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Understanding the Market for Selenium – Attribute Foods

Understanding the Market for Selenium – Attribute Foods. USDA Human Nutrition Research Center, Grand Forks, ND November 3-4, 2004 William C. Lesch Department of Marketing University of North Dakota (701) 777-2526. Contributors. Dr. Mary Askim-Lovseth Dr. Robert R. Tangsrud, Jr.

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Understanding the Market for Selenium – Attribute Foods

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  1. Understanding the Market for Selenium – Attribute Foods USDA Human Nutrition Research Center, Grand Forks, ND November 3-4, 2004 William C. Lesch Department of Marketing University of North Dakota (701) 777-2526

  2. Contributors • Dr. Mary Askim-Lovseth • Dr. Robert R. Tangsrud, Jr. • Mr. Lars Olson • Department of Marketing • University of North Dakota • Dr. Cheryl Wachenheim • Department of Agribusiness/Applied Economics • North Dakota State University

  3. Understanding the Market for High-Se Foods Today’s Discussion • How does a consumer marketer view the environs for functional or high-Se foods? • A market model • Focus on functional foods and human health • International sales patterns • General trend—consumer health concerns and food—key driver • First sales—to the “Trade” • What does the “Trade” desire for functional foods? • Why should producers of Se-attribute foods care about the Trade?

  4. Functional Foods (FF) Defined • Definitions vary • Institute of Medicine-National Academy of Sciences: • “Foods to which the concentrations of one or more ingredients have been manipulated or modified to enhance their contribution to a healthful diet.” • K. Hughes, PreparedFoods.com, July, 2001

  5. Functional Foods (FF) Defined, con’t • International Food Information Council Foundation, May, 2004 • “"Functional Foods" are foods or dietary components that may provide a health benefit beyond basic nutrition. “ • PreparedFoods.com industry survey, 2003 • 63% agreed that “functional food(s)” were those “marketed to provide a specific health benefit.” • C. O’Donnell, PreparedFoods.com, June, 2003

  6. ”Commodity” Products Regulation Science & Technology Food Processors & Distributors Pillars of Marketing New Product Development Promotion Distribution Pricing Societal Trends Consumer Marketplace Mass Markets Segmented Markets

  7. Global Status of FF--Sales • Datamonitor Reports, August, 2003 • Status, growth forecasts into 2007 • All FF and drinks; excludes enriched foods and dietary supplements • Global value, 2002: $10.9 billion • Annual rate of growth: roughly 10% annually since 1998 • Comparative market size • Asia-Pacific: $5 billion (80% Japan); fastest growing • Europe: $3 billion • US: $2.5 billion

  8. Global Status of FF, con’t • Five main product markets—2002 Sales • Dairy-based: $4.2 billion (39% share) • Soft drinks: $2.7 billion (25% ) • Bakery and cereals: $2.7 billion (25%) • Confectionary: $994 million (9%) • Savory snacks: $300 million (3%) • Range in growth rates, 9-11% between ’98 and ‘02

  9. Global Status of FF, con’t • International players • Danone Group—France—dairy, biscuits, snacks; sales of $14.4 billion in 2002 • Kellogg’s—RTE cereal, grain-based foods; 2002 sales of $8.3 billion • Meiji Seika Kaisha, Ltd.—Japanese confectioner, snack foods; sales of $3 billion FY ending March 2003 • Unilever—Netherlands and UK—total sales of $50.7 billion 2002 • Kraft—majority owned by Altria, US—2002 sales of $29.7 billion

  10. Global Status of FF, con’t • Datamonitor has issued a range of country and regional reports, 2003 (see www. Datamonitor.com) • Following Charts/analyses are from • “Global Neutraceuticals: Industry Profile” • “Neutraceuticals in Europe: Industry Profile” • “Neutraceuticals in the United States: Industry Profile” • Others are available on Germany, Japan, France, the UK, Greater Asia, to name a few

