International

Markets

Bureau

MARKET ANALYSIS REPORT | MAY 2010

Health and Wellness Trends

U.S. Market

EXECUTIVE SUMMARY

INSIDE THIS ISSUE

PAGE 2

Health and Wellness U.S. Market

Statistics 3

Fortified/Functional Foods 4

Better-For-You Foods 6

Nutraceuticals 7

Organic Foods 8

Distribution Channels 10

Major Distributors 13

New Products 13

The population of the United States (U.S.) continues to grow at a healthy pace, expanding as a result of higher birth rates, greater longevity and net migratory inflows. The U.S. is now the third-largest country in the world, with more than 300 million inhabitants. Only China and India are more populous. According the latest demographic statistics, the U.S. is experiencing a new baby boom. There will be a huge focus on products, services, marketing and merchandising targeting younger children. Expectations are pointing toward an explosion of healthier products targeting this new generation. Food producers are expected to introduce new initiatives that will help parents and children select the right products to maintain a healthy diet. On the other end of the demographic spectrum, aging baby boomers are facing the rising incidence of chronic disease. This is driving the popularity of food and beverages offering specific health benefits. Americans increasingly understand the connection between their diet and their health. A study conducted by the International Dairy-Deli-Bakery Association indicates that older baby boomers have become especially attentive to health concerns. Over 81% of Americans over the age of 50 have become more conscious of what they eat. Since younger baby boomers, aged 45 to 55, spend more on food away from home per year than any other age group, the restaurant industry will also increasingly respond to the growing need for healthy food. Following food safety concerns that arose in the 2000s, Americans continue to be concerned about food freshness and safety. People want to know that their food is fresh, as well as where it came from and where it has been processed. As a result, farmers’ markets have become very popular. Wharf Research found that 71% of consumers have ready access to a farmers’ market, and about 33% purchase some of their produce at such markets instead of at mainstream supermarkets. Of these consumers, as many as 76% purchase produce at farmers’ markets because it is fresher, and 54% like the fact that the food is locally grown.

Health and wellness has moved from a fad to a credible trend and retailers across the board are adapting their shelf space to boost the visibility of these products.

Large corporate food companies are entering the organic food realm, a domain once led by small farmers. Mainstream grocery stores now offer organic foods under their own label. Organic and naturally-focused grocery retailers have greatly increased their presence in the U.S., as consumers turn away from fad diets in favour of healthier eating. As a result, Whole Foods, the most successful outlet of this type, has experienced tremendous growth. Supermarket chains have taken note of Whole Foods’ success and have refocused their attention on this niche area by improving their private label offerings.

81% of Americans

over the age of 50 have

become more conscious of

what they eat.

“

”

Source: Planet Retail

PAGE 3

U.S. Food and Beverage Market Retail Sales US$ in millions

2003 2004 2005 2006 2007

Organic Food and Beverages 5,546.4 6,327.3 7,582.8 8,781.1 10.242.9

Fortified/Functional Food and Beverages

44,783.5 48,062.7 51,471.6 53,941.6 59,103.2

Better for you Food and Beverages 38.099.6 42,627.2 44,029.8 45,488.9 46,740.6

Source: Health and Wellness Sector, Euromonitor

U.S. Nutritionals Market Retail Sales US$ in millions

2004 2005 2006 2007 2008 2009

Vitamins and dietary supplements 141193.2 15213.1 16054.4 17159.6 18647 20031.2

Herbal/traditional products 3914.9 4251.9 4374 4566.4 4678.7 4700.7

Slimming products 4071.4 3701.9 3827.8 3782.2 3776 3645

Sports nutrition 2333 2445.2 2577.1 2791.8 2970.4 3142.7

Source: Health and Wellness Sector, Euromonitor

Note: 2009 data is provisional and based on part-year estimates.

Health and Wellness U.S. Market Retail Sales US$ in millions

2004 2005 2006 2007 2008 2009

Health and Wellness– Nutritional

24,512.5 25,612.1 26,833.3 28,300 30,072 31,519.6

Health and Wellness–Food and Beverage 122,625.1 130,677.4 137,594.7 147,739.6 156,784.3 171,826.4

Source: Health and Wellness, Euromonitor, from trade sources/national statistics

Note: 2009 data is provisional and based on part-year estimates.

