Feeding off the beauty market

Imagine a world where eating Smarties could solve a skin problem and drinking Nescafé could give you shiny hair. It may sound far-fetched, but food to improve appearances, sold on a mass-market scale, is not far off.

Last week, Nestlé and L’Oréal announced plans to launch “Laboratoires INNEOV”, a joint venture aimed at producing “nutritional supplements” to improve the quality of skin, hair and nails (MW last week). Both companies claim this is the first time a cosmetics company and a food manufacturer have worked together in this way.

The venture will be based in France with each partner holding a 50 per cent stake. Although it will be staffed and marketed by L’Oréal, it could be argued that Nestlé holds the balance of power: the food company owns 49 per cent of Gesparal, a company which has a 54 per cent stake in L’Oréal.

But with a plethora of high-profile products that have failed to crack the functional food, or “nutraceutical”, market – which can loosely be defined as food or drink with some added advantages – there are some that question the wisdom of pumping money into such a venture.

Already confusion reigns over what form the supplement-based products to be branded INNEOV will take. A L’Oréal spokeswoman says they will be “pills or capsules”. But Nestlé spokesman and official voice of the joint venture François-Xavier Perroud explains that the form that the product will take has yet to be decided, but is likely to be edible. He says: “Here is an indication: we are a food company not a pharmaceutical company. I’m sure that any product will not only make you look good, but will taste good as well.”

Whose line is it anyway?

One of the debates on functional foods has been whether food or pharmaceutical companies are best placed to lead the sector – both have had their share of successes and failures.

Nestlé has had its fingers burnt in the past with functional food. In 2000, it was forced to withdraw its LC1 range, which included live yogurt drinks, from the UK market, after a launch backed by a £2m advertising campaign. It cited “commercial reasons” for the UK flop, even though the range is still going strong in a number of other European countries, according to Nestlé. A spokeswoman for the food company reasons that the continent has a “higher awareness of microbiotic products”. Yet this explanation does not allow for the success of products in the UK such as Danone’s Actimel and Yakult.

Another functional food failure was Novartis’ Aviva, a range of drinks, snack bars, cereals and biscuits launched on the back of a £20m marketing campaign in 1999. Three years later, Novartis axed the Aviva brand, blaming the products’ high price and bad taste as reasons for its downfall. The company also scrapped a joint venture with PepsiCo’s Quaker Oats in the US, which was set up to produce the functional food cereal Altus. Now Novartis has lost all faith in this line and is attempting to make a completely clean break by selling off brands such as Isostar and Ovaltine, with the aim of concentrating solely on pharmaceuticals.

Commenting on Aviva, one City analyst says: “Consumers just didn’t want to know, perhaps it was ahead of its time. But L’Oréal and Nestlé are both smart companies and might as well pursue this market. As a research and development investment, it might throw up findings that they can use for their existing products.”

Failures were not just limited to Europe. In the US, Kellogg was forced to abandon its Ensemble pasta and cereal ranges, designed to reduce cholesterol, following poor sales. Campbell has also scrapped Intelligent Quisine, a range of frozen meals, which it claimed reduced blood pressure.

Smith&Milton creative director Stuart Redfern says “inside-out beauty” is not a new concept and has proven to work on a number of occasions especially in petfood. “Winalot has been talking about glossy coats for years,” he says.

He says one of the challenges for INNEOV will be to educate consumers about the offering, while introducing the new name. “Most packaging takes on a category ‘look and feel’ to help consumers feel familiar and therefore comfortable with the pack. This is a new, cross-category product that straddles both food and beauty.”

Datamonitor analyst Piers Berezai says that if the marketing is left to L’Oréal the venture could hit the jackpot. “I would say that L’Oréal has one of the slickest marketing departments out there. This isn’t about food, it’s about personal care.

“What will make or break this product will be whether people take it as a beauty product.”

Moody business

Tim Ambler, senior fellow at the London Business School, tried to start a company specialising in what he labelled “mood foods”, but he was unable to find financial backing. Ambler says the new brand INNEOV should be introduced to the market carefully. “It’s only going to work if you go about it fairly cautiously. If they are planning a major launch then I would forecast that it will go wrong. It’s a radical idea, you’ve got to introduce people to it slowly – through specialist retailers, word of mouth, maybe some public relations – to establish a small group of core followers,” he says.