  11. Global Functional Food Share by Value, 2002

  12. U.S. Functional Food Shares by Value, 2002

  13. Europe Functional Food Shares by Value, 2002

  14. Global Status of FF: Conclusions • Worldwide growth is strong, forecast to continue strong • Structure of market offerings and demand differs significantly by region • US market roughly evenly divided between dairy (one-third) and soft drinks (one-third), bakery & cereals about one-fifth • European market dominated by dairy (46%), then bakery/cereals (27%)

  15. Focus: the US Market • Other estimates of the size of the US market? • Nutrition Business Journal 2002 Report • US Nutrition Industry sales 2001: $53 billion • Supplements….$ 18 billion • Natural/Organic 13 billion • Functional……. 18 billion • Natural Pers. Care 4 billion

  16. Focus: the US Market • Market Estimates con’t • Business Communications, Inc., 2002 • $ 20.2 billion • 4% of total food industry • Average annual estimated growth: 13.3% • Will reach 5.4% of total foods by 2007 • Sloan forecast of FF sales in 2010: $ 34 billion

  17. FF Sales Summary: Something for Everyone • Disagreement on how to define FF contributes to disagreement on total sales • Fact: Sales are growing • Fact: Manufacturers are excited about market opportunities in an otherwise ho-hum food sector (10% versus 2% growth per annum, or less, in most categories) • Fact: Consumers are responding

  18. Expert Excerpts…. • “It is widely accepted that the future for functional foods is assured because of consumers’ interest in how their diets can positively impact health. • J. Mellentin, Nov. 2002 in Dairy Industries Int’l • “However, this industry is also loaded with hurdles, including a high rate of product failure, difficulty in defining the type of food and product labeling for functional products, and tricky marketing tactics.” • International Food Ingredients, No. 6, 2003

  19. Why the Growth? Consumers….

  20. Consumer Trends: Motivations & Behavior • Health Focus survey of 2000 • Shoppers, mostly female (80%) • 8/10 report “eating healthy makes me feel good about myself” • Nearly two-thirds report that foods can be used to reduce use of drugs/medical therapies; up from 41% in 1994

  21. Consumer Trends, con’t • International Food Information council Survey, 2002 • 93% of adults believe that some foods offer more than nutrition, i.e., they’re functional • 85% want to learn more about these foods • Consumer “top ten” includes: • broccoli, garlic, oranges-orange juice, tomatoes, green leafy vegetables, milk, fish/fish oil/seafood, carrots, oats/oat bran/oat meal, “fiber”

  22. Consumer Trends, con’t • Sloan Report, 2003 • One-third of US households increased use of fiber products in 2002 • 8/10 polled reported trying to PREVENT a condition through a food purchase—up 10% in one year • More than one-half tried to treat or manage an existing condition through foods • 9/10 said healthy eating was a better tool than medications, for illness

  23. Consumer Trends, con’t • United Soybean Board’s 10th Annual Survey on Nutrition—2003 • 9/10 adults “concerned about nutritional content of food” • 7/10 reported changing eating habits during previous 5 years due to health/nutrition concerns • 5 years running: 7/10 would pay more for healthier versions of food

  24. Consumer Trends, con’t • Research summary in Gourmet Retailer, March, 2004 • Functional foods having a health claim averaged a total 29% rate of sales growth over the last six years • Cheerio sales reportedly rose 11% after General Mills added the approved health claim

  25. Consumer Trends, con’t • Who’s Buying? • Mintel consumer research (October 2003) • Medically driven “boomers” aged 45+, and the “Swing” segment 65+ • Number about 105 million adults, about 38% of US population • Third group, crossing the 18-34 year old demographic • 22% regular buyers, represents the “core” of the FF market due to receptivity to functional concepts

  26. Consumer Trends, con’t • Mintel, con’t • 15% of respondents buy FF regularly • About 4/10 buy occasionally • More than half want to know more

  27. The Consumer—in sum…. • Health trend is key driver to food industry • New products, re-positioning of existing products as science marches forward • Trend attracting large numbers of consumers, but perhaps three solid segments • Small, but growing number of regular users of FF • Now, what about Se-based foods?

