Binge Benefits

The food and pharmaceuticals industries are joining forces to develop a new category of products that could revive both of their fortunes.

Margarines that lower cholesterol, cereals that are good for the heart and yogurts which help the digestion are among this new generation of products dubbed “functional foods” or “neutriceuticals”.

The sector has proved lucrative in the US and Japan, but it has yet to be exploited in the UK.

Swiss pharmaceutical giant Novartis – owner of the Ovaltine, Nicotinell and Savlon brands – is to launch a range of functional foods in the UK this autumn. The umbrella brand Aviva will include drinks, snack bars, breakfast cereals and biscuits (MW July 22).

Novartis wants to be the first manufacturer to capture the imagination and confidence of UK shoppers with a range of food containing vitamins, minerals and enzymes claiming to benefit heart, bone and digestive health.

Last year, Novartis merged its nutrition and over-the-counter medicine divisions to form Novartis Consumer Health. According to its marketing director Alastair Paton, developing functional foods using its pharmaceutical and nutritional know-how was one of the prime reasons behind the merger.

“Our objective is to exploit the grey area between pharmaceuticals and food,” says Paton.

No precedent exists in the UK for this umbrella brand approach to functional foods. Until now, manufacturers have launched only one or two products into the sector.

In March, Johnson & Johnson-owned McNeil Consumer Nutritionals launched Benecol margarine, which claims to “help lower cholesterol as part of a healthy diet”.

This summer, Nestlé has launched LC1 yogurt, yogurt-style deserts and LC1 Go milk drink. LC1 stands for Lactobacillus LC1, which Nestlé claims helps digestion.

Novartis knows other multinationals are not far behind in the race to bring new ranges of these wonder foods to market.

Kellogg has launched a functional food umbrella brand in the US called Ensemble. It aims to “lower cholesterol by allowing consumers to eat the foods they already enjoy, from breakfast cereal in the morning to lasagne in the evening”.

Developing the market

Kellogg created the Ensemble Functional Foods Company in 1996 and, in March 1999, began distributing Ensemble products in West Michigan. The brand will go national in the US next year, and then launch overseas.

Ensemble takes Kellogg into new product areas such as frozen convenience meals, dry pasta, bread, crisps and biscuits. The products contain a soluble fibre from psyllium husk or whole oats, which Kellogg claims reduces cholesterol levels.

Kellogg sees Ensemble as a complete health range. It has launched Ensemble Services – a telephone-based service which, for a $150 (£90) fee, gives consumers with high cholesterol levels a three-month personalised coaching regime.

John Young, director of market information and research at Leatherhead Food Research Association (LFRA), an independent advisory body for the food industry, believes the market for functional foods will quadruple its UK value to £1bn within five years.

But it could take that long to convince UK consumers that functional foods are not just another “frankenfood”.

Following the crises over genetically modified organisms in food and BSE, UK shoppers view the food industry with suspicion. They will need convincing that functional foods are not just an attempt by pharmaceutical and food companies to boost stagnant markets and replace falling sales in other areas.

Sales in Novartis’ crop protection, seed and animal health divisions have all fallen over the past year, while Kellogg’s profits fell 22 per cent in 1998. Both companies have cut over 1,000 jobs this year.

Aviva launches in the UK and Switzerland before a wider roll out.

Paton gives two reasons for targeting the UK first: growth potential and regulatory conditions.

Mintel says that the UK functional foods market is worth £230m, about 25 per cent of the European market. The US market is worth $1.2bn (£769m).

But the claims which give functional foods their unique positioning are also their most controversial aspect. Medicinal claims are regulated by the Medicines Control Agency. As long as a health claim does not say a product can cure, treat or prevent a human disease (Food Labelling Regulations 1996), and is underpinned by sound science and not misleading (Food Safety Act 1990), it is not scrutinised by law.

Health claims are different to nutritional claims, such as “high fibre”, “low fat” and “low salt”, which are regulated.

Regulating health claims

This grey area is cause for concern to consumer and nutritional groups. The National Consumer Council, in its February 1997 report “Messages on Food”, says: “The technical distinction between nutritional claims, which are regulated, and health claims, which are not, is completely lost on most people.”

It is a minefield for the advertising industry, employed by the manufacturers to promote the products. MD Foods’ Pact spread and Gaio yogurts were both withdrawn in 1997 after complaints about their advertising were upheld by the Advertising Standards Authority.

Food safety campaigning group The Food Commission says: “{We are} concerned that, without the backing of the law, unscrupulous companies will continue to overstep the mark.”

The credibility damage of such cases drove the food industry, consumer groups and trading standards to set up the Joint Health Claims Initiative (JHCI) in June 1997 to establish a Code of Practice on Health Claims for Food.

“People {in the industry} were getting nervous because there was no barometer,” says John Young of LFRA.

