Capitalizing on Evolving Consumer, Product and Ingredient Trends in Functional Foods and Drinks

By: Tom Vierhile Director, Datamonitors Product Launch Analytics May 3, 2011

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Agenda
Consumer trends in functional health
Consumer purchase behaviors and preferences Changes in preferences and behaviors

Review & analysis of key functional areas

Heart health Digestive & immune health Bone & joint health Cognitive health Energy & alertness health Beauty Health

Conclusions
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Trend: Consumers are more interested in functional health

The diet / health link is clearer than ever
65% of consumers are more concerned than they were five years ago about the foods they eat

This translates into more concern regarding specifics

56% of consumers are paying a high or very high amount of attention to food & drink ingredients

Prevention vs. Treatment: interest is shifting to prevention to reign in healthcare costs

Products to improve general wellbeing are more popular than items that combat specific conditions, illnesses
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Sources: Datamonitor analysis, 2010 Deloitte survey

But consumers are talking the talk better than walking the walk
Extremely healthful
Extremely or somewhat healthful = 53%
5%

Not at all healthful

2%

Not very healthful

19%

Somewhat healthful
48%

Neither healthful nor unhealthful

26%

Q: How would you rate the healthfulness of your overall diet?

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Source: 2010 IFIC Food & Health Survey

Putting food & drink functionality into perspective: what drives buying
Taste Price Healthfulness Convenience
32% 53%

86%

31%

43%

73%

34%

24%

58%

28%

28%

56%

Question: How much of an impact do the following have on your decision to buy foods or beverages?

Some impact
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Great impact

Source: 2010 IFIC Food & Health Survey

Consumers are gradually moving from avoidance and moderation, to positive nutrition behaviors
I am more interested hearing about what to eat, rather than what not to eat

Agree
56%

Disagree
13%

Awareness of functional foods is at an all-time high. According to the International Foods Information Council, 90% of U.S. consumers agree that certain foods have benefits that extend beyond general nutrition.
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Source: 2009 IFIC Food & Health Survey, Functional Foods Survey

The continuum of healthy eating

EXCLUSION MODERATION ENHANCEMENT

What: Free from or zero variants of foods or drinks - Calorie free - Fat free - Sugar free - Sodium free - Gluten free
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What: Better for you foods & drinks making low, less, reduced type claims - Low calorie - Reduced sugar - Less saturated fat

What: Foods & drinks rich in nutrients - Probiotics - Omega-3s - Whole grains - Collagen - Protein - Fiber

Functional nutrient consumption varies based on consumer knowledge

Question: Please indicate whether or not you are trying to consume more or less of the following (select one)?

Whole grains 4% Fiber 2% Protein 6% Omega 3 fatty acids Monounsaturated fats Polyunsaturated fats
11%

25% 25% 45% 46% 31% 37%

73% 72% 49% 43% 61% 58% 8% 5%

Less
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Neither

More

Source: 2010 IFIC Food & Health Survey

Intrinsic healthfulness is favored over added healthfulness

Rich in Antioxidants Antioxidants Added
25% 40%

Rich in Omega-3 Omega-3 Added

19%

27%

Q: How often do you consume foods and beverages that are Percentage of consumers who frequently consume products described as

Rich In Iron Iron Added

15%

25%

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Source: Decision Analyst survey, released March 22, 2010

Consumers are skeptical about the health credentials of processed foods

Question: Pre-prepared or ready-made meals are just as healthy as meals cooked from scratch? USA consumer responses
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
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4% 14% 27%

Strongly agree

18%
Tend to agree Neither agree nor disagree Tend to disagree Strongly disagree

32% 22%
Source: Datamonitor Consumer Survey, 2010

What key factors are driving interest in functional foods?

Societal issues: obesity, stress & lack of energy
Diet can have an impact on these vexing issues

The aging of society

Older consumers are more prone to heart, bone and joint health problems, fueling interest

Desire for quick fix solutions

Much easier than committing to large-scale lifestyle adjustments

Product innovation - new formats, enhanced portability, efficacy improvements, etc.

Expansion into new areas: confectionery, snacks
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Functional foods: gauging USA consumer interest

Interested and actively buying General health Heart health Immune system Digestive system Physical energy Appearance Bone and joint health Concentration Alertness Levels of relaxation Appetite control
0% 40% 35% 32% 32% 25% 29% 27% 19% 18% 18% 18%

Interested but not actively buying

49% 50% 52% 50% 56% 50% 51% 57% 57% 57% 50%

Even in the most appealing functional food market, more lookers than product buyers

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

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Source: Datamonitor Consumer Survey, 2009

Scaling by benefit: hard vs. soft

Benefit
Hard health Key product/ingredient trends
Calcium-rich foods, vitamin D, glucosamine, chondroitin Foods with plant sterols, coenzyme Q10, resveratrol, omega-3s Probiotics, prebiotics (inulin), fiberrich foods, whole grains Omega-3s including EPA and DHA, amino acids, choline, folic acid Antioxidant rich products, probiotics, prebiotics, vitamin E Skin boosters including collagen, biotin, hyaluronic acid, elastin Energizing ingredients like protein, antioxidants, caffeine, etc. Mood foods & ingredients like GABA, L-theanine, melatonin

