Credit crunch: what's in store for the functional food sector?

With the last true global credit crunch occurring more than 20 years ago, this will be the first time that the functional food market has weathered a recession of this kind. Tim Van der Schraelen, Marketing and Communication Manager at BENEO-Orafti, discusses the challenges that food ingredients manufacturers and producers will have to overcome in 2009 and beyond.

Rising commodity prices are always one of the key measures of an economy under pressure. And one look at these major UK retailers shows that premium-priced products are already suffering from changing buying patterns: Sir Stuart Rose, executive chairman of M&S, was credited as saying that customers were trading down--a factor that had affected its food business, wherein sales have slumped. He argues that M&S food still sits at the "top of the quality tree," but it has had to slash prices to hold on to customers. In addition, Tesco chief executive, Sir Terry Leahy, reports the same phenomenon. Sales of its Finest food range as well as organic products have declined in the past 6 months as customers trade down (Credit Crunch: A Sickness in the Heart of Britain, The Observer, 5 October 2008).

Creativity Pays Dividends

Although the typical consumer of functional food products spends a comparatively small proportion of their disposable income on food, they are still becoming increasingly aware of what they are spending their money on and asking the question: Is it worth it? To help them to answer this question and minimize the impact of the credit crunch on the health ingredients sector as a whole, functional food manufacturers will increasingly be called on to furnish their clients with robust and relevant health claims that can be passed on to customers in new and innovative ways. As a recent consumer research project conducted by BENEO-Orafti demonstrates, creative product differentiation is increasingly paying dividends in the functional food sector. Done in November 2008, the research focused on finding out what type of health benefits were deemed to be of value to consumers in France, the UK and Spain (more countries are currently being surveyed) and whether they would consider paying a premium for these benefits. The results were encouraging for functional food manufacturers and food producers alike as consumers demonstrated a reduction in price sensitivity if the perceived value of the product was increased.

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As part of the research, a leading dairy and fruit juice drink enriched with A, C and E vitamins was put through its paces with the survey's respondents; it was found that by putting a calcium absorption benefit on the packaging, the product was significantly more appealing compared with other benefits. Forty five per cent of respondents chose the product with the calcium absorption benefit as their first choice and the one that they would be most likely to buy. Of those who chose the leading brand with the calcium absorption benefit, 88% would still choose it even if it was more expensive than the standard product, and 91% of existing regular users would pay the premium.

Long and Short-Term Health Problem Potential

With Datamonitor analysis estimating that the combined US, Western European and Asia Pacific functional food and drink market is worth $72.3 billion, and forecasts that this market will grow at a compound annual growth rate (CAGR) of 5.7% between 2007 and 2012, there is still great potential for functional ingredients manufacturers, despite the present economic climate. Datamonitor claims that consumers who are seeking products that offer a solution to both long- and short-term health problems are driving this buoyant growth. As governments increasingly look at ways to control the social and financial devastation that an ageing population and obesity are having across the globe, functional foods will continue to emerge in 2009 from a niche sector into a mainstream market category. Best placed to maximize the potential that this will offer are those food ingredient manufacturers who have scientifically proven results concerning the efficacy and safety of their ingredients. Ingredients that are natural and offer both the possibility to replace fat or sugar and have a beneficial effect on digestive health, or offer other health benefits, will be in increasing demand from food manufacturers looking to protect profit margins and add value to existing product lines.

No One-Size-Fits-All

Whether food manufacturers are looking to maintain existing product range profits or expand into new areas, the recent research by BENEO-Orafti has shown one thing's for sure--no one strategy will work across all sectors. The results of the study in the UK, France and Spain have shown that the most potential in a given category and for a given brand depends on many factors. Consumers do not necessarily equate an ingredient with the benefit offered and, likewise, the data demonstrate that for consumers, the health claims of a product are more important than the ingredients. In addition to ingredients meaning less to consumers than their benefits, the study also found that the benefits people were most interested in varied depending on their sex and age rather than on the country they live in.

With this in mind, it is clear that not only will 2009 demand that functional food ingredient manufacturers have solid scientific facts on which to base their claims, but a clear understanding of what potential consumers want from a wide variety of products. They will then, in turn, have to channel their efforts into creating functional ingredients tailored to these specific requirements. Innovation and creativity will play an ever-increasing role in surviving the present market conditions; companies that embrace this will be well placed for the wide and varied economic challenges of the coming years.

A Decade of Research

BENEO-Orafti's 2008 consumer insight study is the 15th piece of consumer research commissioned by the company during the last decade. BENEO-Orafti's consumer expertise currently spans four continents and 14 different countries and has been done both quantitatively and qualitatively. This, coupled with scientific knowledge, has allowed BENEO-Orafti to develop a key strength in the translation of science into consumer friendly language, which has the ability to successfully market functional products.

For more information

Tim Van der Schraelen

Marketing and Communication Manager

BENEO-Orafti

Aandorenstraat 1, B-3300 Tienen, Belgium.

Tel. [phone]

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www.BENEO-Orafti.com