STATISTICS

FORTIFIED/FUNCTIONAL FOODS

PAGE 4

Consumer Trends The U.S. functional food market is estimated to be the largest in the world, representing

between 35 and 50% of global sales. Asia-Pacific is the next biggest market. Together, the U.S. and Asia-Pacific are estimated to account for approximately three-quarters of the current global market for functional foods.

Packaged foods are increasingly positioned as “smarter” or “better-for-you” products, as consumers demand healthy foods. Functional foods, which are often fortified with nutrients and sport a health claim, are increasingly popular.

The Institute of Food Technologists’ Nutrition Division forecasts that food-as-medicine will become more popular in packaged and processed foods. About 75% of those aged 35 to 54, which is the primary age group targeted by these products, said they would consider functional foods for specific health concerns, such as osteoporosis or high cholesterol. Kroger has a line of natural and organic private label products under the names Naturally Preferred and Nature’s Song.

Food and beverage companies are the primary force in fortified functional foods and the market is largely consolidated, with U.S. companies playing a major role. Yet partnerships often factor into functional food production; companies enter into these agreements to share development costs and technical expertise.

Golf Nutrition created the Caddy Bar, formulated for golfers to increase mental alertness and quick thinking. Having grown in an individualized era, younger consumers seem to be more interested in customized products. The research firm Harris Interactive found that 67% of 18 to 24-year olds are interested in buying such products, compared with 56% of the national population. As the baby boomers age, and life expectancy increases, customized and convenient products for seniors are expected to grow.

Sales of functional drinks continued their volume growth in 2008, but the rate continued to slow from the double digit increases of the latter part of the 2000s. Nevertheless, consumers continue to be drawn to functional drinks for the electrolyte replenishment, the rush of energy, or other functional benefits.

Sports drinks have been available in the U.S. for many years, and are controlled by two major national brands, which are showing signs of maturity. The proportion of adults on a diet has decreased by 10% points since 1990, while the number of Americans eating healthier has increased, according to NPD Group’s National Eating Trends report.

Forecast of Functional Drinks sales in the U.S. by Subsector: Value 2008-2013

US$ millions 2008 2009 2010 2011 2012 2013

Sports drinks 7,756.50 7,717.70 7,671.40 7,648.40 7,640.70 7,686.60

Energy drinks 5,757.70 6,575.30 7,364.40 8,019.80 8,468.90 8,799.20

Elixirs 622.2 587.4 560.4 535.7 518 502.5

Functional drinks 14,136.50 14,880.40 15,596.10 16,203.90 16,627.70 16,988.30

Source: Health and Wellness Sector, Euromonitor

Consumers who “strongly agree” that certain foods have health benefits beyond basic nutrition are also those who believe they have “great” control over their health, 52%. About 35% believe they have “moderate” control, and 31% believe they have “no or a small amount” of control.

Products offering targeted health benefits (food plus), such as cholesterol reduction and high fibre, are likely to grow more strongly than those offering a reduction in fat or sugar (food minus).

Omega-3 fatty acids, probiotic cultures, plant sterols and prebiotic fibre are expected to remain key functional ingredients in future years.

The functional dairy products segment, consisting of all yogurts and select spreads and eggs, dominates the functional foods category with more than three-quarters of sales. This segment has also shown considerable growth from 2007 to 2009, increasing 10% to $4.5 billion. Dannon’s Activia contributed to the growth. Value sales of functional yogurts grew by 26% in 2008, as consumers responded positively to the health claims of manufacturers.

Even when snacking/indulging, consumers showed a strong preference for functional/fortified foods that they could enjoy with less guilt. Consequently, manufacturers are focusing on healthier eating, in addition to convenience, taste and, reduced-calories.

Manufacturers will continue to enhance the wellness features of their products, to meet specific health concerns. An increase of gluten-free products is expected, as well as more varieties that are organic/natural, lower sodium and cholesterol-reducing, or those that promote heart health.

