, but half of them eat fish and a quarter eat chicken), rather it’s the idea that plant-based foods are “naturally functional.” That means people like the idea of plant-based foods offering intrinsic vitamins, minerals or proteins (as snacks based on beans, chickpeas and seaweed claim).

    Consumers’ love of naturally functional is a massive trend that underpins the success of everything else—from plant-based foods and beverages such as almond milk to full-fat, “naturally high in protein” yogurts. It’s responsible for the omni-presence of kale, quinoa, chia and blueberries. It’s responsible for the rapid rise of seaweed: sales of seaweed snacks in the U.S. are already greater than kale and exceed $250 million. (Click here for more about seaweed snacks.)

    Reduced Sugar & Weight Wellness
    Even the consumer shift to reducing sugar intake is being influenced by the interest in naturally healthy foods. Some consumers, for example, reject sweeteners and believe that “natural cane sugar” is healthier. And the naturally healthy belief is one reason why plant waters like coconut or birch may one day rival juice and smoothies.

    In many countries sales of juices and smoothies have been sliding as the “sugar is evil” message gains ground. It isn’t difficult to find what people—especially younger people—are drinking instead. Sales of coconut water—naturally low in calories and naturally sweet, so mostly sold with no added sweetener—have jumped. So too have sales of bottled water.

    It’s no surprise that Coca-Cola-owned Innocent (Europe’s biggest smoothie brand) has launched a coconut water. It has just 8.5 grams of sugar per 250 ml serving—compared to the 27.3 grams per serving in its mango and passionfruit smoothie (one of Innocent’s three top-sellers).

    This is just the beginning of a long-term shift. Millennials are driving the switch now, but the next generation—currently aged under 18—will further accelerate the switch away from juice, since a larger proportion of them have grown up without any juice habit. There is an astonishing number of children today who don’t consume juice even once a week.

    Reduced sugar intake is also connected to the powerful trend of Weight Wellness, which has seen people switch from eating special foods and following special diet programs to thinking about “weight wellness” as part of their everyday decision-making about food. It’s the reason that Kellogg’s Special K—once the world’s biggest weight-management food brand—is in trouble, with sales down by 12% in 2015.

    Protein’s Power
    Protein looks set to be one of the biggest beneficiaries of current trends and remains a powerful trend in its own right as it connects to all the others.

    Weight Wellness. No longer the mainstay of body-builders, protein is embraced as a “naturally functional” nutrient that people understand they need to include in their diet. Social media is full of places where everyday active people endorse protein for maintaining a healthy weight, fitness and a healthy body-shape. Try researching the Twitter hashtag #StrongNotSkinny and you will see the extent to which everyday active people discuss protein and a healthy body.

    Plant-Based Foods. The demand for snacks that provide some protein—not the 20 grams or more demanded by the sports enthusiasts, just the re-assurance that there’s 2-3 grams present—is visible in most of the new product types coming to market, as well as in the communications of non-dairy drinks. If you are a supplier of plant-based protein or plant-based foods that provide protein—from algae to chickpeas—you have a positive future ahead.

    Dairy Nutrition. Protein provides a satisfying texture and mouth-feel in dairy, and that has been the bigger part of the success of Greek yogurt, skyr and other higher-protein dairy foods.

    Digestive Health
    It’s often overlooked how much consumers’ interest in good digestive health powers many other trends. Anyone with digestive health problems who Googles their symptoms will find at least one link to gluten as a cause on the first page of their search results—and that is a big reason why 25% of people choose to reduce gluten in their diets: to improve their digestive health.

    After gluten-free, your Internet search results will next recommend reducing lactose—or even dairy in general—as a way of improving digestive health. This is a factor in the rise of plant-based diets and why many people favor plant protein over dairy protein. There may be no scientific basis, but belief conquers all.

    Digestive health is a benefit with wide appeal. For women throughout their reproductive life and also men from age 40, maintaining good digestive health is an everyday wellness issue. There is a particularly strong interest in digestive health among seniors. In Asia, South America and elsewhere probiotic dairy continues to define the digestive health business. In Indonesia, a market of 250 million people, sales of probiotic dairy grew by 25% in 2014.

    Inner Beauty
    Trends are not all global. Until recently Asia and parts of South America (notably Brazil) led the trend of drinks and supplements for “inner beauty.” Most of these products are based on hydrolyzed collagen, which is said to improve the moisture content of skin, elasticity and smoothness.

    However, thanks to the naturally functional trend, ingredients based on fruit extracts, such as Nutroxsun, a Spanish citrus extract, are now making headway.

    The trend is also surfacing strongly in Europe, with a flurry of new beverage launches. One example is the launch in Spain and the U.K. of the Beauty & Go range of  “bioactive beauty drinks”—formulated around macromolecular antioxidants (MAs)—a joint venture of juice giant AMC Group and luxury cosmetics company Natura Bissé.

    There are very strong trends that ingredients and brands can connect to, of which these are only a few. They present a wealth of opportunities. The biggest key to success, however, will be to adopt a long-term strategy, to measure success over the long term rather than the short term and to accept that, whether we like it or not, the tech revolution is fragmenting the market by giving consumers the ability to make their own very personal choices about what they believe constitutes a healthy choice. And belief, we can now see, conquers all.


    Julian Mellentin is an expert on functional foods who has been involved in this area for nearly 20 years. He is the director of New Nutrition Business, an international journal covering the nutrition business. For more info: julian.mellentin@new-nutrition.com; www.new-nutrition.com
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