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© Datamonitor 2 Insights Into Tomorrow’s Nutraceutical Consumers John Band March 2006.

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2 © Datamonitor 2 Insights Into Tomorrow’s Nutraceutical Consumers John Band March 2006

3 © Datamonitor 3 Agenda Market context Consumer insights –Lifestyle health problems are on the rise –Healthy eating is increasingly part of consumers’ lives –People do not believe manufacturers’ health claims –Consumers have an attitude-behavior gap over healthy eating Conclusions

4 © Datamonitor 4 The nutraceuticals market is much larger in the US than in Europe Market context Nutraceutical consumption is growing fast The US nutraceutical market was worth US$18.9bn in 2004, with annual growth averaging 7.2% between The European nutraceuticals market is less developed than that in the US with sales of US$5.0bn in 2004, but is growing slightly faster at 7.4% a year

5 © Datamonitor 5 What are the consumer trends driving growth? Rising consumer awareness of, and active interest in health Growing trend towards self-medication An aging population concerned with health and beauty Market context

6 © Datamonitor 6 What are the key developments within the industry? Technological advancements in ingredients: –New functionality –Efficacy –Taste & usability Market context

7 © Datamonitor 7 Effective remedy for female health issues such as estrogren imbalance and menopause New studies are encouraging for efficacy in treatment of hormonal shifts Arthritis and joint disease are increasingly concerns for Baby Boomers New formulations are not shellfish-derived and can be used widely Beverage and candy forms are growing in popularity Fishy taste, texture and instability have kept growth relatively low New powder form of omega-3 is heat-stable and tasteless and can be used in foods and drinks Formulation developments have affected a number of ingredients Recent data has linked calcium consumption to increased weight loss Studies showed that subjects ingesting lowest levels of calcium were six times more likely to be overweight CALCIUM Plays large role in energy production Recent findings show that CoQ10 supports oral and gum health CoQ10 depletes with age CoQ10 Associated with prostate health, eye health and cancer prevention New application in skin health and anti- aging have been developed LYCOPENE OMEGA-3GLUCOSAMINEBLACK COHOSH Market context

8 © Datamonitor 8 Relationships are tightening between ingredient suppliers and CPG manufacturers Food and drink manufacturers are much more cautious and bound by more formulation constraints than supplements manufacturers, who can quickly adapt to new trends and experiment with new formulations and products Ingredients suppliers fall into one of two groups with the latter slowly growing in popularity –Traditional suppliers (75%) –Full-service providers (25%) Partnerships and joint ventures are often the most effective way to develop new functional products and stay ahead of trends Collaborating companiesProduct General Mills and DuPont8th Continent Soymilk Hain Celestial and CargillRice Dream Heartwise P&G and PharmaviteOlay Vitamins Source: Datamonitor Market context

9 © Datamonitor 9 Strong growth in the usage of nutraceutical claims 5.5% 11.5% 10.5% 23.7% 9.9% 15.1% 16.1% 25.3% 0% 5% 10% 15% 20% 25% 30% FoodBeveragesFoodBeverages EuropeUS % of new product launches The number of nutraceutical claims made on-pack on new launches Market context Source: ProductScan analysis of 30,000 launches tracked per year across Europe + US

10 © Datamonitor 10 Agenda Market context Consumer insights –Lifestyle health problems are on the rise –Healthy eating is increasingly part of consumers’ lives –People do not believe manufacturers’ health claims –There is an attitude-behavior gap over healthy eating Conclusions

11 © Datamonitor 11 Lifestyle health problems drive nutraceutical consumption 0% 10% 20% 30% 40% 50% 60% 70% Oral health Energy Gut health Skin, hair, nails Mood Heart health Eye health Anti-aging Bone health Alzheimer's Insight: lifestyle health problems are rising Which of the following are you concerned about on a regular basis? HIGHERLOWER Daily Relevance Source: Datamonitor / Nutraceuticals World survey 1,002 US consumers, 2005 % of US adults, 2005

12 © Datamonitor 12 Gut health concerns motivate mainstream consumers Insight: lifestyle health problems are rising (millions of people) Nutraceutical consumers Those with illness At-risk population Heart health Bone health Gut health The number of people who regularly consume specific heart- and bone- healthy nutraceuticals in Europe is far lower than the number of people suffering from associated conditions. The reverse is true for gut health, because gut concerns are important to all consumers.