Private label has grown faster than any single brand in 2009, increasing 42% and capturing nearly 14% of the market. Private-label soy milk has benefited from the increasing focus that major supermarket operators, including Safeway, Supervalu, and Kroger, have placed on natural and organic products, as well as store brands. The recession, of course, has also enhanced the appeal of private label soy milk, which sells at a 17% discount, on average, to branded products, according to the Industry Research Institute.

Consumers seek to improve their health while not sacrificing taste. Though there are plenty of fortified/functional yogurts, there is also the possibility of adding omega-3 fatty acids and/or fibre to cottage cheese (fromage frais), which competes with yogurt.

Top Functional Foods Named by Consumers

Fruits and vegetables Fish, fish oil, seafood Milk Whole grains Fibre Oats, oat bran, oatmeal Green tea Meat, red meat Water Herbs/spices Dairy (other than milk) Cereal Nuts Juice IFIC Survey-What is the (first/second/third) food or food

component that comes to mind that is thought to have health benefits beyond basic nutrition? (n=1000)

PAGE 5

Source: Datamonitor

When American consumers were asked by the International Food Information Council (IFIC) about their belief in functional foods, the vast majority (85%) agreed that certain foods have health benefits that go beyond basic nutrition and may reduce the risk of disease or other health concerns.

Product Launch Analytics Categories: Functional Drinks

PAGE 6

BETTER-FOR-YOU FOODS

Consumer Trends NPD Group’s National Eating year Trends report found that at least once in a two-week period, more than 70% of

Americans are consuming reduced-fat foods, and over half of them are eating reduced-calorie, whole grain or fortified foods.

In addition to these foods, other better-for-you items consumed include diet, light, reduced-cholesterol, reduced-sodium, caffeine-free, sugar-free, fortified, organic and low-carb foods. The average American, according to National Eating Trends, has at least two better-for-you products a day.

Recent technological innovations have led to a growing number of tastier sugar substitutes at the disposal of confectioners, particularly manufacturers of sugar sweets and gum. In 2007, the American Food and Drug Administration (FDA) approved sucralose, a sugar substitute 500 times stronger than sugar, that allows for better flavour duration. This advancement fits in well with confectionery’s growing shift toward more intensely flavoured products in general. A confection flavoured with sucralose can claim both intense flavour, as well as being sugar-free. The leading brand of sucralose for use in confectionery and other artificially sweetened foodstuffs is Splenda.

Successful products include Slim-Fast Foods’ low-carb versions of its slimming bars and drinks. The Slim-Fast Net Carbs Drink and Snack Bar contain only 2 grams of net carbohydrates per serving, a fraction of the amount found in Slim-Fast’s standard products. Demand for low-carb foods has also led to the development of low-glycemic foods, which are products that will not raise blood sugar levels and claim to offer sustained energy.

Diet-oriented frozen ready-made meals have realized resurgent growth, as more and more U.S consumers have become increasingly concerned with both their weight and overall health. Nestlé USA’s Stouffer’s Lean Cuisine line continues to increase sales, aided by new product introductions related to better-for-you foods.

13.0%6.0%

33.0%

23.8%

10.0%

36.4%

43.2%

11.5%16.9%

6.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Global USA

Not at all appealing Not very appealing Don't know Somewhat appealing Very appealing

Consumer receptiveness to supplementation—

Rating the appeal of adding nutrients to foods and beverages

Source: Datamonitor Consumer Survey, 2008

0

50

100

150

200

250

300

2003 2004 2005 2006 2007

Pomegranate Acai Goji Berries Mangosteen

Number of new food & beverage products in the U.S. Super fruits help drive product introductions

NUTRACEUTICALS

Consumer Trends

The number of U.S. residents aged 60 and over is expected to grow by 41% between 2008 and 2020, from 53.9 million to 75.9 million. Many of these 60+ consumers are expected to demand foods with health benefits.

Consumer interest in using food to improve health is expected to strengthen. Increasing life spans should prompt an interest in living a healthy, disease-free life. Baby boomers will seek out solutions to maintain their vigour. Americans will also be urged to eat more healthily by the government, health associations and employers, as there is also a need to rein in healthcare costs.

