Functional Foods: Making The Right Bet

Reflecting on a decade ofsuccesses and failures will help guide us to the next stage in functional foods.

By Greg Kitzmiller

Should we still bet on functional foods? If so, how should we approach the market? These are trick questions and the answers depend on several factors.

The factors that provide answers to the questions include at least the following queries: First, what are considered functional foods? Second, what level of reward does the functional food offer consumers? Third, what sacrifices are expected of the consumer?

Some will say that more launches of functional foods have flopped than have succeeded (It is always easy to recall failures). By now you are probably familiar with the litany of short-lived products including Ensemble by Kellogg and the Altus Foods venture. The successes include the famous Tropicana case and Quaker Oats. This is why definition creates context.

Any product containing caffeine might be called a functional food in which case the market is worth billions of dollars and, of course, it is doing quite well. Even if we use a strict definition of “food products purchased specifically for disease prevention or health and wellness benefit” the market is quite broad and includes most fortified foods from milk and orange juice to a host of cereals and low-fat products. Only when we refer to specific conditions (prevents osteoporosis) do we have such a narrow definition that the market appears small and we start to focus on the myriad of misfires of the past decade. There is also the matter of how to approach the market and what constitutes “success.” Firms looking for $150 million revenue from new products within five years will find it harder to find that homerun than firms willing to reposition and retrench. Beyond definition and size, the future of functional foods depends on perspective.

The Consumer Level

Consumers want results and they appreciate focus. Dr. Clare Hasler, founding director of the Functional Foods for Health program at University of Illinois says, “There has been too much negative!” She claims firms are often looking for the “hot new ingredient” and have communicated many messages that may be interpreted as “avoid this” or “watch out for that.” Consumers want wellness. Then Natural Marketing Institute (NMI), Harleysville, PA, has new data that show the percent of the population that over the past five years say they have used avoidance foods, such as low-fat and fat-free, is on the decline. On the other hand, the numbers are increasing for those claiming they’ve used fortified and functional foods in the same time period.

Furthermore, NMI’s data show the trend is now decreasing slightly in prevention of conditions, though still on top, and increasing significantly toward treatment of health issues. While still big numbers with three fourths of American households concerned with prevention of cancer and heart disease and two-thirds in prevention of osteoporosis, these numbers are trending downward. On the increase between 2002 and 2003 are the percent of households treating cholesterol levels, joint pain and acid reflux (nearly half of households are treating cholesterol with functional foods). The big issue now is weight loss as consumers stop worrying about fat and switch to controlling carbohydrates. Consumers want results.

General prevention may be long-term and rather elusive but dropping LDL cholesterol points or melting away extra pounds, while the joints feel less stiff, are positive results today. NMI will have its annual Health and Wellness Trends report out by the end of this year with all of the numbers for us to read. The best bet seems to be a focus on results for consumers, if we expect them to make a big shift. For example, if all they have to do is buy the fortified orange juice adding antioxidants (small sacrifice) to prevent cancer (long-term and uncertain reward) then it’s worth it. If, however, they have to buy a new, unknown product for prevention at greater sacrifice it’s questionable.

Thus, it is important to discuss sacrifices and rewards. What is the actual cost to the consumer of a particular new behavior and purchase vs. the reward? Consumers see value when the overall cost is substantially less than the reward, and cost does not always have to do with price. The cost may include lifestyle change, amount of effort required to find the product, difficulty of use, accessibility of information (web or toll-free number) and more, whilethe reward may be physical or emotional—I look and feel better. This can actually be quantified with research. Steve French of NMI says consumers today put products in “little buckets” for specific uses—this helps my bones; this one overcomes menopausal symptoms, etc. Mr. French sees a slow shift from long-term longevity to immediate measurable benefit.

The market shift suggests more immediate rewards. It also suggests we measure sacrifice or cost carefully. The failures of the past decade have often been with products that expected consumers to make huge changes in the way they thought about eating. They are willing to make such changes if they see significant rewards (i.e., dropping 20+ pounds or feeling healthier). However, they are less likely to do that for no clear reward (i.e., who knows if the product can really prevent cancer).

Finally there seems to be a market re­search trend toward reliance on responses to concepts and less measurement of behavior. To measure reaction to rewards and sacrifices we need to find a way to measure behavior. Consumer actions speak louder than words. Actual store purchases combined with panel data are absolute and objective. Concept testing may be subjective. If we cannot place short-term rewards into a realistic setting with actual sacrifice we may not read the consumer correctly.

Summary

Every large food firm is willing to bet on some form of wellness trends supported by product function if they can define clear value to the consumer. Firms that rely only on bench science and less on the understanding of a formula of reward vs. sacrifice given current consumer trends are more likely to make the wrong bet. Overall, I still bet on the continued success or new success of those firms that use functional foods in a way to provide consumers with solid and measurable rewards in a concrete fashion with a level of sacrifice that warrants the reward.NW