The JHCI has agreed a voluntary code but its administrative function – to check claims submitted voluntarily by manufacturers, to be carried out by the LFRA – is not yet active.

Meanwhile, Unilever’s first functional food product, Flora proactiv, is battling through European bureaucracy at the Novel Foods Commission.

Flora proactiv has been launched in Australia, and in the US under the name Take Control. But German and Swedish concerns with the product’s claim – that it can reduce cholesterol by eight to 13 per cent – have led the commission to refer judgment to a scientific committee.

Unilever spokesman Steve Milton says: “The product is good and does exactly what it says on the tin. But the {regulatory} process is the problem – we would like to see a Food and Drug Administration (operational in the US ) in Europe.”

The LFRA’s Young believes Flora proactiv “will act as a real barometer”.

“If a brand as strong as that can’t make it then no-one can,” he says.

Meanwhile, Asda food technicians say sales of Benecol have been “a little” lower than expected and a Tesco dairy buyer says “since it came out, sales have tailed off”.

The Food Commission believes functional foods counter government efforts to educate the population about nutrition. In a 1996 report, it says: “The claims, and the practice of adding large amounts of vitamins, minerals or other substances to foods which normally provide little or none, create confusion and undermine Department of Health targets to encourage better diets.”

In a 1996 survey of 700 functional foods, the commission found “the majority to be foods of poor nutritional quality whose main justification was the added ‘functional ingredient'”.

With Novartis in the UK, and Kellogg in the US preparing whole ranges of functional foods for consumption at every meal, the nutritional quality of the food will come under the same intense scrutiny as its functional ingredients.

Confusion among shoppers

A study by the LFRA in October 1998, called “Functional Foods and the Consumer”, found 80 per cent of UK consumers had never heard of functional foods, although many bought them as “healthy foods”.

The study concluded: “Considerable confusion still exists around some products and concepts, however, and companies will have to give serious and careful consideration to positioning and marketing their products correctly to ensure consumer understanding and support.”

Asda believes customers don’t understand the functional foods proposition in the way that they do vitamins. It reckons the market has limited possibilities for growth: “We don’t want to risk overdosing our customers,” says one of Asda’s food technicians.

But, says the British Nutrition Foundation, expensive functional foods like Benecol will be “out of the reach of those in society with the highest prevalence of heart disease – low income groups”.

Novartis’ Paton says Aviva’s pricing is still being “fine tuned”. “It is important to match the expectation of pricing to the delivery of claims,” he adds.

He refuses to divulge Aviva’s health claims. “Whatever claims are made on the pack will go through an internal process, will comply with the JHCI Code and will be discussed with Trading Standards,” he says.

Aviva will be marketed “in an holistic way”, according to Paton, with information hotlines and explanatory leaflets. “We have combined best practice in over-the-counter, consumer and trade marketing, which rarely come together for a launch.”

Novartis is seeking the co-operation and endorsement of GPs and nurses who could recommend Aviva to their patients.

The LFRA’s Young is writing a paper for the British Medical Association encouraging medical professionals to be more accepting of functional foods: “Doctors are dismissive and derogatory of them {functional foods}. They think they’re rubbish. The medical world has always been conservative.”

Fermented milk drink Yakult attempts to bring the medical and academic fraternities closer to the brand by organising seminars and workshops, and funding research units. Novartis, as a pharmaceutical company, will find this type of strategy easier than most food companies.

Paton says Novartis has other functional food brands in the pipeline after Aviva and will bring brands available in other markets to the UK. It will also look at repositioning its Ovaltine drink as a functional food in this country.

In the LFRA’s 1998 study, Kellogg was the most widely named cereal brand with a healthy image in the UK, Germany and France, and was named by 41 per cent of UK respondents as a credible and trusted supplier of functional foods.

Dr William Mayer, former Ensemble president – now Kellogg Company executive vice president for new business development – says Ensemble is a long-term growth opportunity for Kellogg which meets a “global need”.

Filling supermarket shelves

Meanwhile, Novartis would like to see whole areas in UK supermarkets devoted to merchandising “healthy” products like vitamins, slimming drinks, meal replacements, energy drinks and functional foods. This idea is in place in the US, Japan, France and Italy.

Paton envisages this coming to Britain. “Our aim is to fill that shelf over a number of years. But supermarkets in the UK are not reaching for that opportunity yet,” he says.

After the battering supermarkets have taken in recent months over food ingredients, genetically modified organisms and competition, it is little surprise they are unwilling to throw their full force behind functionals foods.

Young says: “Major retailers are cautious and would prefer the brand to test the water.” Asda says there are not enough products to devote shelves to the category.

The LFRA says the size of the £230m functional foods category has to be put in the context of the £50bn food and drink market. But functional foods are likely to grow as the major pharmaceutical and food giants plough investment behind the category.

The outcome of launches such as Aviva and Flora proactiv will go some way to establishing whether UK consumers are ready to swallow the functional food message.

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