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Functional Foods - US - August 2009

Difficult economic conditions have not substantially slowed the expansion of functional foods. Marketers and retailers continue to introduce new products, and more consumers continue to try them. In order to maintain the momentum, functional foods players will need to continue expanding into new benefit areas. They will also need to navigate an increasingly active FDA, which promises to scrutinize claims more closely.

This report focuses primarily on four well-established segments within the functional foods market: dairy and margarine, cereal, bars and snacks, and bakery. It provides:

  • A look at the broader health and wellness context in which functional foods compete
  • An examination of demographic factors impacting the functional foods market and different marketing opportunities that exist at different life-stages
  • Analysis of major trends in new product development and examples of innovation across functional benefit areas
  • An overview of key themes in category marketing and advertising
  • Discussion of the potential impact of a more active FDA

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Table of contents

  1. Scopes and Themes

    • What you need to know
      • Definition
        • Data sources
          • Sales data
            • Consumer survey data
              • Advertising creative
                • Abbreviations
                • Executive Summary

                  • Market at a glance
                    • Continued growth hinges on expanding uses and increasing frequency
                      • Functional foods compete for attention on a vast playing field
                        • Debate over diet has helped to shape the functional food market
                          • A broader market for functional foods
                            • Supermarkets dominate, but other channels chip away
                              • Diet including functional foods may reduce risk of deadly diseases
                                • Government-approved claims support market growth
                                  • Aging population portends growth for the market
                                    • Regulatory pressures can change the direction of the market
                                      • General Mills leads a long list of competitors
                                        • New product activity heats up across segments
                                          • Heavy advertising drives category
                                            • Claimed use is on the rise, but frequency still low
                                            • Insights and Opportunities

                                              • An opportunity to rethink retail
                                                • Lifestage targeting
                                                  • Clinical research key to credibility, growth of category
                                                  • Inspire Insights

                                                      • Functional foods beyond physical benefits: foods to enhance mood
                                                        • What’s it about?
                                                          • What we have seen
                                                            • Implications
                                                              • A simple balance for health
                                                                • What’s it about?
                                                                  • What we have seen
                                                                    • Specifics
                                                                      • Implications
                                                                      • Market Size and Forecast

                                                                        • Key points
                                                                          • Continued growth hinges on expanding uses and increasing frequency
                                                                            • Figure 1: Total FDMx sales and forecast of functional foods at current prices, 2004-14
                                                                            • Figure 2: Total FDMx sales and forecast of functional foods at inflation-adjusted prices, 2004-14
                                                                        • Competitive Context

                                                                          • Key points
                                                                            • Functional foods compete for attention on a vast playing field
                                                                              • Functional drinks and supplements both competitive and complementary
                                                                                • Debate over diet has helped to shape the functional food market
                                                                                  • A broader market for functional foods
                                                                                  • Segment Performance

                                                                                    • Key points
                                                                                      • Big competition exists within segments
                                                                                          • Figure 3: FDMx sales and forecast of functional foods, at current prices, by segment, 2004-14
                                                                                          • Figure 4: FDMx sales of functional foods, segmented by type, 2007 and 2009
                                                                                      • Segment Performance—Dairy and Margarine

                                                                                        • Key points
                                                                                          • Probiotic yogurt has made the dairy case a prime functional destination
                                                                                            • Sales and forecast of functional dairy and margarine
                                                                                              • Figure 5: FDMx sales and forecast of functional dairy and margarine, 2004-14
                                                                                          • Segment Performance—Functional Cereal

                                                                                            • Key points
                                                                                              • Functional cereals face obstacles to growth
                                                                                                • Success in cereal means building share, not building the category
                                                                                                  • Sales and forecast of functional cereal
                                                                                                    • Figure 6: FDMx sales and forecast of functional cereal, 2004-14
                                                                                                • Segment Performance—Bars and Snacks

                                                                                                  • Key points
                                                                                                    • An ideal form for on-the-go functional nutrition
                                                                                                      • Heavy and varied new product activity
                                                                                                        • Line extensions from big, focused brands drive the market
                                                                                                          • Sales and forecast of functional bars and snacks
                                                                                                            • Figure 7: FDMx sales and forecast of functional bars and snacks, 2004-14
                                                                                                        • Segment Performance—Functional Bakery

                                                                                                          • Key points
                                                                                                            • General health perception of “wholegrain” provides significant competition
                                                                                                              • Sales and forecast of functional bakery products
                                                                                                                • Figure 8: FDMx sales and forecast of functional bakery products, 2004-14
                                                                                                            • Retail Channels

