New Directions for Functional Foods

New concepts and trends define this

still-burgeoning market.

By
Joanna Cosgrove
Online Editor

To the seasoned natural products insider, it would seem functional foods have been around forever. But for those in the know, the rapidly growing industry is still in its infancy. It continues to thrive and diversify, however, at an explosive pace.

“Consumers often refer to such foods as value-added or healthy foods, while not very descriptive, these terms are also not intimidating,” said Ramona Cappello, president and CEO of Corazonas Foods Inc., Los Angeles, CA. “Functional Foods are what manufacturers call foods that offer a true (bio-actively effective) health benefit to the consumer beyond mere satiation.”

Ms. Cappello says the current consumer climate is ripe for functional foods, given, among other things, the advanced longevity and active lifestyle of the baby boomer generation. “With the dramatic increase in healthcare costs and the reduction in coverage by insurance companies, more consumers are looking to take greater control of their health by eating better and trying to be more proactive about being healthy,” she said. “That means we are increasingly more concerned about what we use as fuel for our body, trying to get more out of our food, while seeking healthier options.”

Rob Hurlbut, CEO of Attune Foods, Mill Valley, CA, agreed. “Historically consumers have been faced with a choice—good taste or good health,” he said. “Consumers now are looking for good taste and good health. Most important, they understand that this opportunity may come with a cost but that the benefits make the additional expense worthwhile.” It’s pretty simple, Mr. Hurlbut added, “Pay for healthier food today or pay for healthcare tomorrow.”

The easiest functional food categories for marketers to gain entrance into are those that are already acceptable as nutritional supplements, such as bars, powders and protein/energy drinks, yogurts and breakfast foods. “Other categories primed for an infusion of “functionality” are snack foods, grain-based products and beverages that serve as in-between meal snacks.

For a functional food to be successful in the long run, especially in the consumer retail landscape, Ms. Cappello asserted that the functional aspect of the food must not be “gratuitous,” rather it should be a natural fit with the product as opposed to artificially enhanced. “For example,” she said, “a cereal or energy bar that’s nutritionally fortified with protein/whole grain is acceptable, whereas the same fortification added to ice cream may be just too far of a stretch.”

From Retail to Healthcare Institutions

The notion of functional foods has been in existence for some time outside of the retail channel, although the specialty foods in the healthcare realm are formally classified as “clinical nutrition” products. In this capacity, these products are classified as either enteral nutrition (medical nutrition delivered orally or by tube feeding) or parenteral nutrition (medical nutrition delivered intravenously).

For example, Netherlands-based Royal Numico N.V. is a major player in the global clinical nutrition segment by way of sip feeds to help patients fighting specific diseases (2005: 38% of sales of the company’s Clinical Nutrition division); tube feeding solutions for the very sick who are in hospital or at home (2005: approximately 32% of sales of the company’s Clinical Nutrition division); and special products allowing those with allergies or metabolic disorders to lead normal lives (2005: 29% of 2005 sales). The company has no presence in the retail channel and its U.S. market presence is limited to its SHS brand specialist dietetic products, which are available by prescription only.

A recent article in the Wall Street Journal alluded to Numico’s plans to launch a range of products to help fight serious chronic ailments. One of these products includes a drink to fight the effects of Alzheimer’s disease, but the article said there are no plans to produce definitive evidence of claims. Further, while the company said it hopes physicians will prescribe the new drink that it says will improve memory and cognition in early-stage Alzheimer’s patients, no Phase III clinical trials are planned.

The most recent news to get the category buzzing was Nestlé’s December 2006 acquisition of Novartis’ Healthcare Nutrition Unit for $2.5 billion, which was executed to bolster the Nestlé’s enteral Healthcare Nutrition business. In fact, according to Nestlé’s Jim Singh of Nestlé Acquisitions and Business Development, the acquisition effectively makes Nestlé the number two enteral healthcare nutrition supplier behind Abbott. “Our focus is to offer medically-recognized solutions to consumer caregivers and to healthcare professionals for specific healthcare related needs,” he said. “For example, these types of patients include elderly people who experience loss of appetite or who have other conditions related to aging, patients under acute care or are afflicted with chronic diseases, or people suffering from diabetes or other metabolic disorders.”

Mr. Singh estimated the growth in the enteral segment to be up about 7%, and he expects it to continue. “There is a preference for oral nutrition for outpatients, especially those who are catered to in their homes or who have the choice to acquire these products in the retail channel,” he said. “There are excellent growth prospects in this emerging market and there is a shift to ENC (enteral clinical nutrition) on the grounds of cost, safety and effectiveness. The margin potential for this segment is very high.”

Nestlé projects the Novartis acquisition to start delivering an economic profit within four years.