The functional food market is undoubtedly developing strongly inmost of the countries and regions of the world where there is an established processed foods market. Limiting the definition of a functional food to foods and drinks that make a specific health claim on pack or in advertising, the market in Europe, the US, Japan and Australia had a combined value of over $5.7 billion in 1999. Of this, Japan accounted for over $2 billion, ahead of Europe and the US, each worth around $1.8 billion.

Taking a broader definition of the market to include a wide range of healthy products not necessarily making health claims, but often perceived as functional foods, the market climbs to more than $30 billion, with the US accounting for $15 billion and Japan $14 billion.

The functional foods markets are developing in different directions, with Europe seeing gut health products, particularly probiotic-containing lines, as the dominant force. The US market is characterised by much wider interest in anti-cancer products and the use of botanicals, while gut health products remain largely underdeveloped. While the Japanese market also has a strong focus on gut health products, the nature, format and shear range of products on the market make it like no other.

Probiotic dairy products dominate the European and Australian functional foods markets. In Europe, the market is worth around $1.3 billion and is growing in most countries, particularly in probiotic drinks rather than in spoonable products.

From a survey of the views of representatives from the European food and drinks industry, heart disease was singled out as being of most influence in the development of functional foods over the next 5 years, followed by osteoporosis, gut health and cancer.

Key product markets for functional food markets over the next 5 years seem likely to follow the pattern already set, although the perceived importance of breakfast cereals seems to have risen since Leatherhead's 1997 study.

Companies considered most likely to be at the forefront of functional foods development in Europe over the next 5 years were the multinationals already active in the market, particularly Nestle, Unilever and Danone.

Of the existing multinational functional food brands, Yakult was felt likely to be the best performer over the next 5 years, with 40% of respondents predicting good growth, well ahead of Benecol and Actimel with 28% each.

Opinion was divided on the likelihood of significant development of retailer own-brands in the European functional foods market. Many felt that such a trend was not imminent, as the market was still too small and specialist, and was likely to be led by food companies with international brands.

Respondents in general were fairly optimistic about the future for functional foods, with 49% expecting them to account for between 1% and 5% of the European food and drinks market within the next 5 years. Based on the preferred penetration level of between 1% and 5%, this would equate to a European functional foods market worth between $5 billion and $25 billion by the end of 2005. This compares with a current value of around $2 billion. It is Leatherhead's view that a penetration level nearer 1% to 2% is more realistic, representing a two- to five-fold increase in value over the next 5 years.

Regarding forecasts for other countries/regions, the literature contains numerous and widely varying estimates. At one end of the spectrum are fairly modest estimates of 10% growth per annum over the next 5 years, to a near doubling over the same period.

However, irrespective of the source of information or the definitions used, it is clear that most, if not all pundits, foresee functional foods significantly outperforming the food and drinks market as a whole over the next 5 years.

These are some of the top-line findings from Leatherhead's major study, 'Functional Food Markets, Innovation and Prospects - A Global Analysis'.

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