5 Functional Food & Beverage Trends to Watch in 2019
Have you recently been hearing the term “functional” in reference to food and beverage products and wondering what it is? Despite the term arguably having its breakout moment in CPG marketing, there is no universally accepted definition of “functional” foods or beverages. According to the International Food Information Council, functional foods are “foods or food components that may provide benefits beyond basic nutrition.”
Regardless of definition, however, consumers don’t go shopping with a list that says “deodorant, bananas and functional foods.” Consumers want regular food that confers some health benefit, seems natural, is easy to understand, and relates to their own needs. Popular product types include vitamins and dietary supplements, sport and energy drinks, and products fortified with protein and probiotics.
With a projected 6% CAGR, functional food and beverage is a category many Big CPG portfolios are now entering into in response to consumers’ demand for “better for you” foods and beverages that have added nutritional benefits. This shift towards healthier foods has reshuffled the deck for grocery brands.
Here are the five functional food and beverage trends that I believe will be most prominent in 2019.
Products Move Closer to Niches
In recent years, low barriers to entry for national distribution and marketing has caused major headaches for established CPG brands. A proliferation of newer, smaller brands has increased competition in every major product category. These digitally native startups have aggressively fragmented the market in hopes of finding blue oceans.
Due to their targeted digital marketing strategies, many of these startups have created viable new product categories that cater to niches that were once considered bleeding edge. I believe this trend of products moving closer to niche lifestyles will further grow in 2019. Product categories to watch are:
- High-fat ketogenic products
- Plant-based products
- Products with adaptogens (ingredients that reduce stress)
- Prebiotic and probiotic products
Amazon Floods the Market with Private Labels
According to SunTrust Robinson Humphrey, Amazon’s private-label business is on pace to generate $25 billion in sales by 2022, up from $7.5 billion in 2018. To expedite this growth, Amazon recently launched the Amazon Accelerator Program to expand its exclusive product offerings. I actually spotted a participant of an earlier test program and wrote an article on the nutritional supplement brand in May.
Since the public launch of the Amazon program last month, there has only been a handful of new functional food and beverage brands that have become available on the website. Currently, I believe Amazon is slowing down the process to ensure they are picking the best partners for the program. In 2019, I expect the speed to increase and new accelerator program members to be entering the market at a hyperbolic pace.
Acquisitions Continue but Incubation Shines
The functional CPG industry has seen many brands being acquired by Big CPG portfolios. In just the last several months, there have been the following acquisitions:
This activity will continue as Big CPG portfolios use acquisition as a strategy to position themselves in “healthier for you” functional product categories.
On the other hand, many Big CPG portfolios have started to take an earlier interest in incubating new and emerging functional food and beverage brands. In 2019, I believe more Big CPG brands will join the movement that Chobani, Kraft Heinz’s Springboard, and General Mills’ 301 INC venture funding platform started this year.
Increase in Lawsuits
Unfortunately, the functional food and beverage industry has seen an increased number of lawsuits that coincide with its popularity. Many of these lawsuits are settled before any press releases go public, so the total increase is not well documented. However, as a functional food and beverage management consultant, I can confidently say the number of lawsuits is growing and will continue to grow in 2019. Lawsuits in the functional food and beverage industry usually pertain to:
- Overstated ingredients: A recent example is Lenny and Larry’s Complete Cookie
- Labeling claims: A recent example is RXbar’s and That It’s’ minimalist packaging
I also believe that the FDA will continue to give guidance on functional food and beverage labeling claims like “healthy” and “natural,” which will create some additional headaches for the industry.
E-commerce Growth Continues
I fully admit that mentioning e-commerce growth as a “trend to watch” is taking the easy way out. Regardless, I would be doing all e-commerce grocery advocates a disservice if I didn’t promote the belief that this digital growth story is just getting started. By now, even the most hardheaded CPG professionals will admit that e-commerce is reshaping the industry. Based on recent Nielsen data, omnichannel FMCG sales totaled just over $1 trillion in the year ended August 25, 2018. E-commerce accounted for 5% percent of that total but drove an amazingly hearty 40% of its growth.
Additionally, the above infographic shows that many of the biggest functional food and beverage categories are growing substantially. This should be no surprise for industry professionals, as online product listings give brands the advantage of more space to explain functional product benefits compared to packaging alone. As buying behavior continues to advance online for CPG, functional food and beverage brands will continue to see massive e-commerce growth in 2019.