Ten Key Trends Affecting Functional Food Developers

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• Ten Key Trends Affecting Functional Food
  Developers
• Julian Mellentin
• Editor of New Nutrition Business

Moderator and Opening Remarks Kelley Fitzpatrick,
WCFN
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Julian Mellentin Editor of New Nutrition Business

• International specialist in the business of food,
  
• nutrition and health.
• Co-author Functional Foods Revolution,
• Healthy People, Healthy Profits?
• Co-author (with Peter Wennström) Commercialising
  Innovation The Food Health Marketing Handbook
• New Nutrition Business - researching, analyzing
  and forecasting the global nutrition business
  since 1995
• New Nutrition Business Journal - case studies and
  analysis of success and failure in the global
  nutrition business
• www.new-nutrition.com -- largest searchable
  internet database about the business of food and
  health.

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Key Trends in Food, Nutrition Health 2009
Presented by
NEW NUTRITION BUSINESS
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Director of a company dedicated solely, since
1995, to researching, analysing and forecasting
developments in the business of food and health,
globally. Offices in London, New Zealand, US,
partnerships in Finland and Japan. Publishes New
Nutrition Business. Julian is also co-author of
Functional Foods Revolution, the best-selling
(54,000 copies sold) and first-ever book on the
business of functional foods, now translated into
Japanese. He is also co-author of the The Food
Health Marketing Handbook.
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Contents
A focus on a few of the most important trends
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The challenge has always been

• Consumers may say in research that they know
  that
• This nutrient is good for me.
• I should have more of this good thing in my
  diet
• But getting them to translate that into making a
  healthier choice in the supermarket is always
  driven by their beliefs about
• Taste
• Price
• Convenience
• Packaging design
• What is right for me as an individual

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Key Trend 1 Digestive health the biggest
trend
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Key Trend 1 Digestive health the biggest trend
Digestive health is the single-largest area of
functional foods markets in Europe, Japan and
South America and it may soon also become the
single-largest in the US.
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Key Trend 1 Digestive health the biggest trend
Success of Danones Activia spoonable yoghurt,
launched in the US in January 2006. Activia is
marketed in exactly the same way as in Europe,
with an explicitly communicated health message
about digestion. Activia dispelled the long-held
myth that Americans werent motivated by explicit
digestive health messages and unleashed a frenzy
of interest in the US in digestive health
products.
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Key Trend 1 Digestive health the biggest trend
Encapsulation could be up against competition in
the market for shelf-stable products in the form
of probiotics that can survive on the shelf
without encapsulation. In America in 2008 Kraft
launched the first mass-distributed shelf-stable
probiotic nutrition bar. Many companies are
trying to deliver cost-effective, and technically
effective, delivery mechanisms for probiotics
that will allow them to be used in shelf-stable
products, but Kraft instead chose a bacteria
L.plantarum 299v, supplied by Probi of Sweden
that needs no encapsulation nor protection and in
fact thrives on the open shelf.
In mid-2008 Kraft launched the first mainstream
nutrition bar made with probiotics that requires
no refrigeration.
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Key Trend 1 Digestive health the biggest trend
Theres no reason why dairy (or probiotics)
should have such a monopoly. There are groups of
consumers for whom dairy products have
disadvantages of fat or lactose, or who want a
plant-based diet.
For the segment of consumers who want digestive
health benefits but want them in a non-dairy form
there are in most countries almost no
alternatives and certainly none that could be
said to be convenient. This is the greatest
untapped opportunity. Launched in 2008,
Goodbelly (child of Pro Viva), is the first brand
in the probiotic juice segment in the US.
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ProViva Swedens mass-market functional food
brand
ProViva sales 1994 - 2007
Amount Sold (tonnes)
Source Skåne Dairy
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A new model is needed Probi
1994, Skåne Dairy a farmer-owned dairy
cooperative with a modest 6 share of the Swedish
dairy market, launched Pro Viva, a probiotic
juice drink for digestive health. Based on
patented, clinically-proven bacteria L. plantarum
299v Unique, first of its kind in the
world. 2006 brand grew 20 to C60 million (37
million) 2007 brand grew 30 to C85 million
(52 million) 2008 brand grew 13 to C95
million A mass market success!