  28. Se-based functional foods? • Today, few in number (excluding dietary supplements), despite widespread, and largely favorable health press • High Se-pork—Korea • Based in part on research at Ohio State • Producers feed a branded high-Se ration (yeast-based) • SelenPork commands a $10 per hog premium on additional $3.50 per unit inputs

  29. Se-based functional foods? • Baxter International introduced a line of beverages, PULSE, May, 2002 • Heart Health, containing fiber, vitamin C and selenium • Women’s Health, containing soy isoflavones, calcium and folic acid • Men’s Health, containing lycopene, selenium and green tea components • Northwestern Univ. was to begin trials to evaluate cardiovascular impact and women’s health • Where’s the beef?

  30. One of Nature's Best-tasting Multivitamins Not only does it taste good, beef is also a great way to fuel your body. In the American diet, beef is the number one contributor of protein, zinc and vitamin B12, number two of vitamin B6, and number three of iron and niacin. By supplying a nutrient bundle in every bite, eating beef is a great way to make your calories count. A 3 oz. serving of lean beef contributes less than 10% of the calories in a 2,000-calorie diet. At the same time, it supplies more than 10% of the Daily Value for these nutrients. http://www.beefitswhatsfordinner.com/nutrition/nutritioniq.asp

  31. The First Sale: The Trade • Working assumptions/issues re: High-Se foods • Organic is an option for some producers, in some product markets, but not many large-scale, due to regs/production set-up • Organic food sales growing (Mintel/ERS) • $ 5.3 billion in 2004, about 2% of total foods • Forecast to achieve $11.5 billion in 2009 • Preference among producers/trade for natural as opposed to fortified (commodity product as well as processed food) • Ease/cost of production, clinical efficacy • Preserve promotional edge

  32. The Trade, con’t • Results of trials, ongoing science • Public health posture from the trials? • Scenario A, favorable trials: Public Health push for fortification similar to folates? iodine? Implications…. • Market narrows to “natural” or organic customer base • Trade partners fewer • Distribution points limited to “natural” (e.g., Wild Oats, GNC, Whole Foods), and/or FF areas of grocers

  33. The Trade, con’t • Public Health posture, con’t • Scenario B, favorable trials: no effective public health action? • Potential for dual market structure to expand • Fortified foods proliferate • Natural growth speeds, aided by favorable press • Scenario C, unfavorable trials… • Market development slows/stops

  34. Who will coordinate Se-strategy? • Check-off groups: production issues, market data, assist with trade partnerships, interact with scientific communities--PARTNERSHIPS

  35. What does the Trade want? • Differs, of course, depending upon the product market • Markets at all levels for edible beans differ from markets for beef, wheat • Canners, mills, processors and packagers look for different qualities, produce different end-use products for a range of different customers • Factors in the processed food industry that cut across product-market boundaries?

  36. What does the Trade want? • PreparedFoods surveys, 2003 and 2004 • See C. O’Donnell, “Speaking Out on Functional Foods,” PreparedFoods.com, June 2003, pp. 50-57 • See C. O’Donnell, “Functional Futures,” PreparedFoods.com, April, 2004, pp. ns2-ns9.

  37. Future Functional Food Efforts

  38. What’s a body to do? • Fundamental needs for a successful push strategy • Market structure studies • Volume and sales estimates by product category • Supplement with consumer-based studies to forecast likely additional demand, and/or cannibalism of existing product lines • Product Concept Testing • What are we selling? • Formulate and consumer-test new product concepts—most will fail—to identify survivors

  39. What’s a body to do? • Fundamental needs, con’t • Address production/processed food formulation issues • Which Se compounds, dose, etc. • Pilot test using ongoing consumer panels • Develop information clearing house, database function—trade association of sorts—centered around the science, production and marketing of high-Se foods • Partner—share the risk, pool resources

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