June 27, 2008

Cynicism Halts Functional Growth

By Bokaie, Jemima

Consumer disillusionment with high prices and health claims are hampering brands in the functional foods sector Soya juice brand Adez, which Unilever is withdrawing in the UK less than two years after its launch, is one of several victims of a stagnating functional food market.

The sector grew just 3% last year to reach Pounds 613m, despite having posted prodigious growth of 171%, from Pounds 226m, between 2002 and 2006, according to Mintel

Analysts claim that growing consumer cynicism over the health claims of functional foods, which promise anything from digestive health to clear skin, has dented the sector's otherwise rampant growth.

Consumer disillusionment over the high prices charged by some manufacturers has been cited as another reason for the slowdown. Moreover, there has been a wider shift toward naturally healthier so- called 'superfoods' such as berries and nuts.

Mintel's findings coincided with those of a study by Copenhagen University researchers, suggesting some vitamin supplements could shorten people's lifespan.

Yoghurt drinks in particular have felt the effects of the consumer backlash. They account for the bulkof the market, and sales have declined 3% since 2005, as the Pounds 250m category has faced increased competition from other options such as smoothies.

Seven of the top 10 brands recorded a drop in sales in the year to 6 October 2007, according to Nielsen. Actimel fell 4.2% to Pounds 103.3m despite Danone spending Pounds 14m on marketing the brand, while Unilever's Flora pro.activ declined 35%.

Other functional food brands that have suffered from the stagnating market include Danone's Danacol, which was scrapped last June following a failed attempt at relaunching the product with added Omega-3.

Nestle also delisted its Ski Up & Go breakfast drink last year. The beverage, which had replaced Stopgap, a similar product from Nestle, had been on supermarket shelves since March 2006.

The functional drinks category is also faltering. After double- digit growth in 2006, sales of the water-plus segment (water with flavours or functional benefits) declined 11% to Pounds 154m, according to the Britvic Soft Drinks Report 2008.

Analysts also cited a drop in marketing spend last year and fewer product launches as contributing factors to the faltering performance.

Functional food products have traditionally benefited from hefty promotional budgets, especially at launch, due to the challenges involved in communicating product benefits to consumers.

Flora pro.activ: 35% decline in sales

Copyright Haymarket Business Publications Ltd. Apr 30, 2008

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