13 © Datamonitor 13 Gut health concerns motivate mainstream consumers Gut friendliness, microbes Improved digestion Healthiness, superiority Wellbeing Control over life and health Lightness, energy, contentment Promotes health effects Taste and sensory quality Reasons to choose functionalyogurts Physical wellbeingMental wellbeing Pleasure and enjoyment Freedom of choice, variety Fruit and berries, sugar Gut friendliness, microbes Improved digestion Healthiness, superiority Control over life and health Lightness, energy, contentment Promotes health effects Pleasure and enjoyment Freedom of choice, variety Fruit and berries, sugar Consumers enjoy “indulging” in health – they want to feel good now Insight: lifestyle health problems are rising

14 © Datamonitor 14 There is a market for targeting long term health Of course, there are potentially large addressable markets for targeting medical / long term health concerns Insight: lifestyle health problems are rising

15 © Datamonitor 15 Heart health is a growing unmet need Insight: lifestyle health problems are rising The number of people suffering from heart disease is rising as the population ages Number of heart disease sufferers, : Source: Datamonitor

16 © Datamonitor 16 Bone health concerns are also driven by an ageing population Source: Datamonitor Healthcare Business Unit Insight: lifestyle health problems are rising NB: Osteoporosis = brittle bones; osteopenia = weak but not brittle bones The number of people suffering from bone health conditions is rising European osteoporosis and osteopenia sufferers (millions)

17 © Datamonitor 17 However, consumers are less convinced of efficacy to target long term health Consumers are less convinced that functional foods and drinks can effectively treat long term / medical health conditions. They have greater faith in their efficacy to treat short term lifestyle conditions such as energy boosts and presentation Making your job harder to target the medical conditions Insight: lifestyle health problems are rising

18 © Datamonitor 18 In all countries, around 30% of consumers consider it ‘very important’ to improve physical health through diet This suggests a hard core of healthy living and healthy diet advocates The extent to which mainstream consumers follow their lead depends strongly on local and cultural factors People increasingly understand the importance of a healthy diet European and US Consumer Survey Insight: healthy eating is part of everyday life Healthy eating is increasingly part of consumers’ lives

19 © Datamonitor 19 Successful products focus on desires for a healthy lifestyle “Keep your Inner-self healthy and happy” “Thick and creamy yoghurt” Insight: healthy eating is part of everyday life “Friendly bacteria” Ads about not caring what others think – feeling superior to the average Joe Danone: Yakult:

20 © Datamonitor 20 Consumers want quality of life not just longer life Life expectancy is rising, we expect to live longer But it’s not enough to just prolong an average / unfulfilled life World Values Survey data shows that consumers values are shifting from materialism to post-materialism – from security to quality of life We want to be happier, be in control, live the celebrity lifestyle, have satisfying careers not just secure ones… = Quality of life Why consumers want the ‘feelgood’ factor: Insight: healthy eating is part of everyday life

21 © Datamonitor 21 Consumers across the US and Europe are skeptical of the product claims made by food and drinks manufacturers They view them as less trustworthy than banks, insurance companies, utilities or car dealers. European and US Consumer Survey Insight: people do not believe health claims People do not believe manufacturers’ health claims

22 © Datamonitor 22 People are especially skeptical of health-boosting claims (rather than general nutritional claims), which is a serious barrier to wider nutraceutical adoption. Snake-oil salesmen, psuedo- science and promises of ‘miracle cures’ have eroded public confidence European and US Consumer Survey Insight: people do not believe health claims People do not believe manufacturers’ health claims

23 © Datamonitor 23 Consumers do not value specific ingredients as highly as manufacturers think 60% 56% 74% 36% 0% 10% 20% 30% 40% 50% 60% 70% 80% AwarenessPurchasing Driver Manufacturers Consumers Source: Datamonitor / Nutraceuticals World survey 1,002 US consumers; local trade interviews, 2005 Manufacturers need to focus on educating consumers about the benefits of functional ingredients Manufacturers’ perceptions of consumers’ awareness of and purchasing driver for Omega 3, and actual consumer survey data Insight: people do not believe health claims