                                                                                                              • Key points
                                                                                                                • Other channels likely to continue chipping away at supermarkets
                                                                                                                  • Figure 9: FDMx sales of functional foods, by retail channel, 2006 and 2008
                                                                                                                • Choice of retail channels to purchase functional foods
                                                                                                                  • Figure 10: Choice of retail channels to purchase functional foods, by age, June 2009
                                                                                                              • Retail Channels—Food Stores

                                                                                                                • Key points
                                                                                                                  • Supermarkets well positioned for functional foods sales
                                                                                                                    • Figure 11: U.S sales of functional foods at food stores, 2004-08
                                                                                                                • Market Drivers

                                                                                                                  • Key points
                                                                                                                    • Diet may reduce risk of most deadly diseases
                                                                                                                      • Figure 12: Leading causes of death and death rates, 2006
                                                                                                                    • Government-approved claims support market growth
                                                                                                                        • Figure 13: Selected FDA approved health claims, April 2008
                                                                                                                      • Consumers are trying to make a difference by watching their diets
                                                                                                                        • Figure 14: Attitude towards health, by agree, 2004 and 2009
                                                                                                                        • Figure 15: Reasons for watching/controlling diet, 2004 and 2009
                                                                                                                      • American diets lacking important nutrients
                                                                                                                        • Figure 16: Recommended vs. actual consumption of selected foods
                                                                                                                      • Aging population portends growth for the market
                                                                                                                        • Figure 17: Population aged 18 or older, 2004-14
                                                                                                                      • Regulatory pressures can change the direction of the market
                                                                                                                      • Leading Companies

                                                                                                                        • Key points
                                                                                                                          • General Mills
                                                                                                                            • Groupe Danone
                                                                                                                              • Kellogg
                                                                                                                                • Figure 18: FDMx functional food sales of leading companies, 2008 and 2009
                                                                                                                            • Brand Share—Dairy and Margarine

                                                                                                                              • Key points
                                                                                                                                • All yogurts considered functional
                                                                                                                                  • Specialized yogurt brands enjoy market share gains
                                                                                                                                    • Spreads gain on omega-3s
                                                                                                                                      • Figure 19: FDMx brand sales of functional dairy and margarine in the U.S., 2008 and 2009
                                                                                                                                  • Brand Share—Cereal

                                                                                                                                    • Key points
                                                                                                                                      • Functional cereals struggle to stand out from other cereal
                                                                                                                                        • Special K wins by focusing narrowly on weight loss
                                                                                                                                          • Fiber One gains share on taste
                                                                                                                                            • Figure 20: FDMx brand sales of functional cereal in the U.S., 2008 and 2009
                                                                                                                                        • Brand Share—Bars and Snacks

                                                                                                                                          • Key points
                                                                                                                                            • Fiber One’s continued success underscores importance of taste
                                                                                                                                              • FiberPlus from Kellogg expands benefits of bars, promises better taste
                                                                                                                                                • Figure 21: FDMx brand sales of functional bars and snacks in the U.S., 2008 and 2009
                                                                                                                                            • Brand Share—Bakery

                                                                                                                                              • Key points
                                                                                                                                                • Figure 22: FDMx brand sales of functional bakery in the U.S., 2008 and 2009
                                                                                                                                            • Brand Qualities

                                                                                                                                              • Narrow strategic focus and broad product lines keys to brand success
                                                                                                                                                • Fiber One
                                                                                                                                                  • Special K
                                                                                                                                                    • Smart Balance
                                                                                                                                                      • Private label poised to grow
                                                                                                                                                      • Innovation and Innovators

                                                                                                                                                        • Key points
                                                                                                                                                          • New product activity heats up across segments
                                                                                                                                                            • Figure 23: Number of new product launches in functional foods, 2004-09*
                                                                                                                                                          • Digestive claims proliferate but bone health claim could provide growth opportunity
                                                                                                                                                            • Figure 24: Number of new product launches in functional foods, 2004-08
                                                                                                                                                          • Digestive claims thrive in dairy
                                                                                                                                                            • Figure 25: Number of digestive claims in new products, by segment, 2008
                                                                                                                                                          • Cardiovascular claims proliferate
                                                                                                                                                            • Figure 26: Number of cardiovascular claims in new products, by segment, 2008
                                                                                                                                                          • Immunity boost
                                                                                                                                                            • Figure 27: Number of immunity claims in new products, by segment, 2008
                                                                                                                                                          • Brain and nervous system
                                                                                                                                                            • Figure 28: Number of brain and nervous system claims in new products, by segment, 2008
                                                                                                                                                          • Weight control
                                                                                                                                                            • Figure 29: Number of weight control claims in new products, by segment, 2008
                                                                                                                                                        • Advertising and Promotion

