Functional Foods Promise Health or Nutritional Benefits, Business and Industry Trends Analysis

Worldwide sales of foods that claim to foster nutrition, health, weight loss or other advantages are enjoying immense sales.  The U.S. accounts for about one-third of the market for such foods, followed by Europe, Japan and the rest of Asia.  Many types of food and nutrition products are considered to fall into this broad sector, especially “functional” foods, or foods that are enhanced in some way, such as products heavily fortified with vitamins or minerals.

The tremendous, recent success of Greek yogurts, which are perceived by consumers to have health benefits, is an excellent example of this trend.  Consumers have been readily willing to adapt to this yogurt that has a very different, less-sweet taste but is rich in probiotics, which are live bacteria similar to those found naturally in human digestive tracts.  Many other foods with added probiotics, including crackers and fortified waters, are now on the market.

Major food companies such as Kraft Heinz, Unilever and Nestlé S.A. understand the market pressure to produce healthier foods in order to stay competitive.  One concept is the combination of food and pharmaceuticals, known as “phood.”  The concept has increasing allure for aging baby-boomers who are looking for better nutrition and health benefits from the foods they eat.  Prices on these kinds of food are generally higher than non-fortified or modified products and have double the profit margins.  Examples of phoods include Nestlé’s Nutren Balanced, a nutrition shake with an enhanced, high-fiber additive that limits blood sugar swings by slowing the absorption of glucose, and Activia, a yogurt fortified with bacteria that aids digestion, made by Nestlé rival Danone S.A.

Nestlé created a subsidiary called Nestlé Health Science in late 2010, and pledged to invest $534 million over 10 years in a sister research institute.  The subsidiary is a maker of phoods including Fostrap, a chewing gum that is said to help patients suffering from kidney disease; Resource ThickenUp, which thickens foods to help people who have trouble swallowing; and Vitaflo Cooler drinks, which provide nutrients such as enzymes lacking in certain people.  Nestlé acquired a stake in Accera, a U.S. firm that makes Axona, a prescription-only medical food for treating mild to moderate Alzheimer’s disease.  Yet another Nestlé acquisition, the purchase of Pamlab LLC, netted CerefolinNAC, a prescription product for people with mild dementia.

Functional foods or tread the fine line between food and pharmaceuticals.  As long as manufacturers market functional foods as aids to normal body functions instead of treatments for disease, they are not subject to the strict regulations set by the Food and Drug Administration (FDA).

Consumer interest in functional foods is spilling over into the soft drink market.  Energy drinks such as Red Bull have been one of the fastest-growing segments of the beverage industry.  Energy drinks typically contain sugar, water and powerful doses of caffeine.  Red Bull is the undisputed leader of energy drinks, a market that includes Rock Star, PepsiCo’s Amp and Coca-Cola’s Full Throttle.  Each drink varies the formula, adding anything from amino acids to vitamins to herbs.  Energy drinks are more than twice the price of soft drinks such as Coke and Pepsi.

A major challenge for functional food manufacturers is proving their claims of health benefits.  In July 2010, the U.S. Federal Trade Commission (FTC) forced Nestlé to drop its claim that its Boost Kid Essentials protein drinks protected children’s immune systems.  Dannon, a subsidiary of Danone, was also required to drop claims regarding digestive health for its Activia yogurt and DanActive dairy drink.  Subsequently, companies such as Nestlé are treating functional foods as separate, health-related businesses with sufficient investment and staffing to satisfy health-related regulations.