24 © Datamonitor 24 88% 79% 96% 69% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AwarenessPurchasing Driver ManufacturersConsumers Calcium 75% 74% 88% 60% AwarenessPurchasing Driver Antioxidants 52% 38% 67% 22% AwarenessPurchasing Driver Glucosamine Consumers do not value specific ingredients as highly as manufacturers think Source: Datamonitor / Nutraceuticals World survey 1,002 US consumers; local trade interviews, 2004 Insight: people do not believe health claims

25 © Datamonitor 25 Focus tightly on specific health benefits –Functional food and drinks cannot adopt a general wellness position: although consumers believe that certain ingredients can benefit specific areas of wellness, they tend to reject claims that a product can produce change for the better across a range of health conditions. Seek endorsements from reputable organizations –40% of consumers say that specialist advice would make them more likely to buy a cosmeceutical product. This is also the case for nutraceuticals, which tend to have similar functional benefits. Manufacturers must communicate effectively with consumers to gain their trust Insight: people do not believe health claims

26 © Datamonitor 26 Younger consumers show the biggest gap concerning general health –In both Europe and the US, consumers are highly likely to say they believe that improving physical health is important, but are less likely to take active steps to improve their physical health – the spirit is willing, but the flesh is weak. –Young Adults are almost 20% less likely to have taken steps over the last year to improve physical health than they are to believe that physical health is important, whereas this gap is as low as 4% among Late Senior consumers. Insight: the attitude-behavior gap Consumers have an attitude-behavior gap concerning healthy eating

27 © Datamonitor 27 Men show the biggest gap when it comes to healthy eating –There are deep-seated differences in attitudes: while attempting to follow a healthy diet is expected for women, many men view this as un-masculine and as a waste of time. –This difference is particularly pronounced in the US, but it also exists in Europe. Insight: the attitude-behavior gap Consumers have an attitude-behavior gap concerning healthy eating

28 © Datamonitor 28 Consumers want good taste and ‘fit’ with their lifestyles Insight: the attitude-behavior gap Taste is still more important than health Convenience dominates lives – the demand for quick fix solutions –Few people like making significant lifestyle changes (e.g. only 1% of dieters achieve permanent weight loss) - people want quick fixes –So make products simple and easy to use –Does the product meet the occasion? – portable, ready-to-use, single serve etc.

29 © Datamonitor 29 Use natural ingredients for taste and authenticity –Targeted functional products can be made from natural ingredients, but many natural products currently just make general health claims. Tap into demand for ‘accessible premium’ products –Some nutraceutical categories can be marketed as strongly aspirational even at a relatively low price point. Products that address the attitude-behavior gap Insight: the attitude-behavior gap

30 © Datamonitor 30 Agenda Market context Consumer insights –Lifestyle health problems are on the rise –Healthy eating is increasingly part of consumers’ lives –People do not believe manufacturers’ health claims –There is an attitude-behavior gap over healthy eating Conclusions

31 © Datamonitor 31 Conclusions The largest addressable market is in ‘high daily relevance’ areas such as performance boosts and presentation rather than long term disease prevention / treatment. Long term health needs can be exploited, but you need to show immediate benefits (mental well-being) to reach the broadest market among those that are interested. In either case, offer consumers immediate benefits – mental well-being / feelgood factor and communicate these in a positive, non-threat based way. Consumers are skeptical of product claims, so build your products’ functionality on credibility – offer specific health benefits, don’t be general. To overcome the attitude/behavior gap, the product needs to taste good and ‘fit’ with their lifestyle.

32 © Datamonitor 32 Don’t forget: is your offering better than alternative solutions? Does your offering really provide a better consumer solution than existing options? Often you will be up against some powerful competitors: –Medical functional food/drink vs.Over-the-counter medicines –Energy boost food/drink vs. Coffee –Anti-stress functional food/drink vs. Cigarette; Alcohol Often it won’t be. So don’t invest in haste

33 © Datamonitor 33 Checklist for success High daily relevance Specific, clearly communicated benefits Offers immediate mental well-being Positively marketed, lifestyle positioning Taste Convenient fit with lifestyles Best vehicle / format for delivery “Something I care about” “I understand it, I believe it” “Makes me feel-good now” “It’s yum” - (I’ll buy it again) “I can get it, it’s easy to use” “It’s my best bet for getting this” Your offering has:Why it’s important to consumers:

34 © Datamonitor 34 Contact us for your research requests… Giles Watts Sales Director Gordon Cousland, Client Services Director John Band Managing Analyst Jill-Marit Lerum Cornes, Lead Consultant

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