2010 NAFFS Yearbook


One of the things I like to look at in the macro environment is what’s happening with public companies around the globe,” Jim Tonkin, principal of HealthyBrandBuilders told attendees at the NAFFS 92nd Annual Convention in Longboat Key, Florida. Tonkin noted several categories of opportunity ranging from natural, specialty and organic foods; direct-to-consumer and multi-level marketing; obesity/weight management; functional foods and ingredients; nutraceuticals and nutritional supplements; and lifestyles.
Focusing on the beverage arena, Tonkin said carbonated soft drinks is the largest category in the beverage space, noting typically one of every two beverages today is a carbonated beverage when they’re sold across the counter. “This is an amazing fact since the carbonated soft drink industry has been headed downhill for the last seven years and when you lose a share point at that level, you’re talking about millions and millions of dollars,” said Tonkin.
 
Bottled water  is the second largest consumed beverage in America today. Tonkin described the compounded annual growth rate experienced over the last 10 years of 10, 12, 15 percent year after year. “But something happened in the marketplace and you all are aware of it,” said Tonkin. The press turned against the bottled water business - in his view unfairly. “Because if you take a look at volume metrics of bottled water vs. carbonated soft drinks as an example – both using polyethylene terephthalate delivery systems or PET –  there’s a lot less bottled water sold than carbonated beverages and you never hear anyone saying, ‘I wish Coke would get out of PET’. It’s only the bottled water companies that are actually at the forefront of this dilemma right now. And because of it, they went from a compounded high growth rate in 2007, came down to a measly 5.8, and this last year is losing market share. Tonkin noted they were down about a point and are trending that way in 2009 as well.
Referencing a presentation slide, Tonkin showed the top 10 CSD brands, noting Coke and Pepsi in the top two spots. Several other brands in the top 10 are owned by either Pepsi or Coke. However, he added the Dr. Pepper/Snapple group was the only one showing a profit in the last two quarters consecutively.
Looking at liquid refreshment beverage trademarks, Tonkin said there is a lot of negative growth in this segment of the industry with the exception of Nestle Pure Life – a water brand that Nestle developed in Europe and eventually brought to the states. It made great strides in 2007 and 2008 as a newcomer in the purified space.

Posing a question to the audience, Tonkin asked how many people are doing anything in the energy segment. “If you’re not, you should be,” he added. Red Bull, he said, was a developed product that came from Europe. Its core constituent was an energy component developed many years ago in Malaysia. Red Bull’s partner developed a nice brand portfolio on it, made a lot of money on it in Europe and then brought it to the U.S., he said. “I would venture to say not many people in this room are going to the bars and drinking vodka and Red Bull on Friday night. I could be wrong but it is a phenomenon that has taken over the beverage industry and if you look at the phenomenal growth starting in 2001 in the energy category, it’s still at 9 percent in 2008 and that’s incredible growth. And shots aren’t even included in those statistics,” noted Tonkin.

Tonkin said the RTD tea area shows incredible promise as well. “Tea is one of those products that has a lot of health benefits. There are black, green, white and several other teas,” he said. While the growth dropped a little this year, Tonkin doesn’t see it as a long-term trend and expects tea to continue to be a major part of the selling momentum and uptake from consumers young and old on into the future.
Tonkin said some people think the sports drink segment is all Gatorade-type products but he said there’s more to it. He noted there was a growth spike in that segment in 2005 but it has been declining since then. However, Tonkin thinks there is a lot that can happen there from an ingredients and flavor profile perspective.

Examining the beer market, Tonkin noted some growth in the domestic beer segment, although it’s been fairly flat. He said the non-alcoholic segment is very flat. “I think personally that’s a flavor problem because a lot of people would like to be able to ‘not drink’ but feel like they’re not ostracized or outcast when all the rest of the people around them are drinking,” Tonkin said. “And I think there just aren’t a lot of good taste profiles in non-alcoholic beers,” he added.The import beer segment is interesting, noted Tonkin. It took a nice swing up in 2006 and 2007 and flattened out a little bit in 2008. “That’s probably more of an economic issue than it is people turning away from imports because it’s still a very hot category,” said Tonkin.

Better-for-you claims are on the rise, he said. “I’m sure in your offices you look at flavors and ingredient inclusions and talk to your clients about what’s important out there,” said Tonkin. “There are a lot of issues that consumers seem to be talking about. Natural is one which has grown exponentially from 2007 to 2009. There are many areas of opportunity in this segment of the market.”
Referring to a healthy eating trends report, he said for the majority of consumers, healthy eating is about how they eat more than about what they eat. “I think that’s a very telling statement,” said Tonkin. “Hydration is a key element to healthy eating but so is moderation. Somewhat less important but still relevant to over half the consumers is the notion that healthy eating is not confined to specific meals or meal times. So snacking – eating 5 or 6 times a day – is in agreement with what all of the diet programs are telling you. You don’t need to sit down and have three mammoth meals – breakfast, lunch and dinner. We’re all conditioned to do it but you can break that mode, particularly if obesity is an issue in your diet.”

Tonkin’s advice included emphasizing raw, minimally cooked foods. “I could spend 45 minutes on raw foods and they are going to have a major comeback in the next five years,” said Tonkin.
“How many of you know much about coconut water?” asked Tonkin. “What do you know about it? It tastes awful but this is the group that can fix that! Coconut water is something you better keep an eye on. There are three major competitors in that category and I would venture to say it will be a $200 million category in less than two years. I have a strong feeling about this as a wellness trend,” said Tonkin.

