The boom in functional food and drink products is set to accelerate in the coming three years, according to a report published recently by industry analysts, Datamonitor. With yoghurt drinks becoming increasingly more significant as a category, soft drinks companies across the whole sector will be taking note.

It has been known for some time that health and functional beverages are becoming a key growth area in the soft drinks market. But a new report from industry analysts, Datamonitor, suggests that consumer spending on functional food and drinks products is set for further strong growth in major European markets over the next few years.

According to the report, Changing needs in Functional Foods and Drinks, average annual consumer spending on functional foods and beverages in the UK has risen to £110 per capita. Over the past five years, the number of consumers of functional products has more than doubled and Datamonitor predicts will rise further to 5m by 2007. In Europe as a whole, there were thought to be around 19.2m consumers of functional foods and drinks in 2002, with Datamonitor forecasting a further increase to 26.2m by 2007.

However, although this is clearly a growth area of significant potential, Datamonitor believes to reach their full potential and become "lifestyle" products, they must offer more to consumers than they currently do. The clue to this could be in the name this sector currently bears. As the report's author, Datamonitor consumer markets analyst, Andrew Russell, points out, the products must become, ironically, more than merely functional.

"The growing popularity of food as medicine products is evidenced in the figures, with an increase of almost 50% in UK sales between 1997 and 2002," says Russell. "This is a real growth market, but if functional food and drinks are going to become true lifestyle products, they must offer more to consumers. As well as definite health benefits, they must meet consumers two other main criteria - they must taste good and be convenient to include in the daily routine."

The key to the growth in this sector in recent years, says Russell, is the association consumers are now making between what they eat and their health.

"Consumers increasingly see the link between food and health," Russell says. "Functional foods are filling an increasingly important part of our lifestyle, as we look to products enhanced with particular ingredients to get us through the day. There is an increasing demand from consumers who have no medical concerns, but who find that their lifestyle is improved or enhanced by the inclusion of gut health products in their diet for example."

Moreover, it is in the UK, along with Germany, where this trend is most pronounced. Indeed, the trend in Germany is expected to accelerate markedly in the coming three years, with the number of consumers of functional products reaching 7.3m by 2007.

The figures for Europe as a whole suggest that the trend is Europe-wide but that some markets are at a much earlier stage than the UK and Germany. Datamonitor estimates that in Europe as a whole there were around 19.2m consumers of functional foods and drinks in 2002, with that figure set to rise to 26.2m in 2007. According to the report, compound annual growth rates for the category between 1997 and 2007 are fairly consistent across all major European markets, ranging from 7% in France to 5.6% for the Netherlands.

The UK and Germany currently boast the highest spending functional food consumers in Europe, while Italy, the Netherlands and Sweden have the lowest. And the rapid growth in the number of functional food consumers underlines, says Datamonitor, that the consumer base is expanding beyond consumers with specific medical needs to include those who are merely concerned about future health risks and even those who find that functional foods offer lifestyle benefits.

But it is growing health awareness which appears to be fundamentally driving growth. Driven by increasing levels of mainstream health-awareness, concern about modern lifestyles and the desire to look and feel good, consumers are taking increasing interest in the concept of 'self-medication', says Datamonitor.

The advice given to consumers about health issues increasingly focuses on diet and lifestyle as much as on medicine. As a result, consumers more readily accept the idea that changes in diet can have significant effects on health. This means that consumers are more likely to choose functional products based on their ability to make long-term changes to the overall quality of life.

Expert Analysis

Changing Needs in Functional Food and Drinks
What is the future of functional food and drinks? How can current growth be sustained? Who are the next generation of consumers? The functional food and drinks markets stand at a crossroads and this report examines the changes that are necessary if this market is to continue its growth over the next five years. Investment and innovation can be targeted at profitable new consumer groups using this report's in-depth insight and analysis. Find out more here.

 

One of the most important growth opportunities for functional foods lies in family health. Concerned parents want to be sure that their children are not just healthy, but protected against minor illnesses. Moreover, parents want to see their children succeed: at school, in sports and hobbies. An energy boosting diet can offer greater concentration and improved learning.

"Appealing to parents and children can be tricky, however," says Russell. "Parents are attracted by messages about health benefits; children, however, demand novelty, taste and fun. A "dual brand" approach which targets children's needs while reassuring parents is the key to opening up this market."

With regard specifically to the soft drinks market, the yoghurt drink category, undoubtedly one of the marketing success stories of recent years, also owes much to the boom in functional and health products.

According to Datamonitor, although the diagnosed and at-risk consumer groups are by far larger for both bone and heart health, it is gut health products which generated the highest sales in value terms in the UK in 2002 (£111m). This category is predicted to reach £159m in 2007.

The reason for this is that gut health products offer consumers far more benefits than merely improved health. Consumers asked why they buy gut health products list such values as "general wellness" and "lightness and energy" as reasons for choosing probiotic yoghurts.