Nutraceuticals sales are reflecting a mounting awareness of health and fitness issues, as well as the consumers’ desire to both prevent and treat diseases or conditions.

“Food plus” is the latest diet trend emerging in the U.S. consumer foodservice and packaged food markets. Rather than focusing on removing bad elements, such as high calorie/cholesterol/sugar content from popular foods, this diet offers consumers foods that are either fortified or naturally healthy.

Nutraceutical extraction can be relatively costly; research and development is often significant, and there can be specialized technology needs as well. The groundwork for a product may be conducted in-house, or it may be outsourced to specialized suppliers dedicated to food ingredient technology research and product development.

Some of the hot ingredients currently being utilized by formulators are probiotics, herbal extracts, plant sterols, beta glucans, essential fatty acids (functional fats), and antioxidant superfoods and superfruits.

PAGE 7

Source: Datamonitor

PAGE 8

Consumer Trends Organic foods are another beneficiary of consumer awareness of the connection between food and health. Many

consumers who believe in the food as medicine concept are seeking out organic foods, as they are viewed as a health aid that may prevent illnesses. Some studies have shown that organic food, such as fresh vegetables and milk, have more nutrients than their conventional counterparts.

ORGANIC FOODS

Kroger has a line of natural and organic private label products under the name Naturally Preferred and Nature’s Song, Safeway also carries organic private labels under its store name.

Whole Foods has enjoyed great success with its private label lines. As the only nationally certified organic grocer, the company includes a number of organic private label lines, which gives them a strong competitive differentiator, as there are so few established brands in organic products. Its product lines include 365, 365 Organic, Whole Kids and Whole Treats.

Trader Joe’s, a natural specialty food retailer, is a standard bearer in the grocery store business, relying almost exclusively on its Trader Joe store lines or spin-offs. Wild Oats has also benefited from its line of private label product; as it focuses on what consumers are looking for now: natural health food items that taste good. The company continues to benefit from its strong private label lines and is expected to increase its existing range of 1,100 products by a further 300. Unique to Wild Oats is that employees receive extra commissions on sales of non-food private label health lines, such as body care products and holistic health products, which has helped it to drive sales in this higher profit segment.

Americans tend to choose private label lines that are similar to the national brand equivalents and, as Americans continue to combat soaring obesity rates, it is no surprise that private label organic products are flourishing.

Source: Datamonitor

U.S. Organic Product Launches January 2004 to June 2009

U.S. Market Sizes Historic/ Forecast Retail Value RSP/Organic foods and

beverages/US $M - Value at Current Prices

0 4000 8000 12000 16000 20000

2002

2004

2006

2008

2012

Sour ce : Euromonit or, 2007

2012

2010

2008

2007

2006

2005

2004

2003

2002

Forecast

Brand Shares in the U.S. (by Global Brand Name) Retail Value RSP % breakdown

0

2

4

6

8

10

12

14

16

18

20

2005 2006 2007

Source: Euromonitor, 2007

Horizon Organic, Dean Foods Co Silk, Dean Foods Co

Nature's Path, Nature's Path Foods Inc Organic Valley, Organic Valley Family of Farms

PAGE 9

PAGE 10

DISTRIBUTION CHANNELS

A survey by Mintel confirms that supermarkets, are the leading channels for functional food sales, but it also indicates that several other channels, such as mass merchants, warehouse clubs, natural food stores, convenience stores and drug stores, play at least an occasional role.

Organic foods are sold to consumers through three main retail channels in the U.S. market: natural food stores, conventional grocery stores, and direct-to-consumer markets. In 2000, for the first time, conventional supermarket sales of organic foods surpassed those of any other retail outlet. This change in the retail distribution of organic foods confirms that organic foods are shifting to the mainstream market.

Organic foods are now widely available in the U.S., and are carried by 73% of conventional grocery stores and nearly 20,000 natural food stores. According to a survey conducted by the Food Marketing Institute, nearly two-thirds of U.S. consumers had purchased organically grown foods in 2009.

Younger shoppers are far more likely to shop for functional foods in a broader array of channels, particularly mass merchants, natural food stores, and convenience stores, as pointed out by the Mintel survey.

