Term Paper: Health and Wellness Foods

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[. . .] This has led to a large number of acquisitions of the small and mid-sized companies by the large companies, as this is expected to become profitable in the future. Among them the biggest is probably the $20.3 billion acquisition of Best Foods by Unilever, and the acquisition of Nabisco for $14.9 billion by Philip Morris. This is because the growth among the giants in this business has not been remarkable to say the least.

According to experts in the business, the organic and natural food products are expected to provide sales with values of over $60 billions during the last year. The speed of growth is also very high as the segment is growing by about 13% per year on base sales of $26 billion per year. The total market of the food processing industry is $450 billion and the growth is only 2% a year, as per the figures given by Forbes magazine. The reasons for this growth are seen as the general increase in society of health- consciousness and the rapid growth of a younger set of people who use a lot of specialty foods. The growth of health foods leading to an active lifestyle is seen through the success of many innovative products like SOBE, Nantucket Nectars Fresh Samantha and Red Bull. (Specialty Food Industry)

Size of the health and wellness foods market:

In the beginning the attempts of health foods was through products like Benecol and Intelligent Quisine, and both these products failed. The method of succeeding with the health products has been taught to us by Tropicana Pure Premium with Calcium. This is simply a beverage that provides a health or wellness advantage over the existing food options and not a special food. The consumers are now slowly moving away from the "food negative" concept where they were advised not to eat, and are now trying to choose products that are expected to be beneficial to them. For succeeding in the marketing of functional food and beverages there are now special rules that must be obeyed. The first of these rules is that all the successful brands were created as new brands, and not extensions of existing brands. The next difference follows from this and they all have succeeded in forming new categories or sub-segments in the market. Their third advantage comes from their marketing and this is through the enhancement or wellness they provide and the marketing is not based on science or any clinical benefits. The fourth advantage they provide is in being a portable and convenient alternative for the consumer. The fifth point is the advantage they have in offering a quality of experiencing, which cannot be claimed by any dietary supplement. The experience may be of taste or simply psychological. (The Bright Future of Functional Foods and Beverages)

There is rapid growth of the health conscious over 45 people and the numbers are expected to grow from 99 million as existing today to over 144 million by 2030. This is a 45% growth and has been reflected in Nutrition Business Journal. These figures show clearly that there will be a lot of room for growth and consolidation and the growth will continue well into the current century. The fast expansion has given rise to a lot of purchases of different companies in the industry, and among them are the acquiring of South Beach Beverage by PepsiCo in October 2000 for $370 million, Snapple Beverages Group being acquired for $1.45 billion by Cadbury Schweppes in September 2000, Saratoga Beverages being acquired by North Castle Partners for $58.8 million in June 2000, Ben & Jerry's Homemade being acquired by Unilever NV in April 2000 for $339 million, Celestial seasonings being acquired by Hain Food Group for $386 million in March 2000, and Balance Bar being acquired by Kraft Foods in January 2000 for $269 million. (Specialty Food Industry)

The investments are being made by the big names in the industry and it is certain that they expect large growth of the market during the future years. Yet all the market forces do not expect that this growth will be achieved, and this is to the influence of "leveraging hidden nutritional assets." This is a method through which a company can make a whole category of foods functional overnight. Some examples of this change can be quoted as was in the case of General Mills. Here the FDA approved their heart health claims for oats and whole grains. This permitted them to use the benefit to their successful and long-established brands like Cheerios and other breakfast cereals, and they only used aggressive marketing about nutrition. Again the FDA approved the claims of potassium content of orange juice and linked it to reduction of blood pressure and stroke. This permitted Tropicana to add its orange juice brand to the list and this product already has a 39% share in the U.S. orange juice market of 43.1 billion. (So how big is the market for functional foods and beverages?)

The effort made by them was to spend $10 million on nutrition marketing. These are long-established brands which were marketed on clinically established health benefits for the first time in their history, and were being backed by FDA. This certainly does not mean that there was any growth in the market of orange juice or breakfast cereals. The only change was that these products were moved from the category of regular breakfast foods to functional breakfast foods. This is now the important role of nutrition marketing - the conversion of regular foods to functional foods. This only means - the growth of functional foods is not as dramatic as they appear or their sales. This is the main reason for which the amazing growth forecasts for these products are likely to turn out to be erroneous. (So how big is the market for functional foods and beverages?)

The market situation:

There is little information about the real size of the imports by United States of organic products. The current estimate of organic food and beverage in the country is nearly $8 billion as on 2000, according to different sources in the industry. The information given by the U.S. Organic Food market in November 2000, as prepared by the Packaged Facts report was that market for organic products increased from a level of $6.5 billion in 1999 to $7.8 billion in 2000, and this is a 20% increase. The growth is expected to continue and the market is expected to reach a size of $20 billion by 2005. (The United States market for Organic Food and Beverages) The reasons given above have led to a situation where 90% of the buyers end up choosing naturally nutritious food over supplements. They are also helped by positive media coverage in 80% of the cases, and this has led to a situation where as many as 59% of people claim that they are eating up to three foods only for the functional benefits. There is a belief in 93% of the people that some foods have health benefits which may prevent risks of certain diseases and this has led to an expression by 86% of the people in learning more about functional foods (IFIC, 200).

The situation today is that many consumers are introducing more functional foods in their diet and this is certainly shifting from the bad diet containing fat, sodium and calories to better diet. There have been reports by 76% of shoppers that they had started using functional foods during 1999. This is being seen also in the growth of certain brands like Welch's grape juice which grew by 33% in 1997 when it published the clinical results showing the benefits to health from the bio-flavonoids contained in grapes. General Mills got permission for using an approved health claim about the benefits of its whole grains and this increased the sales of Cheerios by 11%. This is leading the manufacturers to change the product so that more claims could be made justifiably, and in the case of Tropicana Pure Premium this was the inclusion of Calcium and this pushed up sales by 173%.

This also built up a new category in the refrigerated juice business. This is the method of engineering products for bio-active benefit. This segment is growing at a very fast pace, and among the examples are two great brands of Gatorade and Red Bull. The first has led to the creation of a $2 billion market and the share of the brand in this new market is as high as 86%. The second has already become a $1 billion business, and is now growing at an annual rate of 118%. The important point to note is that functional foods and beverages are not like therapeutics as consumers surely do not want to eat anything from the medicine cabinet. (The Bright Future of Functional Foods and Beverages)

The market situation today in the area of the products for the… [END OF PREVIEW]

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