THE FUNCTIONAL FACTION

BARBARA MURRAY

While many manufacturers are getting into the functional foods business, retailers polled by SN differed on whether consumer demand for foods that have been fortified or otherwise made healthier is holding up.

One area that will probably see continued, or even strengthened, demand is hormone replacement therapy for older women, although Bea James, whole health manager for Lunds and Byerly's stores in Minnesota, finds demand higher for supplements of this type, rather than foods. Still, she said, women are more interested now in products that contain soy, which has a natural plant estrogen, than they were prior to June of this year, when studies suggested that taking hormones might do more harm than good to post-menopausal women.

"In some of our stores we set up an endcap that has natural HRT products on it," James said. She finds "there is a lot of support for products geared toward women, like those that are high in calcium, and those that contain the [pre-menstrual syndrome] benefits of natural plant estrogen, which can help pre-menopausal woman as well."

Banking on the supposition that women will be looking for food alternatives to prescription drugs, the food industry will probably design a beverage or a bar to fill this need, surmised Nancy Childs, a food marketing professor at St. Joseph's University, Philadelphia.

She has noticed that the categories of designer foods have become a little more mainstream in the past four years. "We're seeing an incredible influx of calcium across product lines, whether it's in pancake mix, or juice, and in soy, which has had huge growth generated by its health values.

"Companies are looking for ways for reformulate and rejuvenate existing brands. There is an advantage to doing that, because people already know the taste."

Foods for women is a category that is becoming more differentiated, she said, with a lot of development in bars, cereal like Harmony with special ingredients for women, and Quaker Oats' oatmeal for women, with added folic acid.

And, she pointed out, adding soy is a gender-neutral move, because it's heart-healthy, too.

J.B. Pratt, president of Pratt Foods Supermarkets, Shawnee, Okla., said functional foods have had a limited value in his marketplace. His six stores stock vitamin-enhanced waters, special cereals and nutrition bars, but he says the category has not fulfilled the expectations that people had of it.

"It has always looked, to me, as more of a marketing game than an effort to promote good nutrition and a healthy diet," Pratt told SN.

The way Lunds and Byerly's stores call attention to these specialized products underscores the difference between large chains and small ones.

Melissa Buscio, corporate dietitian for Jewel-Osco in the Chicago area, said she uses functional foods in many of her events, because of the American Dietetics Association's slogan of "All Foods Can Fit" into a healthy diet. On the other end of the spectrum, Brian Rohter, president of New Seasons Market, Portland, Ore., a three-store independent that emphasizes natural and organic foods, said, "We don't market anything as a functional food, and I don't think customers are talking about functional foods at all."

Still, he said, "I know our customers buy the waters that have supplements, and show some interest in the cereals."

Steve Jenkins, a manager at Fairway Market, New York, which also has three units, thinks that shoppers are confused about the new formulations of products that he described as "stuff with stuff in it, to make you healthier."

SPINS, a San Francisco-based provider of business information and services to the health and wellness industry, provided figures showing that in natural products supermarkets, shelf-stable functional drinks generated sales of $6.5 million worth for the 52 weeks ended July 13, 2002, a 9.1% drop from the $7.1 million sold in the prior year (see chart). But shelf-stable functional juices, with sales of $4.9 million, were up by 3.7%. In the mainstream food-drug-mass stores combined, sales of shelf-stable functional drinks were $219.5 million, a 15.1% increase over the prior year, and shelf-stable functional juices sold $5.3 million, a 49.3% increase.

The natural products supermarket channel represents natural food stores with annual sales greater than $2 million. This includes stores such as Whole Foods, Wild Oats and other chains, independents and cooperatives. The mainstream channel includes traditional food stores, drug stores and mass merchandisers (excluding Wal-Mart). SPINS tracks sales in the mainstream channel through a partnership with ACNielsen, Schaumburg, Ill.

