Functional Foods

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Health Markets:

Market Assessment Publications Ltd.
Market Study March 2004

The functional foods market principally involves the fibre/mineral/ vitamin-fortified breakfast cereals, probiotic yoghurts and yoghurt drinks containing 'friendly' bacteria, and cholesterol-lowering margarines containing plant stanols or sterols sectors. However, the functional market has been expanding over the years to also include variants within the bread, ready meals, fruit juices and bottled water sectors. A further category of significant and rapid growth recently has been soya milk. The main target of these products is to address the problems associated with skeletal, heart and digestive health that become more prevalent with increased age.

The market grew by 10.8% in value terms for the 12-month period ending October 2003, after a substantial 24.7% growth in the previous year to October 2002. Breakfast cereals, yoghurts and yoghurt drinks, and margarines and spreads accounted for around 87% of the market's value over the period. A high proportion of individual functional foods are sold through the major grocery multiples, while the major manufacturers tend to be international companies that can afford the substantial research and development costs involved. Examples of manufacturers are Unilever Bestfoods, Johnson & Johnson, Kellogg, Nestlé, Danone, Müller, PepsiCo and AB Foods, although some smaller companies are also important in the market.

Advertising expenditure fell significantly in 2002, after peaking in 2001, but stabilised in the 12 months ending June 2003. A feature, however, is the high proportion of advertising expenditure in support of the functional variants of margarines and spreads, and to a lesser extent yoghurts, in comparison with the total expenditure within these segments.

Although growth in the functional foods market declined considerably for the year to October 2003, it was still well above that of equivalent traditional products. Growth is predicted to continue in the medium term at a higher level than that of traditional products, owing to continued consumer interest in, and government support for, healthy eating and living; an ageing population profile which will benefit from such foods; and the recognised evolution towards functionality in foods.

However, in the longer term, market growth is predicted to decline to around 5% by 2008, the end of the 5-year forecast period, assuming that few new functional products of major success in sales terms will be launched. Growth may, nonetheless, return to its current higher level if further substantial products do appear within the period to 2008.

Executive Summary

1. Introduction

Introduction 2

Background 2

Definition 3

Sources of Information 5

2. Strategic Overview

FACTORS DRIVING OR AFFECTING
THE MARKET 6

Demographic, Social and
Economic Factors 6

Table 1: The UK Population by
Age Band (million), 1971-2021 7

Figure 1: Percentage of the UK
Population Aged Under 16
and Over 65 (%), 1971-2021 8

Table 2: Trends in Life Expectancy
by Sex (years), 1900-2021 8

Figure 2: Trends in Life Expectancy
by Sex (years), 1900-2021 9

Health-Related Factors 9

Heart Disease 9

Osteoporosis 10

Digestive System 10

Regulatory Factors 10

Genetically Modified Foods 11

ACTIVE HEALTH-GIVING
COMPONENTS OF FOODS 12

Health-Giving Components
in Foods by Health Sector 14

Gastrointestinal 14

Active Components 14

Cardiovascular 14

Active Components 14

Skeletal 15

Active Components 15

Breast, Prostate Cancers, etc. 15

Active Components 15

Hormonal 15

Active Components 15

Joints 15

Active Components 15

Vision 16

Active Components 16

Pregnancy 16

Active Components 16

THE TOTAL MARKET FOR
FUNCTIONAL FOODS 16

Table 3: The Functional Foods
Market by Sector by Value
(£m and %), Years Ending
October 2001-2003 17

DISTRIBUTION 17

MAJOR MANUFACTURERS 18

ADVERTISING EXPENDITURE 18

The CONSUMER 19

MARKET FORECASTS 20

Table 4: The Forecast UK
Functional Foods Market by
Value (£m), 2004-2008 20

Figure 3: The Forecast UK
Functional Foods Market by
Value (%), 2004-2008 21

3. The Functional Foods Market

OVerview 22

BREAKFAST CEREALS AND
CEREAL BARS 22

Breakfast Cereals 22

Cereal Bars 23

YOGHURTS AND
YOGHURT DRINKS 24

Yoghurts 24

Yoghurt Drinks 25

MARGARINES AND SPREADS 25

MILK AND SOYA MILK 26

BREAD 27

READY MEALS 27

FRUIT JUICES AND SMOOTHIES 28

BOTTLED WATER 29

EGGS 29

CHEESE 29

Table 5: Retail Sales of
Functional Foods and Drinks
by Sector by Value (£m and %),
Years Ending October 2001-2003 30

Figure 4: Sales of Selected
Functional Foods by Value (£m),
Years Ending October 2001-2003 33

4. Advertising and
Promotion

main media advertising
expenditure 34

Table 6: Main Media Advertising Expenditure on Functional Food
Brands (£000), Years Ending December
1999-2002 and June 2003 35

Table 7: Main Media Advertising
on Selected Foods Sectors
and Proportions Represented
by Functional Products (£m),
Years Ending December
1999-2002 and June 2003 37

