Get a step ahead

The future seems secure for store brand functional foods and beverages. In a global 2013 study from international market researcher Canadean, Ronan Stafford, the study’s lead analyst, revealed that “almost 80 percent of North American manufacturers are optimistic about growth in functional food and drinks markets over the next three years.” The study predicted that the United States and China would be the two “hot spot” areas for sales, and that energy/sports beverages, cereal and energy bars, and juices and soft drinks would be the product categories witnessing the biggest increases in demand.

In another study, Visiongain, headquartered in London, estimated sales of functional foods and beverages at $51.5 billion in North America this year against a worldwide revenue total of $221.6 billion.

And a number of manufacturers suggest that functional foods and beverages — generally, but not officially, defined as food or food components that have a positive effect on health beyond providing basic nutrients — might be a rare category in which store brands could outpace national brands.

Don’t compromise quality

But retailers looking to enter and compete in the functional foods and beverages category with their own brands have to give strong attention to quality. This is not a category where corners can be cut.

By making sure products are of high quality and standing out on shelves, retailers will help get shoppers to buy and keep buying products, states Jeff McClelland, owner of Kids Healthy Foods LLC, Beaverton, Ore.

Additionally, retailers should keep consumers informed and engaged, making sure to “educate them constantly on product quality and benefits,” thereby developing brand loyalty, says Dan Alhadeff, chief operating officer for Nutri-Force Nutrition, Miami Lakes, Fla.

Yet some retailers are guilty of wanting to drive too much cost out of their own-brand functional foods and beverages, says Kurt Thorsen, vice president of sales and marketing with Skokie, Ill.-based Georgia Nut Co. By doing so, they risk damaging their brand’s reputation.

McClelland agrees.

“I have seen some store brands offer [lower] quality than what is provided by the branded SKUs,” he says. “Also, I have seen some store brands offer cheap-looking graphics on their labels, which goes back to the ‘generic’ days.”

And offering low prices and special deals alone isn’t a good strategy for getting shoppers to purchase and continue to purchase private label functional foods and beverages, Alhadeff says. By doing so, retailers risk losing sales to less-expensive products.

Pay attention to pricing

Still, that’s not to say that an attractive price gap between the store brand and the national brand doesn’t help sell a product.

“Generally speaking, private label beverages matched up against similar branded items should sell for about 30 percent less than the national brand,” says Laura Klibanow, opportunity manager with Niles, Ill.-based Imbibe Inc. “If the difference is narrower than that, the store may have difficulty sustaining its brand.”

Klibanow also states that retailers need to watch out for sudden and sharp price drops on national brand items, as such drops pose a severe threat to a store brand product’s viability.

Where opportunities lie

In terms of activity in the own-brand functional foods and beverages category, Santiago Vega, senior manager of nutrition marketing at Westchester, Ill.-based Ingredion Inc., says many retailers are emphasizing holistic health benefits tied to their products.

“Consumers are looking for food and beverage items that have short lists of natural and recognizable ingredients, are low in sugar and fat, and contain ingredients that deliver desired health benefits and support consumers’ lifestyles,” he contends. “Shoppers are interested in the nutritional profile of foods as well as what is in them, and are looking for food and beverage [products] that are familiar to them.”

A particularly hot area in functional foods and beverages is probiotics, says Michael Bush, senior vice president of Ganeden Biotech, Cleveland. However, private label marketers often make the mistake of “treating all probiotics as equal,” he points out.

For example, Bush says brands might present generic strains of Lactobacillus acidophilus in the same manner as products containing specific, studied probiotics.

“It is important for retailers to support brands that are investing in science and providing quality ingredients to consumers,” he states, “and to begin distancing themselves from generic organisms without safety or efficacy data — at the strain level.

“Probiotic claims are based on scientific support for the particular strain being marketed—not the genus and/or species level,” he continues. “It is commonly known that effectiveness varies wildly from strain to strain and that marketers should utilize credible science relating to the specific strain in the product it will be featuring.”

Carbonation is another big trend, Klibanow says — not for carbonated soft drinks, which have seen sales decline recently, but for more novel, niche-oriented items such as Italian soda and flavored seltzers. She also sees strong movement toward energy ingredients, including B vitamins and various substances containing “natural caffeine,” including guarana, yerba maté and green coffee bean extract.

As for what’s hot on the foods side, Thorsen points to “tremendous ongoing interest” in offerings rich in fiber or protein and low in carbs. And for beverages, Klibanow names vitamin C and antioxidants, which slow aging; probiotics, Echinacea and vitamin D, which offer immune support; and ginseng, Ginkgo biloba and omega-3 fatty acids, which promote brain health, worthy of product development consideration.

By developing innovative products following such trends — products that cannot be found anywhere else — McClelland says retailers can become “different from their competitors while creating loyal customers for their stores.”

Be a leader

Several manufacturers argue for the importance of retailers to establish themselves as leaders rather than fast-followers in the functional foods and beverages category. Thorsen, for instance, urges retailers to get ahead of the curve instead of “waiting for the branded guys to stake out their territory and [forcing] the store brands to compete on price.”

One way retailers could do this, Bush explains, is through his company’s new GanedenBC30 probiotic, which allows the introduction of new applications that wouldn’t have been possible in the past. Probiotics are no longer limited to just yogurt and supplements, and this new probiotic is in more than 100 foods and beverages worldwide — and soon will be incorporated into 12 more products.

For his company’s part, Vega points to the NutraFlora soluble prebiotic fiber as an ingredient to differentiate products. The product can be added to foods and beverages already perceived to be healthful (e.g., milk, yogurt and smoothies).

“These can be developed for specific demographic segments,” he adds.

For example, high-protein milks with immune benefits might attract 18-29 year olds, while women 50 and over opt for nutritional shakes. As Vega explains, retailers must stay alert for product opportunities that fit well with recognized consumer behaviors such as snacking.

The goal, says Alhadeff, should be to create “a clear shopping experience for the customers” that “separates categories, finds ways to educate them through employee interaction, and thereby minimizes consumer uncertainty.”