“Fiber, whole grains, proteins, omega 3s – we’ve all heard of those. They’re really a part of our staple diet now. However, when you think about probiotics, we still are one of the lowest countries”, Tonkin said. “Gut health is just not something we think about on a daily basis. We need to work on gut health the same way we work on the prebiotics side.”
Households that emphasize healthy eating are much more likely to seek ingredients that others are not yet familiar with, Tonkin said. Omega 3, he said, goes to the top of this list. These consumers look for pre- and probiotics, natural, non-sugar sweeteners and phytonutrients. While phytonutrients and plant sterols are down at the bottom of the list, Tonkin thinks it’s more of an issue with getting consumers to understand their benefits. He said to watch for more inclusion of those two items in beverages and foods.

Talking about the future of food and beverage, Tonkin spoke about the 50+ population segment. “We’re all looking for that pill – whatever we can do to enhance our lifestyle because we want to be living comfortably and happy, be traveling and able to do things,” said Tonkin. “Many of us have been taking care of our parents and we don’t want to be on walkers; we don’t want to be in wheelchairs; we don’t want to be in bed suffering from Alzheimers. The only way to prevent that is to change your lifestyle. So supplements dealing with immunity or energy into your diet, brain health and cancer prevention is a good area of development. Vitamins and supplements in this economy are the only major things that are doing well,” he said.

Referencing joint health, Tonkin said glucosamine has been around a long time, and expects it will continue to grow. “Couple dietary supplement use with functional foods and you’ve got a huge target crossover group right there,” he added, noting slightly more households use functional foods, which could be fortified cereals, live active yogurt cultures, orange juice with calcium and dietary supplements.
Tonkin posed some key questions to ask when developing a product since so many consumers are striving toward healthy eating in one way or another:

•    Does your healthy product pass the intuition and red flag tests?
•    Will it be perceived as fresh and real?
•    Will it help consumers achieve the balance they’re looking for in a healthful diet?

Tonkin encouraged looking at what the market is saying in the media. Vitamin Shoppe reports 20 percent of shoppers in the past six months are first-time supplement buyers. “That basically says they’re not getting what they want from food so they’re managing their own health concerns,” said Tonkin. “They’re going to places like Vitamin Shoppe, GNC, Whole Foods or their local supermarket and they’re getting educated about vitamins and minerals. And even though Whole Foods recently reported its first ever negative quarter, it noted supplements were the star performer,” Tonkin said.

Tonkin stressed the importance and focus on condition-specific supplements which are on the rise. “Everyone knows about multi-vitamins and minerals – they’ve been around forever,” he said. “Condition-specific supplements went from 22 percent to 47 percent over the last eight years. “I suspect condition-specific products are an area you should be really focused on from a flavor perspective and a food-ingredient perspective,” he added. Highlighting another big area of opportunity for the flavor and ingredient industry, Tonkin said emotional conditions are specifically being affected by the economic downturn, i.e. stress, lack of energy, lack of sleep.  He cited significantly more consumers being affected by the economy (compared to those not affected) indicate they would use supplements to prevent certain health issues. Those health issues include: weak or immune system, cold and flu, memory and concentration, high blood pressure, high cholesterol, lack of energy and intestinal irregularity. Tonkin anticipates a lot more products dealing with immune problems to be coming out in the next two years.
“Boomers overall self-reported health ratings are declining rapidly,” Tonkin said. “These are the same people saying, ‘I’m all about health’ and look what they think about their health! They’re taking the supplements; they’re eating better yet 75 percent of boomers fear a major illness could destroy their financial security significantly. That’s even more than Matures! Seventy-five percent of the people think, ‘I’m taking all this stuff, I’m doing the exercises, playing golf and I’m still in trouble.’

Examining the global health & wellness market, Tonkin said it is estimated at about $560-570 billion. The organics segment has slow growth but growth nonetheless. Fortified and functional foods have huge numbers as well as Better for You and Natural and Healthy segments. He said the vitamins and dietary supplements segments don’t show as large a growth as those areas but are still experiencing sustained growth. Slimming products is another area where great opportunity exists. “There’s not that many good GRAS ingredients out there which are great for slimming but there’s a number of products  that are trying really hard, particularly in the beverage space, to get people to drink their products to avoid eating and I think you’ll see a lot more in that space,” said Tonkin.

Tonkin compared where the U.S. is in terms of gut health compared to the rest of the world. “If you travel to Europe or Asia, you do not get up in the morning without having a probiotic,” he said. It’s just like a cup of coffee or a glass of orange juice here. And they start from childhood, but not in the U.S. There are only two companies here that are spending any time or money marketing probiotics. The onus is on their shoulders to break this market open here. It’s a sad commentary and it’s a lot of pain for those two companies to spend all that money against a market that’s so important from a health perspective, so I hope more companies get into that space,” said Tonkin.

Beauty from within is another new trend coming to the market, according to Tonkin. Glowell is a product developed by a marketing person at Nestle. There are also anti-cellulite supplements, men’s hair recovery and sun protection from within. “It’s an interesting concept to think if you do something inside to protect yourself, when you go outside, maybe it will work. Beauty-from-within products are coming out in chocolates, yogurts and other food and beverage products. From an ingredients perspective, this is an area to watch.”

Nutrition holds well against the global credit crisis, Tonkin said “You are in a great position to take advantage of the growth that’s going to take hold of this global nutrition wellness trend platform. So get busy. Get out there. Don’t sit back and wait for people to come to you. Figure out what market it is that you want to go after and go get it because if you don’t, one of your competitors will.”