Bone & Joint Health Heart Health Digestive Health Cognitive Health Immunity Health Beauty Health

Soft health
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Physical Health

Emotional Health

Review of Key Functional Areas: Heart Health

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Heart health quick summary

Cardiovascular health has broad appeal
Seniors the biggest consumers, but heart health appeals to all age groups

Omega-3 remains the standout ingredient

But polyphenols and flavanoids are rising stars
Both are found in many types of food from tea and vegetables to chocolate, broadening the market

Lack of knowledge a stumbling block

Replacing saturated fats with polyunsaturated fats could reduce heart disease by 20%
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Sources: Datamonitor analysis, Harvard Medical School study, 2010

Heart healthy foods and beverages, market size & projected growth
Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan Germany UK France Russia 5,600.0 4,054.2 7,076.5 5,211.6 4.8% 5.2%

467.5
271.8 236.0 154.0

585.3
339.4 282.4 219.1

4.6%
4.5% 3.7% 7.3%

The purchase rate for heart healthy products in the USA is significantly higher than the global average, as measured by Datamonitor
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Source: Datamonitor analysis

Heart health product highlights

Odwalla Heart Health Smoothie: USA Max Vita Vital Heart Supplement: Slovakia Genesis Today 100% Fruit Juice: USA

Product has 0.4g of plant sterols per serving, and has Concord grape juice, purple carrot and lignonberry extracts
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Product uses a combination of Coenzyme Q10, omega-3s and lecithin to support heart function

Source: Datamonitors Product Launch Analytics

Beverage has 15mg of resveratrol per serving plus Concord grape juice, red grape juice and other juices

Digestive & Immune Health

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Digestive & immune health summary

Contemporary diets are causing problems
Diets high in refined carbohydrates one culprit

Digestive issues can be debilitating

Nearly 20% of consumers have avoided work or social situations due to digestive issues

Immune health favored over digestive health

USA consumers are more interested in immune vs. digestive products, 50% to 32%

Seniors and women are driving the market

Digestive concern especially skews female
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Sources: Datamonitor analysis, MarketTools Inc. survey

Digestive & immune foods and beverages, market size and projected growth
Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan Germany 9,733.9 14,127.5 7.7%

5,533.8
1,622.8 1,152.0 1,061.6 102.3

7,529.3
2,119.3 1,482.2 1,348.1 159.8

6.4%
5.5% 5.2% 4.9% 9.3%

UK
France

Russia

The increasing palatability of products containing probiotics and fiber is driving sales growth in various world markets
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Source: Datamonitor analysis

Digestive & immune health highlights

Bravo Friscus Probiotic Orange Passionfruit Juice: Finland Danone Activia Frozen Fermented Milk: Brazil Vibranz Kombucha Drink: USA

Drink has a double bacteria culture with two Lactobacillus strains said to provide support to the immune system
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Frozen dessert extension of Activia brand contains DanRegularis, a bacteria that aids digestion

Raw, probiotic drink claims to support digestion, metabolism, liver function and the immune system

Source: Datamonitors Product Launch Analytics

Bone and Joint Health

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Bone & joint health quick summary

Joint health is a widespread problem
46 million Americans (20% of population), have arthritis or other rheumatic conditions

But interest in functional products lags

Perception that foods like milk deliver enough calcium or vitamin D is an issue

Women are the biggest buyers

But gender focus not as strong as expected
Stur-D

Newer ingredients like collagen and vitamin K have potential

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Source: Datamonitor analysis

Bone and joint food and beverage, market size & projected growth
Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan Germany 3,337.8 4,147.8 4.4%

1,263.5
363.8 241.1 229.4 111.6

1,532.1
454.5 300.3 281.1 134.0

3.9%
4.6% 4.5% 4.1% 3.7%

UK
France

Russia

Growth potential for bone and joint health is lower than most other functional health categories due to a lack of product innovation
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Source: Datamonitor analysis

Bone & joint health product highlights

Triglosamine Joint Health Beverage: USA Planters Nut-trition Bone Health Mix: USA Regenovex Joint Health Supplement: UK

Product is a liquid concentrate sold in plastic tubes & contains glucosamine, chondroitin and hyaluronic acid
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Product has granola clusters & yogurt coated raisins, helping deliver 10% of the Daily Value of calcium and magnesium

Source: Datamonitors Product Launch Analytics

This supplement contains marine Bionovex oil from New Zealand Green Lipped Mussel (with ETA omega3s) plus hyaluronic acid

Cognitive Health

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Cognitive health quick summary

Cognitive health has one of the larger gaps between interest & actual purchase behavior
This despite fact that 55% of boomers are worried about loss of mental capacity

Younger consumers driving the market

Skeptical Seniors least likely buyers

Cognitive health more impacted by eating right, than avoiding wrong foods

Nawgan

Berries linked to improved mental functioning Grapes also shown to have a positive impact
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Source: Datamonitor analysis