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Key Trend 1 Digestive health the biggest trend
Fibres future an everyday food ingredient for
all Fibres advantage is that it is one of the
easiest food ingredients for consumers to accept
and one whose benefits are easiest to understand.
Fibre from bread, cereals, fruit and other foods
is a logical and natural connection in the
consumers mind. There is an opportunity for
some expert brands which make the benefits of
fibre their key selling point. One example is
General Mills Fiber One. Fiber One breakfast
cereal remains the largest single item (we
believe) with its sales rising 38.2 to 44.1m in
2008.
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Key Trend 1 Digestive health the biggest trend
Fibre will become a mass ingredient. The fibre
marketing message is already commonplace in
European supermarkets and will become so in the
US and elsewhere. As it becomes more common
it is technically easy and reasonably
cost-effective to add fibre or increase it in
most products high in fibre will become a
category standard, just as with vitamins is for
juices and breakfast cereals or whole grain has
become in the US. But be careful what you put
fibre in!
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Keep it simple
Even a consumer survey by Orafti, the worlds
biggest supplier of prebiotic fibres, found that,
on a scale of 1 to 10, where 10 is the most
appealing and 1 the least, prebiotics scored just
5.88 with UK consumers, less in some parts of
Europe, highest in Italy. Nestlé is one of many
brands that has found that the term prebiotic
just isnt a motivator, using it for two years
and finding that it had no effect on sales.
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Key Trend 2 Feel the benefit the best selling
tool for hard times
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Feel the benefit what consumers want most
One of the biggest advantages a product can have
is to deliver a benefit that the consumer can
quickly see or feel. A benefit that consumers
can feel is the underpinning of many successful
brands and will become an even more important in
a world in which people are becoming more careful
about how they spend their money.
When people can feel the benefit that is being
offered to them, they can see that they are
getting value-for-money. The best examples of
the power of feel the benefit are energy drinks
and products for digestive health the two largest
segments of the functional food and beverage
markets in Europe and the US.
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Key Trend 2 Feel the benefit the best selling
tool for hard times
In a recession products without immediate
benefits could see sales fall In Australia
where consumers have the highest awareness in the
world of the benefits of omega-3, the two
long-established omega-3 milks have seen their
sales fall as Australian consumers rein back on
their spending.
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Key Trend 2 Feel the benefit the best selling
tool for hard times
If they cant feel the benefit show it to them
During one 3-week Challenge in 2005, Danone sold
an additional 9.5 million bottles of Actimel in
the UK alone (worth 10m in incremental retail
sales), with only 45 people asking for their
money back.
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Key Trend 2 Feel the benefit the best selling
tool for hard times
Measure the difference Kellogg Special K Drop a
Jeans Size promotions offer women the tangible
benefit of dropping a jeans size if they follow
the Special K eating programme for 14 days, which
involves substituting two meals a day with
Kelloggs Special K.
Guerilla marketing in France these mannequins in
shop windows vividly convey the message about
Drop a jeans size
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Key Trend 3 Energy new market segments await
discovery
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Energy new market segments await discovery

• Energy drinks deliver a benefit that is
  immediately detectable and this explains much of
  their global success.
• In 2008, even in recessionary America, the energy
  drinks category has continued to grow, increasing
  8, according to Nielsen data.
• Energy (stimulation) offers a wealth of
  untapped opportunities - the energy needs of the
  majority of consumers arent served by the types
  of energy drinks currently available. The
  35-year-old executive and the harassed mother
  need energy too, and they want it in a healthier
  form.
• Energy drinks are a perfect example of a
  premium-priced high margin category - but also
  mass-market.

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Energy new market segments await discovery
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Energy new market segments await discovery
The high-flying new energy shot category Small
concentrated daily-dose energy drinks in 60ml
to180ml (2oz.to 6oz.) sizes. A long-established
feature of Asian markets. Their first
appearance in the west is the US. Customers
include people who might not have drunk energy
drinks in the past. With little or no sugar in
the product, they are convenient to drink, they
are low in calories while high in stimulation.
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Energy new market segments await discovery

• Market leader and new category creators is 5-Hour
  Energy
• 70 market share
• 2008 sales grew 200
• sales of 170m
• Despite recession or because of it?
• Now Red Bull plans to enter market soon.

