Market Trends Global

Functional bread in Europe - a niche market with potential
- 27 Aug 2004
Author: Christiana Benkouider

Given the tight margins across the whole industry, food manufacturers have increasingly been focusing on added-value products as a way to improve profit margins and as a means of differentiation. This trend can be seen in the emphasis by manufacturers on superior quality and taste, premium flavours, portability and convenience. In addition, manufacturers have embraced the consumer trend towards health and wellness and the opportunities this trend brings to the market place. This has led to a growth in organic, functional and ‘better for you’ products.

According to the latest study by global market analyst, Euromonitor International, entitled The world market for functional food and beverages, functional products are a dynamic market. On a global basis, they have seen value retail sales grow by a compound annual growth rate (CAGR) of just under 10% between 1998 and 2003. This compares with a significantly less impressive CAGR of 2.4% for total packaged food over the same period.

The rise of functional products
While manufacturers and their search for added-value, higher margin products provided key impetus for the growth of functional products, Euromonitor International believes that the rise of functional foods was also positively impacted by other factors. These include:

Awareness of deterioration in personal health, led by busy lifestyles with poor choices of convenience foods and insufficient exercise.
Increased incidence of self-medication, led by government reduction on healthcare expenditures, leading to increased sense of personal responsibility for healthcare.
Increased level of information from health authorities and the media on nutrition and the link between diet and health, which has created a more educated consumer.
Scientific developments in nutrition research, leading to a number of discoveries of ingredients with health properties which could be incorporated into foods.
However, while functional products generally outperformed standard packaged food and beverages, within the functional market, certain products lent themselves more easily to the functional concept and were furthermore more widely accepted by consumers.

Some functional products more successful than others
Euromonitor’s research suggests that by far the largest sector throughout the 1998-2003 period was that of beverages, which accounted for 56% of total functional product sales in 1998, and rising to 59% in 2003. The popularity of beverages as a carrier for functional attributes is due to several different factors. Beverages are a convenient format which can be consumed on the move, and therefore tap into key consumer demand patterns of health, convenience and portability. The sector is furthermore led by major drinks multinationals PepsiCo and The Coca-Cola Company, which are able to invest considerably in the development, marketing and distribution of these products.

Dairy products also saw significant sales, accounting for just over 23% of total sales in 2003. However, products in this sector are much more niche positioned than beverages. Key products include fortified milks, which are strong in Latin America and parts of Southern Europe, probiotic dairy products, which are strong in Asia and Western Europe, and plant sterol spreads, which are also strong in Western Europe.

Bakery products and snacks represents the smallest of the three sectors by some distance, taking a share of 18% – and falling – in 2003. This sector is principally made up of medicated confectionery and functional chewing gum, with all other products – such as fortified bread and biscuits – showing a niche positioning.

Functional confectionery is by far the largest product category within bakery and snacks in Western Europe, accounting for nearly 90% of total sector sales in 2003. Excluding confectionery from the sector, bakery products account for an even lower amount of total functional product sales, that is under 3%.

This is not expected to change much in coming years: Euromonitor International forecasts that by 2008, functional bakery products and snacks will have grown by 35% but will account for only 23% of total market value of functional products. Functional confectionery will continue to account for the bulk of total sector sales, but is expected to hold a slightly lower share of the total, ie 85%, while snack bars will become of increasing importance (8% of total sector sales compared to 5% in 2003).

Functional bread currently is the smallest product category within the bakery and snacks sector in terms of value sales, and this is expected to remain unchanged in coming years. Euromonitor predicts that as in 2003, in 2008 functional bread will account for no more than 2% of total functional bakery products and snacks sales.

Compared to the other sectors, there has been less innovation within bakery products and snacks, and less consumer acceptance, as consumers struggle to associate products such as confectionery and biscuits with healthy eating.

Sceptical UK consumer
In the UK, a major European market for functional foods, bakery products and snacks remain under-developed. Total sales in 2003 were £315 million, with over £300 million of these sales derived from confectionery. Bread remained small and seems poised for decline rather than growth following the de-listing of V-Force from British Bakeries and less than fantastic sales for other brands such as Good Health Loaf and Burgen. Allied Bakeries has recently made a big push for its Burgen brand with two new variants, Cholessterol and Hi-Bran, however whether the increased marketing support will translate into improved sales remains to be seen.

It appears that UK consumers are not yet ready to go that far down the healthy route. Consumers do seem prepared however to go for ‘half way’ solutions such as Hovis ‘Best of Both’, that is white bread with added wholemeal, which appeals to both parents (because it contains more fibre) and to children (because it looks and tastes like white bread).

Less scepticism among Germans
In Germany, another key market for functional products, functional fresh bread has seen good growth rates since 1998 when German firm Kampffmeyer baked its first omega 3 bread. As wholemeal bread is very common in Germany, Germans are well aware of the fact that bread with a high fibre content is good for digestion and intestinal health. This awareness is a good base for positioning functional products in the bakery sector.

Kampffmeyer had tried to launch functional products at the beginning of the 1990s but was unsuccessful. During the BSE crisis, the company launched its Kornsteak-Brot (wheat-steak-bread), which was especially developed for consumers who no longer wanted to eat meat.

With the increasing health and fitness boom, Kampffmeyer also launched Calcius D3 bread, which is aimed at consumers lacking in calcium and D3. Cult-1 bread promotes intestinal health and digestion as well as enforcing the immune system. Finally, the company’s best-selling Omega-3 bread claims to provide consumers with 25% of the daily dose of omega 3 fatty acids.

While functional bread is expected to remain stagnant at best in the UK, growth prospects are significantly better in Germany, where consumers appear to be less cynical towards products which make strong claims as to their health properties. Between 2003 and 2008, Euromonitor International expects functional bread in Germany to grow by a compound annual growth rate (CAGR) of 15%, compared to a CAGR of -1% over the same period for total bread. Nevertheless, even in Germany where functional bread has so far performed best, it only accounts for a tiny proportion of total per capita bread consumption: with 100g of functional bread being consumed per capita compared to just under 58kg for total bread in 2003. By 2008, Euromonitor forecasts per capita consumption of functional bread to reach just over 200g, compared to 57.5kg per capita for total bread.

While functional products do indeed offer sales growth and margin improvements for food manufacturers, the addition of functional ingredients is not as easily accepted for products that are more strongly associated with indulgence rather than health, as it is for products that already have a healthy image.

Functional bread in theory shows good potential, as it is generally regarded as a healthy product (Atkins notwithstanding) which is more geared towards the addition of nutrients. Nevertheless, product failures have proved to be rife, especially where marketing efforts to communicate the health benefits have been only minimal.

Innovation has been high however, as given low profits on basic breads, many bakeries are working to differentiate and add value to their products. The development of functional breads is a tiny offshoot of this trend that is principally illustrated by exoticism, use of different cereals and experimentation with herbs and other flavourings.

So far, premium ‘exotic’ breads have fared significantly better than functional bread, however with continuing innovation, coupled with stronger and more effective marketing support, functional bread could possibly step out of its current niche.