As waistlines continue to expand, so too do sales for natural, organic and functional foods. And with good reason. The prevalence of obese individuals worldwide has hit epidemic proportions. According to the World Health Organization’s (WHO) latest global projections, approximately 1.6 billion adults (age 15+) were overweight in 2005 and at least 400 million were obese. WHO further projects that by 2015, approximately 2.3 billion adults will be overweight and more than 700 million will be obese. Among the health consequences of obesity, heart disease, stroke and diabetes are among the most serious. The fact is, many of these related chronic diseases are largely preventable.

It’s time to make a change
The health tides are turning, but probably not fast enough. Sales of natural* and organic** foods are on the rise. Around the world, the adoption and acceptance of organic products and functional foods (foods or dietary components that provide a health benefit beyond basic nutrition, such as fruits, vegetables, whole grains or enhanced foods and beverages) are showing healthy growth. Consumers clearly associate “organic” with personal health and wellness – the most important lifestyle trend of this decade. According to a 2007 Nielsen global study, one in two (48%) European consumers and 57% of North Americans say the main reason they choose organic products is because “it’s healthier for me”.

Barriers to success
While organic products and functional foods are popular with shoppers, they are considered by many to be too expensive, with one in two Europeans and North Americans citing cost as the main reason for not buying organics. High prices and minimal selection and/or lack of availability remain the biggest obstacles to their future growth. In many markets, from the UK to the Nordics, demand for organic products can exceed supply, which is why the cost of most organic products is beyond the reach of the average consumer.

Per capita, the UK is the world’s biggest market for organics, with $1.4 billion in organic sales in 2007. In Germany, one in four households buys organic products regularly, up from one in five households the previous year. This growth has been spurred by hard discounters such as Aldi introducing organic product lines in their outlets, making organic products readily available at affordable prices to all shoppers. In the U.S., sales of UPC-coded organic products reached $3.7 billion, with organic-labeled products registering a rise of 26%.

A growing need
Savvy food and beverage manufactures are launching new products to meet this growing demand. In the U.S., a total of +4,700 new natural and +2,800 new organic products were introduced through December 1, 2007. According to Nielsen LabelTrends research, UPC-coded organics now generate over $4 billion per year in the U.S. This is less than one-fifth the size of products labeled “Natural,” with greater than $20 billion in annual sales.

Offerings such as 100-calorie snack packs, products with low/no sugar or sodium and whole grain ingredients fill the retail shelves. While better-for-you products are on the steady rise, still only 1.7% of all snack sales and just 7.4% of supermarket sales of milk in the U.S. were organic in the full year ending September 2007. Across all UPC-coded categories, Natural products out-sell organics by almost 5 to 1.

While U.S. sales of products with specific health claims have been consistently growing over the past four years — products that offer a “fat” claim grossed sales of $39.8 billion in 2007, growing 7% year over year, “natural” claim sales reached $19.3 billion for an increase of 8%, and “calorie” claim items earned $16.4 billion for a growth of 4% — there is a new set of label claims on the rise to keep a watchful eye on.

Product claims such as “probiotic”, which are foods that contain live microorganisms, rose an incredible 141% versus year ago and a whopping +1466% versus four years ago. Products containing “antioxidants” grew 49%, claims such as “absence of specific fat” increased 38%, “hormone/antibiotic free” jumped 25%, and “organic” climbed 26%. Other product claims rising in the double digits include fiber, gluten-free, omega, and GMO-free (Genetic Modification). Many of these represent smaller segments where a few new brand introductions lead to giant percent increases.

The industry responds
The retailer landscape continues to be a battleground for natural products. Conventional grocery retailers are gaining ground in some categories like natural general merchandise, which increased four share points in 2007, according to a Nielsen SPINscan Consumer Insight report. Natural channel retailers are losing ground to mass merchandisers and warehouse clubs in the packaged fresh produce department and natural refrigerated department.

So retailers are taking action with offerings that cater to the consumers’ quest to live healthier lives. Whole Foods, the world’s leading natural foods grocer, has 270 stores in North America and the UK. Their wholesome philosophy has put them at the forefront of the drive to eat healthier. Other retailers have followed suit with programs that address this growing consumer need. Hannaford, a northeastern U.S retailer, instituted their “Guiding Stars” program – a storewide nutrition navigation system that provides at-a-glance tools to help customers find the most nutritious foods. Nutritional rating systems by retailers may also reflect a lack of confidence in the USDA’s food pyramid.

Tesco (see related CI story), the world’s third largest retailer, opened its first Fresh & Easy stores in the U.S. promoting fresh, wholesome foods at affordable prices for everyone. Wal-Mart, the world’s largest retailer, has replaced their “Always Low Prices” slogan with “Save Money. Live Better”.

Many retailers are also responding with their own private label brands. Safeway’s O Organics and Eating Right brands, Topco’s Full Circle line, Kroger’s Fresh Fare and Naturally Preferred offerings, and Ahold’s Nature’s Promise products are but just a few who are jumping into the healthy fray to win consumers’ hearts and wallets.

Also on the rise is the trend to buy and eat locally. Internet buzz on the “buy local” movement is gaining widespread traction. Local food, which is produced, grown or raised as close to home as possible, is perceived to be healthier and gives consumers a sense of control over food consumption. Likewise, Community Supported Agriculture (CSA) programs, whereby communities and local farms forge a mutually beneficial relationship, foster a sense of community. Natural food retailers are most strongly associated with the “buy local” movement, as reported by Nielsen BuzzMetrics. Whole Foods, Wild Oats and Trader Joe’s show a strong commitment to local communities by sourcing food from local vendors.

The healthy consumer — young and rich
A lucrative segment, the U.S. organics consumer spends an average of $127 on their weekly household grocery bill according to Scarborough Research — 10% higher than the national norm of $115. And they can afford it — their higher-income bracket of $86,000/year is 22% higher than the national average. Organics consumers tend to be young and have families — they are 19% more likely than the national average to be ages 18–34 and 13% more likely to have two or more children at home.

To fully understand the unique purchasing and lifestyle patterns of the healthy consumer, Nielsen Homescan & Spectra created seven health and wellness consumer segments to measure consumers’ level of overall health and wellness engagement. Demographic data is married with influences and preferences and then linked with actual purchase behavior to better understand, reach, and locate consumers. By targeting the most engaged consumers, manufacturers can find the right fit for their products and retailers can consider the most effective product placement, in-store display and cross-promotion advertising opportunities.

And targeting the most engaged consumers can pay off – in a big way. The dollar sales rate index for two of the most engaged segments, “Program Partners” and “Health Idealists,” jump dramatically for these categories: fresh produce, showing an index of 140 and 156, respectively; fresh meat (index 123, 133); bakery (index 122, 135); and health & beauty care items (index 144, 123). These very engaged segments are important drivers of retail store and department traffic.

Opportunities ahead
Living better is not just about eating better. The issues related to health and wellness reach far beyond choosing healthier products. Efforts centered on sustainability, charitable causes, local growers, and in-store healthcare are important components to success. Supporting the issues that are near and dear to your consumers’ hearts will not only improve your image, but you will earn their loyalty as well.

* Natural products, as defined by SPINS, are free of artificial preservatives, colors, flavors and sweeteners; in addition, they are non-irradiated and do not contain chemical additives, GMOs or hydrogenated oils.
** Organic products, as defined by the National Organic Program (NOP), are produced with the use of renewable resources and the conservation of soil and water. The NOP currently has four NOP label classifications; 100% organic, 95% organic, contains at least 70% organic and contains less than 70% organic.