                                                                                                                                                          • Overview
                                                                                                                                                            • Figure 30: Measured advertising spending for select functional food brands, 2007 and 2008
                                                                                                                                                          • A functional claim pioneer, Cheerios continues to appeal to emotions
                                                                                                                                                            • Figure 31: Cheerios, television ad, 2009
                                                                                                                                                          • Fiber One makes fiber tasty
                                                                                                                                                            • Figure 32: Fiber One Honey Clusters, television ad, 2009
                                                                                                                                                          • Activia plays the role of educator
                                                                                                                                                            • Figure 33: Activia, television ad, 2009
                                                                                                                                                          • Yo-Plus provides a shortcut to digestive health
                                                                                                                                                            • Figure 34: Yoplait Yo-Plus, television ad, 2009
                                                                                                                                                          • SuperShots promises easy cholesterol reduction
                                                                                                                                                            • Figure 35: Promise Supershots, television ad, 2009
                                                                                                                                                          • Glucerna makes specific appeal to diabetics
                                                                                                                                                            • Figure 36: Glucerna, television ad, 2009
                                                                                                                                                        • Functional Food Purchases

                                                                                                                                                          • Key points
                                                                                                                                                            • Purchase incidence of functional foods continues to expand
                                                                                                                                                                • Figure 37: Purchase incidence of functional foods, 2006-09
                                                                                                                                                                • Figure 38: Purchase incidence of functional foods, by gender, May 2009
                                                                                                                                                              • Younger adults more likely to buy functional foods
                                                                                                                                                                • Figure 39: Purchase incidence of functional foods, by age, May 2009
                                                                                                                                                              • Types of functional foods purchased
                                                                                                                                                                • Figure 40: Types of functional foods purchased in past three months, 2006, 2008, 2009
                                                                                                                                                                • Figure 41: Types of functional foods purchased in past three months, by gender, May 2009
                                                                                                                                                              • Younger respondents gravitate to convenient product forms
                                                                                                                                                                • Figure 42: Types of functional foods purchased in past three months, by age, May 2009
                                                                                                                                                            • Frequency of Functional Food Consumption

                                                                                                                                                              • Key point
                                                                                                                                                                • Light frequency an issue and opportunity for marketers
                                                                                                                                                                  • Figure 43: Frequency of functional food consumption in the past month, by age, May 2009
                                                                                                                                                              • Changes in Functional Food Use

                                                                                                                                                                • Key points
                                                                                                                                                                  • More functional food users increasing consumption than cutting back
                                                                                                                                                                    • Figure 44: Incidence of using more or less functional foods/beverages compared to a year ago, by age, June 2009
                                                                                                                                                                  • Reasons for using more functional food compared to a year ago
                                                                                                                                                                    • Figure 45: Reasons for using more functional food than a year ago, by age, June 2009
                                                                                                                                                                  • Cost tops reasons for consuming less functional food
                                                                                                                                                                    • Figure 46: Reasons for using less functional food than a year ago, by gender, June 2009
                                                                                                                                                                • Attitudes Towards Diet, Health and Lifestyle

                                                                                                                                                                  • Key points
                                                                                                                                                                    • Americans hold the best intentions for healthy eating…
                                                                                                                                                                      • Figure 47: Attitudes towards diet and health, by age, May 2006-June 2007
                                                                                                                                                                    • … but actual behaviors and results tell a different story and define the opportunity for functional foods
                                                                                                                                                                        • Figure 48: Attitudes towards healthy lifestyle, by gender, May 2009
                                                                                                                                                                      • Responses by age suggest lifestage opportunities
                                                                                                                                                                        • Figure 49: Attitudes towards healthy lifestyle, by age, May 2009
                                                                                                                                                                    • Reasons for Eating Functional Foods

                                                                                                                                                                      • Key points
                                                                                                                                                                        • Motivations as varied as the market
                                                                                                                                                                            • Figure 50: Reasons for eating functional foods, by gender, May 2009
                                                                                                                                                                          • Motivations differ by age
                                                                                                                                                                            • Figure 51: Reasons for eating functional foods, by age, May 2009
                                                                                                                                                                        • Functional Foods Opinions and Interest