2002 2003 2004 2005 2006 2007

Fortified/functional food and beverages

Store-Based Retailing 98 98 98 98 98 98

Supermarkets/Hypermarkets 64.3 63.6 63.5 63.2 63.1 63.2

Discounters 10.2 10.9 11.4 11.8 11.8 11.7

Small Grocery Retailers 21.8 21.5 21.2 21 21 20.8

Convenience Stores 9.3 9.4 9.4 9.5 9.7 9.8

Independent Small Grocers 5.1 4.8 4.5 4.3 4 3.8

Forecourt Retailers 7.4 7.3 7.3 7.3 7.3 7.3

Other store-based retailing 1.7 1.9 2 2 2.1 2.4

Other Grocery Retailers 0.3 0.4 0.4 0.4 0.4 0.5

Non-Grocery Retailers 1.4 1.5 1.6 1.6 1.7 1.9

Non-Store Retailing 2 2 2 2 2 2

Vending 2 2 2 1.9 1.9 1.9

Home shopping - - - - - -

Internet Retailing 0.1 0.1 0.1 0.1 0.1 0.1

Direct Selling - - - - - -

Total 100 100 100 100 100 100

Source: Euromonitor

Source: Planet Retail

Source: Planet Retail LTD

U.S. - Top Hypermarkets and Supermarkets, 2009 ($US millions)

Distribution - Retail Value RSP - % Breakdown - U.S.

Supermarkets dominate sales of functional foods, accounting for 94% of sales. (Figures do not include Walmart discount stores or supercenters).

Younger shoppers are far more likely to shop for functional foods in a broader array of channels, particularly mass merchants, natural food stores, and convenience stores.

Private label has grown faster than any single brand in 2009, increasing 42% and capturing nearly 14% of the market.

To cite an earlier example, private label soy milk has benefited from the increasing focus that major supermarket operators, including Safeway, Supervalu, and Kroger, have placed on natural and organic products, as well as store brands.

PAGE 11

Choice of retail channels from which to purchase functional foods in the U.S., by age, June 2009

15.2%

4.8%

4.1%

3.7%

2.7%

69.5%

Wal-Mart

Kroger

Walgreens

CVS

Costco

Others

U.S.—Top 5 Grocery Retailers, 2009 (% of MGD Grocery)

PAGE 12

United States 2005 2006 2007

Fortified/functional food and beverages

PepsiCo Inc 13.9 14.9 14.5

Dean Foods Co 8.1 7.9 8.2

Coca-Cola Co, The 4.2 5.3 6.4

Red Bull GmbH 2.1 2.4 2.6

Hansen Natural Corp 0.8 1.4 1.7

Kraft Foods Inc 1.5 1.9 1.6 Danone, Groupe 0.5 1 1.5

General Mills Inc 1.7 1.5 1.4

Kellogg Co 1.3 1.3 1.3

Rockstar Inc 0.5 0.7 0.9

South Beach Beverage Co 1.1 1.1 0.8

Nestlé SA 0.8 0.9 0.8

HP Hood LLC 0.8 0.7 0.7

Cadbury Schweppes Plc 0.9 0.6 0.6

National Dairy Holdings 0.6 0.5 0.5

Ferolito, Vultaggio & Sons 0.4 0.4 0.4

Abbott Laboratories Inc 0.5 0.5 0.4

Florida's Natural Growers 0.4 0.4 0.3

Smart Balance Inc - - 0.3

Flowers Foods Inc 0.2 0.2 0.2

Unilever Group 0.1 0.1 0.2

Dairy Farmers of America Inc 0.2 0.2 0.2

Clif Bar Inc 0.1 0.2 0.2

Sara Lee Corp 0.2 0.2 0.2

Barilla Holding SpA 0 0.1 0.2

Ocean Spray Cranberries Inc 0.2 0.2 0.2

Ricola AG 0.1 0.1 0.1

Eagle Family Foods Inc 0.1 0.1 0.1

Hain Celestial Group Inc, The 0.1 0.1 0.1

GFA Brands Inc 0.2 0.3 -

Private Label 30.8 28.5 29.8

Others 27.5 26.5 23.9

Total 100 100 100

Source: Mintel

Company Shares (by Global Brand Owner) - Retail Value RSP - % breakdown

Three major Consumer Package Goods (CPG) marketers, General Mills, Groupe Danone, and Kellogg Company, command nearly 60% of the functional foods category, While PepsiCo, Dean Foods, Coca Cola and Red Bull control the functional beverage market. General Mills has extended its position as the category leader and controls nearly 30% of the overall market.