"In developing techno-foods fortified with essential nutrients and designed to be 'healthier,' food companies were responding not only to the marketing advantage of such products, but also to the demands of federal health officials, in what appeared to be a win-win situation," said Marion Nestle, a nutritionist and professor at New York University, in her book, "Food Politics," which was published in March. The first formal demands for healthier food products came in 1980, she said, when, as part of its first 10-year plan for improving the nation's health, the U.S. Public Health Service called for a 20% reduction in sodium levels in processed foods, to be achieved in 1990.

By 1990, the Public Health Service's second 10-year plan called on food companies to offer for sale by the year 2000 at least 5,000 processed food products lower in fat and saturated fat. In 1986 about 2,500 such products were on the market, and the goal was to double their number, Nestle said. She added that by 1991, the industry already had exceeded the goal for the year 2000 and was marketing 5,600 reduced-fat products, such as reduced-calorie cheesecake mix.

From 1992 on, about 2,000 new reduced-fat products were introduced annually, along with hundreds of other products that were lower in calories, salt, cholesterol or sugar, or contained added fiber or calcium. By 1996, 38% of new food products were designed for some nutritional purpose, and 40% of these nutritionally modified products were lower in fat.

For James, one of the problems related to functional foods is that "people think if it is fortified with soy protein or gingko, if they have a bowl of cereal that has that in it, they are getting all of those nutrients." In actual practice, she said, "You'd have to eat boxes and boxes of those different functional foods. It's 'consumer beware.' You have to be a good label reader, and look at the ingredient list, to see what are the first items listed, do they claim how many milligrams of that is in there, and then figure out how much you would have to consume."

Based on what several retailers had to say, the pendulum may be swinging back to desire for a good, basic diet -- fruits and vegetables, protein, grains, and lots of water.

"We try to cover all the bases," said Charles Coward, grocery manager at the Pennington Market, Pennington, N.J. "We have a fitness center nearby, so we get all sort of people looking for nutrition bars, cereals, gluten-free products. People are also looking for basic products, things without the additives. They are looking for organic, too.

"We carry as much variety as we can. It seems like a select group of people look for the added kava or whatever. It seems like it's a fad. They come out with a study that grape juice is good for your heart, and there was a run on grape juice. It seems like consumers buy whatever is the fad, and the people who look for it are real intent on it," Coward said.

When foods such as canned soups with echinacea added came out in 1998, Lunds Food Holdings stores tried them, but "it really didn't seem to fly," said James.

"The hardcore natural food consumer knows better. I am not sure that those particular foods really took off, and, in our sets, we don't have a lot of that stuff," she said.

Protein powder drinks will always be popular, she said, but she sees a trend "moving more toward looking at just one pure food and what its nutritional benefits are.

"Oats, for instance, have heart-healthy benefits without adding anything. Consumers are getting smarter, less likely to be schnookered. Also because natural and organic [products] are growing, more consumers are becoming more educated and more aware of 'food as medicine,' ways to take control of your own health by eating a balanced diet. It's the ideal scenario for selling natural foods."

Natural Products Supermarkets

Subcategory Current Dollar Prior Dollar Dollar

Sales Sales Growth

Refrigerated $26.5 $25.7 3.0%

Functional Juices

Shelf-Stable $6.5 $7.1 -9.1%

Functional Drinks

Shelf-Stable $4.9 $4.7 3.7%

Functional Juices *Dollar Sales in Millions

Mainstream FDM Combo

Subcategory Current Dollar Prior Dollar Dollar

Sales Sales Growth

Refrigerated $42.2 $36.1 16.9%

Functional Juices

Shelf-Stable $219.5 $190.7 15.1%

Functional Drinks

Shelf-Stable $5.3 $3.5 49.3%

Functional Juices

Dollar Sales in Millions

Channel: Natural Products Supermarkets

Mainstream Food/Drug/Mass Combo

Source: SPINScan

Current Period: 52 Weeks Ended July 13, 2002

Prior Period: 52 Weeks Ended July 14, 2001

Market: Total U.S.