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Energy new market segments await discovery
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Energy new market segments await discovery
Ocean Sprays Cranergy all-natural fruit-based
energy drink. First year retail sales in 2008
around 15 million (11 million), despite the
credit crunch.
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Energy new healthier market segments
There was no natural source of energy in a
beverage for mothers who are trying to get many
things done in a day. There was no beverage for
their needs and for active boomers in general,
that didnt have artificial energisers. Source
Ocean Spray Our main buyers are 45 year-old
executives and mothers who dont want a calories
or sugar, who dont want to be seen with a
product called Power Horse, Freak or
Monster but who want stimulation to keep them
going in their busy day. Source 5-Hour Energy
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Key Trend 4 Weight management proves its
potential
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Feel the benefit weight management
Consumer challenges quick-hit campaigns that
offer tangible and rapid results for those who
follow the rules of the programme have been the
key driver of Special Ks success and have become
synonymous with the brand.
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Kellogg Special K the billion dollar weight
management brand
The rise rise of Kelloggs Special K. (US sales
2003-2008)
Over 6 years Special K has grown by 95 Source
Information Resources Inc.
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Weight management proves its potential
For an expert weight management brand,
supported by effective marketing, even in
categories where packaging innovation is almost
impossible, a price premium can be achieved.
Kelloggs Special K in European supermarkets
sells at a premium, even in ultra-price-sensitive
markets like Germany. On a price per kilo
basis Special K sells at a 150 premium to
Cornflakes and a massive 270 premium to
retailers own label.
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Weight management a focus for innovation

• There are a wealth of innovative ingredients that
  promote fat-burning or calorie-burning. But
  both concepts have significant problems
• The consumer cannot see or feel the benefit
• You cannot control the rest of their eating
  habits (which may be negating your
• products benefit)
• Satiety means a more manageable promise, Helps
  you want to eat less.
• Easier to show the benefit!
• Easier to demonstrate clinically!
• Less risky!

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Weight management
Calorie burning has its limits Coca-Cola
launched the Nestea Enviga brand in a blaze of
publicity in early 2007. Enviga is purported to
create a negative-calorie effect so that
consumers burn calories, an effect that comes
from a combination of caffeine with
epigallocatechin gallate (EGCG). Enviga surged
to become a 31 million product in US
supermarkets in 2007, its first full year on the
market. 2008 Enviga experienced a 62 drop in
sales to less than 11 million.
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A successful satiety brand
Optimel Control, a 100ml daily dose dairy drink
launched in the Netherlands and Germany in 2007
by Campina. Fabuless is the active ingredient - a
patent-protected fraction of oat and palm oils.
Clinically proven to create and maintain a
feeling of satiety and can give a 20-30
reduction in calorie intake in meals following
its consumption. Carries the claim Helps you
eat less
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Results
Netherlands Optimel Control hit retail sales of
8.8m in 2007, making it the third best-selling
new product of 2007. Germany achieved retail
sales of 25m and was the best-selling new food
or beverage in Germany that year in any
category. Sales grew further 4 in 2008. In very
price-sensitive markets like these, how did they
do it?

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Demonstrate the benefit (a benefit consumers can
feel)
Consumers are asked to try Optimel Control every
day for two weeks and if they dont feel the
effect, they can have their money back.
Optimel Control Try it now. If youre not
satisfied, well give you your money back
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Key Trend 5 The marketing power of
free-from, natural and naturally healthy
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We like technology but natural is consumers
first need
The message is that a food is all natural or
free from ingredients that are perceived as bad
by one or more segment of consumers is one of the
most powerful re-assurances you can give. A
logical and sustainable position for small
companies, the right image for brands you can
trust.
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Key Trend 5 The marketing power of free-from
and all-natural
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Key Trend 6 Fruit the future of functional
food
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Key Trend 6 Fruit the future of functional food
Ten years from now, if science can substantiate
the many benefits now emerging, the term
superfruit may become redundant and fruit,
like dairy, may be a vehicle for delivering a
wide array of health benefits to
consumers. Where fruit lags is in the amount of
science that substantiates its health benefits.
The fruit industry is low-tech and has never
invested more than token amounts in science,
although companies such as Ocean Spray have
proven to be a very successful exception to that
rule. Scientific research into most other
fruits (with one or two exceptions) is at an
early stage and we are just at the beginning of
developing and understanding the health benefits
of fruit. The science of fruit is today where the
science of dairy nutrition was 20 years
ago. However, science is beginning to uncover a
wealth of benefits...
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Fruit new science is emerging in many areas
Digestive health and immunity Healthcare group
GlaxoSmithKline owns a patent relating to
dark-skinned fruit and their effect on
encouraging the growth of probiotics in the
gut. Energy There is evidence that grapefruit
influences caffeines effect on the body.
Inflammation pomegranate and other fruit
extracts can inhibit chronic inflammation Sports
recovery some fruit compounds have been shown to
accelerate post-exercise sports recovery New
fruits with health benefits such as the
development of the high-polyphenolic apple
Evesse
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Key Trend 9 Know your niche
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Activia a niche brand?
Success of Danones Activia spoonable yoghurt,
launched in the US in January 2006. Only 5 of
consumers are driving Activia.
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Find your niche