INNEOV may have to consider looking outside its home continent to gain its largest band of devotees. According to Mintel’s March 2002 report on functional foods, the European market for functional foods is the third-largest in terms of value, behind those of Japan and the US. The UK market alone was worth £667m in 2001, having grown 159 per cent since 1999.

However this growth must be viewed with caution as Mintel’s definition of functional foods includes products such as breakfast cereals, which in some cases are established brands such as Nestlé’s Shredded Wheat and Cheerios, Kellogg’s Bran Flakes and Jordan’s Oats, all of which have been repositioned as foods claiming to have an added benefit. According to Mintel, the breakfast cereal sector grew by 872 per cent from £18m in 1999 to £175m in 2001, making it the UK’s biggest category in the functional food sector, accounting for 26.2 per cent of the market.

Mintel’s definition also includes energy drinks such as Red Bull and Lipovitan, which are not included in figures from the Leatherhead Food Research Association (LFRA), which calculates that the global market was worth $9bn (£5.8bn) in 2001 and estimates it will grow to $12bn (£7.8bn) by 2005.

Exaggerated claims

Defining what these foods actually do is causing headaches for manufacturers and marketers alike. A year ago Which?, the Consumers’ Association magazine, attacked the sector, arguing that in many cases manufacturers were failing consumers by making exaggerated claims.

This came just a day after the Advertising Standards Authority (ASA) ruled that “cholesterol-busting” spreads Unilever Bestfood’s Flora pro.activ and McNeil Consumer Nutritionals’ Benecol had to amend their advertising. Following tit-for-tat complaints by both manufacturers, the ASA found that the spreads were unlikely to deliver the health benefits promised.

But this does not seem to have stopped sales of the products. Flora pro.activ is the best-selling spread in the functional food sector – Information Resources says it had sales for 2001 of almost £30m, making it the 16th biggest-selling dairy product brand. Unilever claims pro.activ outsells Benecol at ratio of almost 3:1, despite having launched a year later than its rival. Benecol, on the other hand, has been expanded into a number of different areas including cereal bars, cheese and milk.

A Unilever spokeswoman says: “We have invested heavily in Flora pro.activ’s launch and are fully committed to its success. Any development we consider will be where we see there’s a clear and proven benefit that suits consumer needs.

“A number of functional food products have been launched over the past few years and some, like pro.activ, have been successful, but others have struggled. It’s important that manufacturers fully trial their products and get them independently checked before launch to maintain consumer confidence and establish a credible sector.”

In the US, where pro.activ is called Take Control, the brand was extended to include lines such as salad dressings and single servings. These were later axed due to slow sales.

It’s purely cosmetic

It has been implied that Laboratoires INNEOV will have an easier ride navigating the minefield of legislation surrounding functional foods by making cosmetic and not health claims. However, Melanie Ruffell, executive secretary of UK food industry self regulation group the Joint Health Claims Initiative, says that if INNEOV makes a food product it would definitely fall under the group’s code.

Ruffell says that consumer perception is key and reasons that claims on improving the appearance of hair, nails and skin could be perceived by consumers to relate to their health as well.

“It will come down to the marketing of the product,” she adds.

Fiona Angus, nutritional and allergy manager at the LFRA, believes Nestlé may have hit on a success story with INNEOV, but warns that the marketing will have to be handled carefully: “There’s a theory that people don’t want to think about disease and risk and don’t want these qualities associated with food products – I’ve heard it called ‘life and death’ marketing.”

Angus adds that there are a number of products being promoted using general health claims and a feeling of wellbeing, such as Findus Feeling Great, which make no specific claims. However, even these seemingly innocuous claims are under threat as Ruffell says that the European Commission is considering outlawing non-specific claims on the grounds that they cannot be proven.

With the Federal Trade Commission and the Food and Drug Administration in the US stepping up their policing of functional foods – particularly over the Internet – there is a need for manufacturers to get their claims right if they want their products on the shelves.

But if manufacturers make the right product and are able to find their way through the marketing regulations, they could fly in the face of the disasters that have so far littered the functional food market. Both the food and cosmetics industries will be watching closely to see if Nestlé and L’Oréal will be among the few functional food success stories or if, in fact, the companies have bitten off more than they can chew.