Functional becomes fashionable — and why manufacturers are paying attention
Taste, price, visual appeal, and now function joins the food equation. As concerns for products that fit a healthy lifestyle grow, manufacturers retool product ingredients, tweak marketing messages and functional foods and products emerge.
According to a 2015 report, Marketsandmarkets expects the global functional food ingredients market to hit about $2.5 billion by 2020, with a compound annual growth rate of about 6% between 2015 and 2020. North America dominates that market. Such a statistic may confirm growth, but what this category entails can be ambiguous to manufacturers, consumers, and regulators.
Health-consciousness among consumers is surging. In the past, diet foods low in fat and calories were more popular, but today, consumers' health concerns revolve around natural ingredients and nutrient-rich foods and beverages.
Without a standard, legal definition, functional foods have become a popular, growing category without agreement on what that designation means — and manufacturers could face confusion, or even litigation.
Finding a definition for functional foods
At this time, no official definition from the FDA exists for functional foods, so companies use the term or its implications loosely. Unofficially, functional foods could be described as foods with a certain threshold of bioactive compounds that are scientifically proven to prevent or manage a chronic disease through reasonable consumption of that product, Danik M. Martirosyan, Ph.D, president of Functional Food Center/Functional Food Institute (FFC), told Food Dive.
Coupland defines functional foods more generally: "Functional foods are usually taken to be foods that people believe to carry some sort of benefit beyond basic nutrition — such as energy, protein, vitamins."
With one broad definition and one more specific definition, it's easy to see how misunderstandings and miscommunication could surround the creation and marketing of functional foods. That's why organizations like the FFC are calling for an official, widely accepted definition and working with food companies to help them determine whether their products might be considered functional.
"A standard definition for functional food is needed to facilitate greater communication between food experts, scientists, government officials, and the public as well as to enable freer exchange of functional food products between countries," Martirosyan wrote in a paper.
U.S. manufacturers could have difficulty marketing products in other countries similar to the organic equivalency arrangements countries sign for manufacturers to label products as organic.
Consequences for manufacturers
Martirosyan wrote in his paper that not having an official, standardized definition could have several consequences, including "the distortion of the meaning of functional food, ambiguous food labels, and the loss of scientific legitimacy among consumers and government officials."
These potential consequences mainly deal with mislabeling, particularly the threat of lawsuits. Manufacturers run the risk of misrepresenting products. Companies have already struggled similarly with terms like "natural," "healthy," and "a good source."
For example, POM Wonderful found itself in a dispute with the Federal Trade Commission after allegedly misrepresenting its pomegranate juices as products that consumers could use in the treatment and prevention of illnesses, such as prostate cancer. Per those claims, POM products would have been functional foods under Martirosyan's definition. But the controversy that arose exemplifies what could happen to manufacturers if they start making such health claims about their products without scientific evidence to back them up.
Manufacturers looking to get a feel for functional foods and beverages are doing so with caution as the trend takes hold in a more visible way as the consumer health trend permeates the industry. Backing up claims about ingredients and their health benefits are especially important as manufacturers push for more health-related messaging associated with their products.
Finding the right ingredients
Keying into consumer demand, manufacturers have been aggressively marketing the health benefits of their products. That's especially true if products have been fortified with additional nutrients or contain ingredients that are naturally high in certain health and disease-fighting or preventive properties.
These include more traditional ingredients, such as blueberries, and more exotic ingredients that are breaking into the U.S., such as chaga mushrooms. Other functional foods might feature on-trend ingredients like plant-based protein sources or probiotics. However, the availability of these ingredients and production capabilities can be a hindrance for manufacturers wanting to create the ideal functional product.
"You might come across some strange berry from somewhere in Argentina that you want to add, but if you can't get regular supplies of it, then there's no point trying to launch a product based upon it," John Coupland, professor of food science at Pennsylvania State University and president elect of the Institute of Food Technologists, told Food Dive.
'At the forefront' of food and beverage M&A
Another option for manufacturers trying to break into functional foods is through acquisitions, as functional foods have driven M&A activity in the food and beverage space in the past year or two.
"As a whole, in consumer M&A, the healthy living mantra is not going anywhere anytime soon, and that trend is going to be at the forefront of consumer M&A for quite awhile," said Anthony Valentino, deputy editor at Mergermarket. "Functional foods plays the largest role. That is going to be a major area emerging even more so than it has coming up this year."
Valentino predicts significant M&A activity among middle-market food and beverage companies, many of which are seeing high revenue growth. That includes functional foods producers, which, along with natural and organic foods, are key themes in these deals. Major manufacturers and investment groups, both private equity and venture capital firms, are showing interest in functional foods companies.
Functional foods, whether through product development or strategic acquisitions, still represent a valuable opportunity for manufacturers to meet consumer demands with healthy and on-trend ingredients. Mintel included functional foods and beverages, particularly in the realm of sports nutrition, in its list of critical food industry trends manufacturers would adapt to in the coming year. Judging by current and predicted category performance, functional foods and beverages will continue to work the industry in 2016.