General Mills Like many major food companies, General Mills has made health and wellness its focus. Beyond the products that qualify as functional, General Mills promotes the nutritional value of its entire Big G cereal line, which it reformulated in 2005 to include at least 8 grams of whole grains. While General Mills is a strong multi-segment competitor, more than 80% of the company’s sales in the functional food category come from the yogurt segment.

Groupe Danone Groupe Danone generates all of its functional food sales in the yogurt category, where much of its growth in recent years has come from the huge success of Activia probiotic yogurt. The Yoplait brand has seen solid growth over the last year as the yogurt category in general has benefited from growing awareness of the functional health benefits of live and active cultures.

Kellogg Kellogg markets a broad array of functional and better-for-you cereal brands, including Smart Start, All-Bran and Kashi, but its greatest functional category success has come from the long-established Special K brand, which outsells all of the company’s other functional cereals combined. Special K has also experienced greater growth over the last year behind the continued success of the Special K Challenge. Kellogg has also made efforts to expand the functional snacks and bars segment with new brands. But so far FiberPlus, a direct competitor to General Mills’ Fiber One, and Kellogg’s Live Bright, a brain health bar with DHA omega-3, have not made significant impact on the market.

NEW PRODUCTS

0

50

100

150

200

250

300 273

205

172 164 157 151 146 144 137 131

Number of New Products - Functional Products - 2009

U.S. New Functional Product launches

(January to December, 2009)

689 new products

PAGE 13

MAJOR DISTRIBUTORS

PAGE 14 PAGE 14

Source: Mintel

Product Description Forze GPS Weight Management Supplement is designed specifically for athletes. It contains a patented blend of healthy fats, protein and calcium, plus added fibre to activate the body's natural appetite control signal. The drink is designed to be taken between meals as a snack replacement. The product is available in a Chocolate flavoured variety, which retails in a pack containing 4 x 8-fluid ounce drinks. Each drink contains 50 calories. A Vanilla variety is also available. Company: Pacific Health Laboratories

Source: Mintel

Product Description Modjo Life has launched Natural Energy Shot with grape pomegranate flavour. It has been sweetened with organic cane juice and contains vitamins, amino acids and antioxidants. According to the manufacturer, this drink does not cause jitters or a sugar crash. This caffeine-free product is retailed in a two fluid ounce bottle and was on display at the NACS Las Vegas 2009. Company: Cellutions

Source: Mintel

Product Description Enfagrow Premium Milk-Based Powder is available in a Vanilla variety, which is suitable for children from 12 to 36 months old. It contains Triple Health Guard with Lipil containing omega-3 DHA and iron for brain development, 25 nutrients for healthy growth and antioxidants to support the immune system. To prepare, add four unpacked level scoops of powder to six fluid ounces of water. The certified kosher product is claimed to have a great taste and retails in a 24-ounce package. Company: Mead Johnson

Source: Mintel

Product Description Dannon Activia offers a new flavour under its range of Light Fat Free Yogurt. This yogurt is formulated with bifidus regularis, sucralose and contains one third fewer calories than regular yogurt. This kosher product is said to help naturally regulate the digestive system and is available in a 8 x 4-fluid ounce pack containing 4 x Vanilla and 4 x Key Lime flavoured yogurts. Company: Dannon

Health and Wellness– U.S. Market © Her Majesty the Queen in Right of Canada, 2010 ISSN 1920-6593 Market Analysis Report AAFC No. 10503E Photo Credits All Photographs reproduced in this publication are used by permission of the rights holders. All images, unless otherwise noted, are copyright Her Majesty the Queen in Right of Canada.

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États-Unis

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