                                                                                                                                                                          • Key points
                                                                                                                                                                            • Government involvement welcomed, likely to increase, impact uncertain
                                                                                                                                                                              • Recession appears to be curtailing category growth
                                                                                                                                                                                • Figure 52: Opinions towards functional foods, by gender, May 2009
                                                                                                                                                                                • Figure 53: Opinions towards functional foods, by age, May 2009
                                                                                                                                                                              • Consumer understanding extends only to a handful of ingredients
                                                                                                                                                                                • Figure 54: Role of functional ingredients in functional beverage purchase decisions, May 2009
                                                                                                                                                                              • The list of desired functional benefits is long
                                                                                                                                                                                • Figure 55: Desired benefits in functional foods, by gender, May 2009
                                                                                                                                                                                • Figure 56: Desired benefits in functional foods, by age, May 2009
                                                                                                                                                                            • Race and Hispanic Origin

                                                                                                                                                                              • Higher use among blacks and Hispanics may correlate to age
                                                                                                                                                                                • Figure 57: Purchase incidence of functional foods, by race/Hispanic origin, May 2009
                                                                                                                                                                              • Product types used driven by both form preferences and health issues
                                                                                                                                                                                • Figure 58: Types of functional foods purchased in past three months, by race/Hispanic origin, May 2009
                                                                                                                                                                              • Blacks slightly more likely to cite specific reasons for functional food use
                                                                                                                                                                                • Figure 59: Reasons for eating functional foods, by race/Hispanic origin, May 2009
                                                                                                                                                                            • Cluster Analysis

                                                                                                                                                                                • The Functified
                                                                                                                                                                                  • Who they are
                                                                                                                                                                                    • Opportunity
                                                                                                                                                                                      • Dysfunctionalists
                                                                                                                                                                                        • Who they are
                                                                                                                                                                                          • Opportunity
                                                                                                                                                                                            • Funcsters
                                                                                                                                                                                              • Who they are
                                                                                                                                                                                                • Opportunity
                                                                                                                                                                                                  • Cluster characteristics
                                                                                                                                                                                                    • Figure 60: Functional food and beverages clusters, May 2009
                                                                                                                                                                                                    • Figure 61: Frequency of functional food consumption in the past month, by functional food and beverage clusters, May 2009
                                                                                                                                                                                                    • Figure 62: Reasons for eating functional foods, by functional food and beverage clusters, May 2009
                                                                                                                                                                                                    • Figure 63: Opinions towards functional foods, by functional food and beverage clusters, May 2009
                                                                                                                                                                                                    • Figure 64: Desired benefits in functional foods and beverages, by functional food and beverage clusters, May 2009
                                                                                                                                                                                                  • Cluster demographics
                                                                                                                                                                                                    • Figure 65: Functional food and beverage clusters, by gender, May 2009
                                                                                                                                                                                                    • Figure 66: Functional food and beverage clusters, by age group, May 2009
                                                                                                                                                                                                    • Figure 67: Functional food and beverage clusters, by income group, May 2009
                                                                                                                                                                                                    • Figure 68: Functional food and beverage clusters, by race, May 2009
                                                                                                                                                                                                    • Figure 69: Functional food and beverage clusters, by Hispanic origin, May 2009
                                                                                                                                                                                                  • Cluster methodology
                                                                                                                                                                                                  • Custom Consumer Groups

                                                                                                                                                                                                      • Gender and age
                                                                                                                                                                                                        • Figure 70: Purchase incidence of functional foods, by gender and age, May 2009
                                                                                                                                                                                                      • Types of functional foods purchased
                                                                                                                                                                                                          • Figure 71: Types of functional foods purchased in past three months, by gender and age, May 2009
                                                                                                                                                                                                        • Reasons for eating functional foods
                                                                                                                                                                                                            • Figure 72: Reasons for eating functional foods, by gender and age, May 2009
                                                                                                                                                                                                          • Race/Hispanic origin and age
                                                                                                                                                                                                            • Figure 73: Purchase incidence of functional foods, by race/Hispanic origin and age, May 2009
                                                                                                                                                                                                          • Types of functional foods purchased
                                                                                                                                                                                                            • Figure 74: Types of functional foods purchased in past three months, by race/Hispanic origin and age, May 2009
                                                                                                                                                                                                          • Reasons for eating functional foods
                                                                                                                                                                                                            • Figure 75: Reasons for eating functional foods, by race/Hispanic origin and age, May 2009
                                                                                                                                                                                                        • Appendix: Trade Associations

