Wellness Demand, Health Science Driving Functional Foods Market Growth

With $20 billion to $30 billion in sales and an estimated growth range of 8.5 percent to as much as 20 percent annually, the functional foods market presents huge growth opportunities for potential investors who have the right education and perform the necessary due diligence, according to “Leveraging Growth in the Emerging Functional Foods Industry: Trends and Market Opportunities,” a new report from PricewaterhouseCoopers LLP (PwC).

“Our study shows the tremendous need for education -- for consumers, the industry, the health care profession, and investors interested in this dynamic space -- about what functional foods are and where the opportunities lie across segments,” noted Glenn Pappalardo, strategy retail & consumer team leader and director, transaction services, at Chicago-based PwC. “This market reflects the broad consumer push to focus on health and wellness. After years of public and private initiatives to recognize the connection between diet and health, consumers increasingly want to achieve health benefits with convenience and get helpful nutrition without drastically changing their behaviors.”

The report, which defines functional foods as those fortified with nutritional and disease-preventing qualities that aim to promote better health and well being, prevent the development of disease and increase longevity, found that the functional foods market represents about 5 percent of the total U.S. food market. The U.S. functional foods market is estimated to be the largest in the world, representing between 35 percent and 50 percent of global sales, with Asia Pacific being the second-biggest market. The two markets combined are estimated to account for about three-quarters of the current worldwide market for functional foods. Future growth will likely come from higher consumer awareness and shifting demographics, including an aging baby boomer population and current health care trends, according to the report.

PwC segments the functional foods market by food type and health benefit. Soft drinks and dairy products account for 60 percent of the market, by food type. The soft drink category includes enhanced water, which has risen in popularity as consumers seek alternatives to carbonated beverages, and sports drinks. Between 2002 and 2007, U.S. functional soft beverage revenues grew at 12.3 percent yearly, to $9.6 billion. Dairy, the second-highest growth segment, is growing in popularity, mainly because of innovation in functional yogurts. Between 2002 and 2007, dairy grew to $6.8 billion at 8.1 percent annually.

Energy is the largest segment by health benefit, with 29 percent of the market, attributable mainly to the fact that such products often contain attributes that pack an immediate punch. The U.S. energy segment grew 6.2 percent annually between 2002 and 2007, to $7.9 billion.

Private label brands may gain a significant foothold in the functional foods market during the recession by targeting value-minded shoppers, the report found. In 2008, overall sales of private label food and other consumer products rose 10 percent, vs. 3 percent growth for branded products, a trend that could extend to functional foods.

Additionally, emerging health care trends could have a positive effect on functional foods market, the report noted. Among these trends are the move toward personalized medicine and the shifting of health care costs to consumers. Moreover, demand for particular functional food benefits may grow along with certain disease trends, providing opportunities for companies who consider the diseases that are anticipated to increase in terms of prevalence, diagnosis or treatment.

The report also offered advice for companies that wish to invest in functional foods:

--Determine strategic priorities for market entry, whether it’s adding products, geographies, distribution or demographic groups. Investment approach options include acquisition, partnerships or licenses
--Look beyond individual opportunities to consider broader growth trends. Potential segmentation approaches include demographics and disease growth categories
--Consider barriers to entry created by large multinational food providers and consumer skepticism or price sensitivities

A copy of the report is available at www.pwc.com/us/en/transaction-services/publications/functional-foods.jhtml.
This ad will auto-close in 10 seconds