Exhibitions and
Conferences 38

5. Distribution

Overview 39

Table 8: Sales for Selected Foods
That Offer Functional Food
Variants With Over 70% of Sales
Through Grocery Multiples by
Retail Outlet (%), 2002 39

Table 9: Sales for Selected Drinks
That Offer Functional Food
Variants With Over 85% of Sales
Through Grocery Multiples by
Retail Outlet (%), 2002 40

6. An International Perspective

Introduction 42

The US 42

Japan 42

Europe 43

7. PEST Analysis

POLITICAL Factors 44

ECONOMIC Factors 44

SOCIAL Factors 45

TECHNOLOGICAL Factors 45

8. Consumer Dynamics

Introduction 46

Table 10: Summary of Attitudes
Towards Healthy Eating and
Purchase of Functional Foods,
November 2002 and October 2003 47

Healthy Diet 49

I Believe I Eat Healthy Foods
And Have A Healthy Diet 49

I Would Like To Eat Healthy
Foods More Often 49

Table 11: Attitudes Towards
Healthy Foods and Diet
(% of respondents), 2003 50

knowledgeAbility and
Confusion about
healthy eating 52

I Believe I Am Knowledgeable
About Healthy Eating 52

I Am Confused About What I
Should Eat To Stay Healthy 52

Table 12: Knowledgeability and
Confusion About Healthy Eating
(% of respondents), 2003 53

Concern about
osteoporosis and
heart health 55

I Am Concerned About Bone
Debilitating Conditions Such As Osteoporosis, And Am Interested
In Foods Claiming To
Address This 55

I Am Concerned About Heart
Health And Maintaining Healthy
Cholesterol Levels, And Am
Interested In Foods Claiming To
Assist In This 55

Table 13: Concern about
Osteoporosis and Heart Health
and Healthy Cholesterol Levels
(% of respondents), 2003 56

Concern About The
Digestive System and
the Risk of Cancer 58

I Am Concerned About The
Health Of My Digestive System,
And Am Interested In Foods
Claiming To Target This 58

I Am Concerned About the Risk
of Cancers, And Am Interested
In Foods Claiming to Reduce
The Risk 58

Table 14: Concern About Healthy
Digestive Systems and Cancer
(% of respondents), 2003 59

Purchasers of
Cholesterol-Lowering
Margarines 61

I Regularly Buy
Cholesterol-Lowering Margarines 61

I Have Occasionally Bought
Cholesterol-Lowering Margarines 61

Table 15: Purchasers of
Cholesterol-Lowering Margarines
(% of respondents), 2003 62

Purchasers of Probiotic
Yoghurts and
Yoghurt Drinks 64

I Regularly Buy Probiotic
Yoghurts Or Yoghurt Drinks 64

I Have Occasionally Bought
Probiotic Yoghurts Or
Yoghurt Drinks 64

Table 16: Purchasers of Probiotic
Yoghurts or Yoghurt Drinks
(% of respondents), 2003 65

Purchasers of Fibre/
Vitamin/Mineral-Fortified
Bread and Soya Milk 67

I Sometimes Buy Fibre/Vitamin/
Mineral-Fortified Bread 67

I Sometimes Buy Soya Milk 67

Table 17: Purchasers of Fibre/Vitamin/Mineral
Bread and Soya Milk
(% of respondents), 2003 68

ConFidence in existing Diet 70

I Feel That I Get All I Need In
The Way Of Healthy Food From
My Existing Diet Without Eating
Foods With Health Claims 70

Table 18: Respondents Who Are
Confident That Their Existing
Diet Provides All Needs
Without Eating Foods With
Health Claims
(% of respondents), 2003 71

9. Major Manufacturers
and Suppliers

Introduction 73

breakfast Cereals and
Cereal Bars 73

General Mills 73

Kellogg 73

W Jordan (Cereals) Ltd 74

Nestlé 74

Quaker Oats 74

Weetabix 74

probiotic yoghurts and
yoghurt drinks 74

Danone 74

Müller 75

Ocean Spray 75

Onken 75

Vandemoortele 75

Yakult Honsha 75

Margarines and Spreads 76

McNeil Consumer Nutritionals 76

Unilever Bestfoods 76

Matthews Foods 76

functional drinks 76

PepsiCo 76

Skane Dairies 77

Other functional foods manufacturers 77

Retailer own-label 77

Marks & Spencer 77

Tesco 77

10. The Future

continued interest in
healthy eating 78

greying population 78

Maturing Sales 78

Evolving Market 79

Table 19: The Forecast UK
Functional Foods Market by
Sector by Value (£m), 2004-2008 79

Figure 5: The Forecast UK
Functional Foods Market by
Sector by Value (£m), 2004-2008 80

11. Further Sources

Trade Associations 81

Publications 81

General Sources 82

Government Sources 82

Other Sources 83

Bonnier Sources 85

For full details, please email matthewt@cmsinfo.com

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