                                                                                                                                                                                                          Companies Covered

                                                                                                                                                                                                          • Abbott Laboratories
                                                                                                                                                                                                          • American Botanical Council (ABC)
                                                                                                                                                                                                          • American Cancer Society (ACS)
                                                                                                                                                                                                          • American Council on Science and Health (ACSH)
                                                                                                                                                                                                          • American Dietetic Association (ADA)
                                                                                                                                                                                                          • American Heart Association, Inc.
                                                                                                                                                                                                          • American Herbal Products Association
                                                                                                                                                                                                          • Boca Foods Company
                                                                                                                                                                                                          • Centers for Disease Control and Prevention
                                                                                                                                                                                                          • Clif Bar Inc.
                                                                                                                                                                                                          • ConAgra Foods, Inc
                                                                                                                                                                                                          • CoolBrands International Inc.
                                                                                                                                                                                                          • Costco Wholesale Corporation
                                                                                                                                                                                                          • Delhaize Group
                                                                                                                                                                                                          • Eggland's Best, Inc.
                                                                                                                                                                                                          • Food and Drug Administration
                                                                                                                                                                                                          • Food For Life Baking Company
                                                                                                                                                                                                          • Food Marketing Institute
                                                                                                                                                                                                          • General Mills Inc
                                                                                                                                                                                                          • Genisoy Food Company, Inc.
                                                                                                                                                                                                          • GFA Brands Inc.
                                                                                                                                                                                                          • GNC Corporation
                                                                                                                                                                                                          • Greenfield Online
                                                                                                                                                                                                          • Grocery Manufacturers of America (GMA)
                                                                                                                                                                                                          • Groupe Danone
                                                                                                                                                                                                          • Grupo Bimbo S.A.
                                                                                                                                                                                                          • Herb Research Foundation (HRF)
                                                                                                                                                                                                          • Horizon Organic
                                                                                                                                                                                                          • Institute of Food Technologists (IFT)
                                                                                                                                                                                                          • International Food Information Council Foundation (IFIC)
                                                                                                                                                                                                          • Kashi Co. Inc.
                                                                                                                                                                                                          • Kellogg Company
                                                                                                                                                                                                          • Kmart Corporation
                                                                                                                                                                                                          • Kraft Foods Inc. (U.S.A.)
                                                                                                                                                                                                          • National Cancer Institute (NCI)
                                                                                                                                                                                                          • National Center for Complementary and Alternative Medicine (NCCAM)
                                                                                                                                                                                                          • National Institutes of Health
                                                                                                                                                                                                          • National Nutritional Foods Association
                                                                                                                                                                                                          • National Yogurt Association (NYA)
                                                                                                                                                                                                          • Nature Valley
                                                                                                                                                                                                          • Odwalla Inc.
                                                                                                                                                                                                          • Organic Trade Association
                                                                                                                                                                                                          • PepsiCo Inc
                                                                                                                                                                                                          • Pompeian Inc.
                                                                                                                                                                                                          • Quaker
                                                                                                                                                                                                          • Safeway Inc
                                                                                                                                                                                                          • SAM's Club
                                                                                                                                                                                                          • Sara Lee Corporation
                                                                                                                                                                                                          • Sara Lee Food & Beverage
                                                                                                                                                                                                          • Simon & Schuster, Inc.
                                                                                                                                                                                                          • Small Planet Foods Inc. (Cascadian Farms)
                                                                                                                                                                                                          • Snack Food Association (SFA)
                                                                                                                                                                                                          • Stonyfield Farm
                                                                                                                                                                                                          • Subway
                                                                                                                                                                                                          • Target Corporation
                                                                                                                                                                                                          • The Kroger Co.
                                                                                                                                                                                                          • U.S. Bureau of Labor Statistics
                                                                                                                                                                                                          • U.S. Bureau of the Census
                                                                                                                                                                                                          • U.S. Department of Agriculture
                                                                                                                                                                                                          • Unilever USA
                                                                                                                                                                                                          • Walmart Stores (USA)
                                                                                                                                                                                                          • Wegmans Food Markets, Inc
                                                                                                                                                                                                          • Weight Watchers International Inc.
                                                                                                                                                                                                          • Whole Foods Market Inc
                                                                                                                                                                                                          • Wild Oats Markets, Inc
                                                                                                                                                                                                          • Yoplait USA

                                                                                                                                                                                                          Functional Foods - US - August 2009

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