While developed nations, particularly the US, have traditionally been the focal point of the obesity epidemic, data is increasingly showing that other regions are not immune. The obese population in China is expected to increase 347% between 2005 and 2015. Public health budgets are increasingly feeling the strain, with obesity-related costs accounting for 2-7% of total health costs in wealthier nations. Obesity costs the US approximately $117 billion in medical costs annually. While a number of factors for this trend have been cited such as the rise of motorised transport, and the increase in sedentary jobs, the Food & Beverage Sector is typically identified as one of the main antagonists through providing energy-dense foods high in fat and sugars but low in vitamins, minerals and other micro-nutrients. On the back of increased public and governmental concerns over the obesity phenomenon, coupled with the emergence of a new breed of health conscious consumers, the health and wellness trend in the Food & Beverage Sector cannot be ignored.

Healthy eating = healthy growth?

It is becoming clearer that healthy eating is transitioning from a niche market to the mainstream. Health and wellness-focused products are expanding rapidly, with eight out of ten of the fastest growing food and beverage categories inextricably linked to consumer perceptions of health.
In 2006, the market for Health & Nutrition food1 at retail value was estimated at $460 billion with a CAGR of 4.4%. This constituted 24% of the total food market which had an average CAGR of 2.8%. More specifically, the global functional food2 market is expected to show a CAGR of 5.7% during 2007-2012. Euromonitor (2009) estimates that by 2012 the global health and wellness market is expected to be valued at over €550 billion, with the largest segments being functional foods (€175 billion), naturally healthy foods (€155 billion), ‘better-for-you’ products (€140 billion), vitamins and food supplements (€60 billion), and organic (€24 billion). Global growth within the beverage segment is attributed to a shift away from carbonated beverages to products like juices, and sports drinks.
From a financial perspective, the business of healthy eating can provide food and beverage manufacturers the opportunity to improve gross margins in a number of ways including pricing healthy products at a significant premium, lowering COGS through product reformulation, and reducing packaging size while maintaining a similar retail price, thus increasing price per volume unit. However, while consumers seem willing to pay a premium for products perceived as healthy, offering a margin expansion opportunity to the industry, not all segments within the ‘healthy eating’ business are attractive and gross margin expansion may be somewhat offset by high product development and launch costs. ‘Light’/’better-for-you’ versions such as mayonnaise, salad dressing, carbonated soft drinks are more likely to be priced at zero premium where producers recognise that health concerns could harm category growth, while in other categories, producers appear able to price their ‘light’/’better-foryou’ products at a much higher premium (e.g. yoghurt).

Download the full document