Cognitive health foods and beverages, market size & projected growth
Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan 1,198.1 1,143.7 414.9 308.6 259.6 28.6 2,095.8 1,440.1 557.8 442.6 386.2 47.5 11.8% 4.7% 6.1% 7.5% 8.3% 10.7%

Germany
UK France Russia

The lions share of cognitive product growth is expected to be in the beverage sector, growing at 2x the rate of foods in many markets
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Source: Datamonitor analysis

Cognitive health product highlights

Suntory Inteligen Energy Drink: Japan Coco Brain Chocolates: USA Dongwon DHA Brain Milk South Korea

Aimed at people with desk jobs, Inteligen contains 200mg of theanine per bottle, along with caffeine and B vitamins
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Dark chocolate orange truffles have DHA, folic acid and vitamins A, C, D3 and E to stimulate your grey matter

Each 100ml serving of milk contains 10ml of natural DHA to support brain development

Source: Datamonitors Product Launch Analytics

Energy & Alertness Health

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Energy & alertness quick summary

Consumers arent satisfied with energy levels
80% say they dont have enough energy to do all that they want to do

Thanks to versatility, energy drinks dominate

But energy bars & other food forms are growing

Energy shots have grabbed a functional niche

Shots are convenient, but can have taste issues

Ingredient issues more focused on health than efficacy

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Sources: Datamonitor analysis, NMI study (2008)

Energy foods & drinks, market size & projected growth

Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan 14,771.7 2,285.5 540.6 2,888.3 147.3 217.1 20,303.3 2,594.4 553.9 3,294.9 255.2 319.6 6.6% 2.6% 0.5% 2.7% 11.6% 8.0%

Germany
UK France Russia

Beverages account for the vast majority of energy product sales, but energizing foods are catching on in some markets
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Source: Datamonitor analysis

Energy & alertness health highlights

NutriBreads P28 Bread: USA Meiji Morning Energy Yogurt: Japan Borba Mighty Energy Gummi Mice: USA

Bread contains 28 grams of protein per two slices as well as 7 essential amino acids for growth and energy
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Targeting energy for the morning, yogurt contains milk protein, royal jelly (100mg) plus vitamins B1 and B6

Source: Datamonitors Product Launch Analytics

Six of these mice are said to be like an energy drink. Product has niacin, energy blend, folic acid and vitamins B6 and B12

Beauty Health

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Beauty health quick summary

Major crossover with natural/organic market
72% of women that buy natural or organic personal care products believe in beauty from within vs. 49% of mainstream product buyers

Very fuzzy understanding of nutricosmetics

Fewer than 1 in 10 understand the definition, but nearly three times that claim to be buyers

Beverages dominate the category

Antioxidants top ingredient lists; collagen rising More trust in soft benefits in drinks vs. foods
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Sources: Datamonitor analysis, Pink Report (2008)

Beauty health foods & drinks, market size & projected growth
Country 2009 sales ($m) 2014 sales ($m) CAGR 09-14 USA Japan 76.7 660.8 107.0 85.6 193.4 2.1 133.9 890.6 164.1 136.3 264.1 11.4 11.8% 6.2% 8.9% 9.7% 6.4% 40.3%

Germany
UK France Russia

Only Japanese consumers appear to be inclined to purchase beauty health products in any great numbers at the present time
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Source: Datamonitor analysis

Beauty health product highlights

Shiseido Beauty Exhortation Functional Drink: Japan BeautyFoods Nightly Beauty Drink Mix: USA Fancl HTC Tense-Up Ex Collagen Drink: Japan

Grapefruit flavor drink has brown rice vinegar (rich in D amino acids), collagen, hyaluronic acid, fiber and more
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Product calms the body and helps the skin with AlphaWave L-theanine plus biotin, collagen and hyaluronic acid

Source: Datamonitors Product Launch Analytics

Drink contains 2600mg of HTC collagen per bottle and apple polyphenol plus ceramide, vitamin C, coenzyme Q10, hyaluronic acid and vitamin E

New Product Scorecard

New product reports in USA in 2010, by functional food & beverage benefit per Product Launch Analytics
250 225 200 175 150 125 100 75 50 25 0 Heart health Digestive & immunity health Bone & Cognitive joint health health Energy health Beauty health

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Source: Datamonitors Product Launch Analytics

Conclusions
Health and indulgence can go together
50% of USA shoppers believe that healthy food can be tasty and enjoyable

Skepticism is dampening functional sales

Simplified nutritional labeling can build trust Make sure front-of-pack marketing is consistent with nutritional details on the back of the pack

Build on what consumers already believe

Consumers already see fruits/vegetables, fish/seafood and dairy as functional

Ensure consumers are aware of consumption targets

Targets like five a day fruits/vegetables give consumers something to shoot for
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Thank you!
Tom Vierhile Director, Product Launch Analytics Datamonitor tvierhile@datamonitor.com 585-396-5128

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