Functional foods establish place in food industry

The US functional food industry could almost double in value by 2007, according to a new report, which estimates sales of the health products will be more than $37.7 billion by 2007, compared to $20.2 billion in 2002.

The market is expected to increase at an AAGR (average annual growth rate) of 13.3 per cent, suggests the new report from BCC Research. The share of functional foods in the food industry as a whole is also expected to increase to 5.4 per cent as the total food market grows 7 per cent during the period.

Within the functional foods market however, some categories are reaching relative maturity, such as functional beverages and teas, expected to grow at an AAGR of only 5.7 per cent. Likewise, fortified cereals, breads, and grains will see only mild growth at a 5.4 per cent on average annually to 2007. This compares to growth of 8.6 per cent in miscellaneous functional foods.

The most impressive areas of growth will be in the soyfoods and functional snack segments of the functional food market. Soyfoods will grow to over $7.3 billion by 2007, with a staggering AAGR of 29.2 per cent during that time period, reveals the report.

Functional snacks and candies, a relatively new member of the sector, will grow to $11.5 billion by 2007, becoming the largest segment of the total functional food market. The segment presents confectionery manufacturers with new areas for growth, while snack makers will be able to meet consumer demand for healthier versions of their products.

But the report warns that the industry is also loaded with hurdles, including a high rate of product failure, difficulty defining the type of food and product labeling for functional products, and tricky marketing tactics.

There will be some consolidation however, as the small, niche players that developed the market are rapidly being acquired by larger food players trying to get a piece of the growing market.

While marketing has played a role in the growth of the sector, information sources in general offer a much bigger opportunity for consumers to learn about the link between diet and health. As more research is conducted regarding the benefits of certain food ingredients, the media is bringing these diet/disease links to the attention of the public, which is eagerly searching for foods that contain such healthful ingredients in an effort to improve quality of life and stave off disease, notes the report.

Financial pressure is also a factor in the growth, as healthcare and prescription medication costs continue to rise. Consumers are starting to choose fortified or functional foods in an effort to reduce the risk of illness or treat an already existing ailment, as an alternative to more expensive drugs.

The FDA's recent move to allow qualified health claims on product labeling is also likely to boost growth of functional foods, already climbing due to the demographics of a larger aging population. Since functional foods provide treatment for many of age-related disease, such as high cholesterol and osteoporosis, healthy foods are certain to see growing sales.

The report, RGA-109R Functional/Nutraceutical/Wellness Foods and Beverages, is published in September 2003, and available from BCC Research​.