Functional food partnerships set to grow

Partnerships between major food groups and innovative nutritional research companies are likely to increase in the future as traditional manufacturers try to cash in on the growing health trend, according to Scott Van Winkle, an analyst with investment bank Adams, Harkness & Hill, who spoke to NutraIngredients.com about the bright future for functional foods.

There have been a number of high profile agreements between food companies and nutritional ingredient companies, such as DuPont and General Mills, who market a line of soy-based products, Martek and various baby food manufacturers, who produce fortified infant formulas, and the now defunct venture between Novartis and Quaker Oats, which marketed the Reducol brand of cholesterol-cutting spreads.

"Although the Quaker/Novartis partnership did not last very long, I think this is the exception to the rule, and its failure was due more to the fact that PepsiCo, which bought Quaker, was not interested in that market rather than the fact that the product itself was not interesting. I think we are likely to see many more partnerships of this kind as the functional food market continues to become increasingly mainstream,"​ said Van Winkle.

"Adding a nutritional ingredient to a product is all about adding value, and that is what the major food companies are always looking to do with their products. Ingredients that can give a food product a specific functionality can add so much value that a product can be sold for as much as 20 per cent more than its non-functional counterpart, and that is the sort of mark up that interests food manufacturers greatly."​

But for partnerships like these to work, they have to benefit both parties. "The smaller research companies which create the functional products also gain from these deals because it allows them to benefit from the marketing and distribution expertise of their food industry partners,"​ Van Winkle said.

Of course, for the functional foods to really grow, the products themselves have to be good, and to be able to show that they can achieve the results they claim. This takes time, as scientific data is necessary to substantiate the claims, and Van Winkle said that the lead time for launching these new functional products will become increasingly long.

"In the cut and thrust world of food manufacturing, the major companies are cautious about investing large sums of money in creating new products which may take years to come to the market. The smaller nutritional ingredient companies are much less adverse to these long delays, but need the funding to carry out their research. The ideal solution, therefore, is for the food companies to fund the research companies via a licensing agreement, in turn giving them the benefits of an innovative new product to add to their portfolio."​

The growth in the market may not be limited to partnerships with the major food groups, however. "The growing consumer interest in food products which have a specific health function is likely to lead to the development of more 'medical foods', foods which can help treat diseases such as cancer or diabetes,"​ said Van Winkle. "Because these products are approached more from the health rather than the food side, it is possible that some of the major pharmaceutical groups will be the driving force behind these products. Many drug companies already produce a few functional food brands, and the costs entailed by food products are far lower than those for medicines, so it could be an interesting means of developing a high-profit, low cost business for some of these companies."​

Distribution and retailing is also likely to play a key role in growing the market. "Some of the more esoteric products in the past have been sold through speciality stores, but I think that the growing interest in this market will help these products join the mainstream. Sports nutrition products, for example, have always been sold through speciality outlets, but meal replacement products for weight loss can be found in any pharmacy or supermarket, and I think the trend will be towards the mass marketing of all these products,"​ Van Winkle said.

We look forward to following the growth in this market with interest.