• Healthier products and ingredients appeal
  initially to early adopters and gradually evolve
  towards the mainstream as people become more
  familiar with them and prices fall, making them
  more accessible.
• Very few science-based products have yet made it
  to the mainstream.
• The time to evolve to the mainstream is very
  long! Plan for ten years!

SALES
Volume
EARLY ADOPTERS - People with illnesses and
allergies to fix and the lifestylers
MASS MARKET
Unit selling price (price per litre)
TIME
Source Food Health Marketing Handbook,
Mellentin Wennström
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Products that talk about hard, near-medical
benefits appeal most (only?) to those who need
those benefits right now
Sales of cholesterol-lowering products are niche!
Even in Europe. Rarely do they account for more
than 3 of any market (measured by volume). It
pays to be an expert brand Benecol UK sales
grew 17 to 33m (33m/42m) in 2008, Flora sales
fell 40 to 10.6m (11m/14m). Overall this
category grew 6 in 2008.

LIFESTYLE CONSUMERS
MASS MARKET CONSUMERS
TECHNOLOGY CONSUMERS
Source Food Health Marketing Handbook,
Mellentin Wennström
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The lifestyle consumer
Willing to pay a price premium for health but
want wellness products A place where strong
focus and brand identity pays off Actimel
continued to grow in 2008, by around 4, but has
probably matured in this niche.

LIFESTYLE CONSUMERS
MASS MARKET CONSUMERS
TECHNOLOGY CONSUMERS
Source Food Health Marketing Handbook,
Mellentin Wennström
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The target consumer
The data shows that buyers of healthier lines,
across all categories, skew towards a group that
tends to be older, higher income, discerning
shoppers. These shoppers look for higher quality
products and consider a healthy diet to be part
of their lifestyles. A 35 year-old thinks
theyre immortal. But at 45 youre beginning to
suspect that you are notthats the person whos
really serious about healthy eating and looking
for healthy foods. Older, better-off consumers
might cut back a bit but theyll still make at
least one healthy choice, the trick is to be the
one healthy choice they make. And once they have
chosen a brand they are very loyal. Professor
David Hughes, Emeritus Sainsbury Professor of
Food Marketing, Imperial College London
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Micro-Trend 4 Skin and beauty fails the stress
test
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Skin and beauty fails the stress test
Beginning in France and Spain, Essensis got a
warm reception from consumers and the launch plan
was accelerated, but by late 2007 it had stalled.
Brand peaked at 50 million (70 million) in
retail sales, Europe-wide, well short of the 100
million (144 million) target which Danone had
said it was aiming for..
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Skin and beauty fails the stress test
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Micro-Trend 4 Skin and beauty fails the stress
test

• Cant feel the benefit. Buyers of Essensis
  could not see or feel themselves becoming more
  beautiful. Buying Essensis became a matter of
  faith and belief.
• 2. Too much trouble to get the benefit. The
  recommended daily intake of Essensis to get the
  claimed effect was two pots a day. For most
  people, thats just too much effort.
• 3. Too much money. Anyone consuming the
  recommended two pots a day would have been
  spending around 50 a month or 600 a year. A
  cost comparable with one of the leading brands of
  face-cream. The question for many women
  especially in times of tighter personal budgets
  would be whether they could justify that as an
  additional expense, which would only be possible
  if there was a clear effect.
• 4. Share of mind for beauty belongs to topical
  products. The concept of topical application has
  the dominant share of mind among consumers,
  brands such as LOréal or Estee Lauder.
• 5. Wrong format? We could be wrong, but a
  yoghurt doesnt seem like a very credible format
  for the benefit of beauty. Water with its image
  of naturalness, purity, and fruit used in
  imagery heavily by cosmetic brands might be a
  better vehicle.

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Thank you for your participation! Contact
julian.mellentin_at_new-nutrition.com Or visit
www.new-nutrition.com
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