The Future of Food is Functional
Dissecting the rise of functional foods and how they will likely evolve as technology advances
We eat food for many reasons: for basic physiological needs, for sensory pleasures, and for the social occasions it facilitates. Increasingly, however, as food undergoes a lifestyle-oriented rebranding, consumers are starting to choose food (and beverage) products not only for the nutrition or enjoyment they provide, but also for the additional functions they can offer to help us better live our lives. From nighttime snacks designed to get you ready for bed, to adding superfood ingredients to existing recipes for an extra immunity boost, functional foods are popping up across food categories, promising a greater sense of wellness and control to a consumer base that is getting serious about their day-to-day wellbeing.
Functional foods are popping up across food categories, promising a greater sense of wellness and control to consumers.
functional foods are popping up across food categories, promising a greater sense of wellness and control to a consumerMoreover, as the wellness economy grows and self-care emerges as a powerful new value driver for brands, some food brands have been quick to shift their marketing focus from the taste and nutritional value of their products to emphasizing positive after-effects — physical and mental — they will bring for consumers. In other words, instead of a long list of ingredients, food marketing, both in terms of packaging design and media campaigns, is shifting its focus to how products will make you feel. And this ascendant trend of functional foods will keep evolving as emerging technologies like wearable devices, 3D printing, and genetic testing continue to develop,
Here and Now
Functional foods are food products that have a potentially positive effect on health beyond basic nutritional benefits. Considered with the “jobs to be done” framework, functional foods aim to solve not only all the needs that regular foods provide, but also to address functional needs, which can range from maintaining and improving physical or mental health to adjusting energy levels and moods.
Food has been historically used as preventive medicine in many cultures around the world, but the recent rise of functional foods can be directly linked to the rise of the wellness economy, which, in turn, is largely driven by influencer marketing and social media use. In this age of digital anxiety, exacerbated by a failing healthcare system in the U.S., more and more consumers are taking to wellness-enhancing products to regain a sense of control over their physical and mental health, and by extension, their lives. A 2019 study by NPD found a quarter of U.S. adults are actively using food to manage their health. In 2019, 70% of U.S. convenience store retailers saw a sales boost for the “better-for-you products,” according to a report by the National Association of Convenience Stores.
A quarter of U.S. adults are actively using food to manage their health.
Preceding the rise of functional foods, the emergence of multivitamin and other functional supplement products, such as cognitive enhancers such as nootropics, laid a solid foundation for the food industry to enter the wellness space. It is no exaggeration to say that functional foods sit at a crucial intersection of food and wellness, shaping the future of the food industry at large.
Food, being one of the fundamental product categories that everyone buys, is quickly expanding the wellness economy and introducing it to an even broader audience. Not everybody has the money to spend on meal supplements, but when they are incorporated into the kind of snacks people are already buying, suddenly it opens up a whole new market. Yes, functional foods are usually a bit pricier than their non-functional counterparts, — a pint of Nightfood ice cream sells for $6 while the average U.S. retail price for ice cream in 2019 was $4.74 — but they are typically cheaper than corresponding supplement products, which remains a barely regulated sector. Thus, shifting the benefits of supplements to food is also an effective way to make supplements seem more “natural” and consumer-friendly.
Therefore, it is no surprise that functional foods is a nascent category that is gaining considerable momentum, although the numbers on market size and growth tend to vary due to inconsistent category definitions. According to a 2019 ReportLinker report, revenue generated by the global functional food market was estimated at around $175 billion last year, and it was projected to reach about $276 billion by 2025. A new report from market research firm Visiongain, on the other hand, assessed that the global functional foods market will generate $84.8 billion in revenue in 2020. Whichever the case, it is clear that functional foods are no passing fad.
Not all functional foods are created equal. Some foods are naturally functional, such as various kinds of superfoods that are nutritionally dense, or foods whose innate health benefits have been proven by scientific research and resultantly highlighted in marketing campaigns as a new selling point. For example, while cereals have seen sales decline in recent years as breakfast habits change and some opt for healthier options, oatmeal is quietly making a comeback by marketing its function of lowering cholesterol level.
And then, there are products that are functional by design from a product development level. They often merge regular food products, usually CPG snack items, and the so-called “nutraceuticals” — food supplement products that not only boast nutritional value but also provide additional health benefits — to create modified products that are engineered to promote additional functions. For example, some orange juice products are fortified with added calcium for bone health, and new chocolates are designed for bedtime consumption with low sugar content and a small dose of melatonin.
Different demographics are interested in functional foods for varying reasons: While older adults are more likely to seek out functional foods to treat physical ailments or improve heart health, younger people are often turning to food to manage mental issues like stress and anxiety. According to a recent study on food consumption habits conducted by Nielsen, millennials are most likely to define healthy eating in practical ways, whereas the older generations surveyed, including Gen Xers, indicate their eating habits are more heavily guided by health maintenance or specific health conditions. As a result, different demographics may lean towards different categories of functional foods, something that food brands should keep in mind when developing functional food products.
Millennials are most likely to define healthy eating in practical ways, whereas the older generations indicate their eating habits are more heavily guided by health maintenance.
Market Landscape
At the moment, the U.S. market of functional foods is predominantly taken up by startups looking to stand out. Incumbents in the food industry have been comparatively far more responsive to emerging market trends, such as alternative proteins and sustainable foods, than developing their own functional foods products. As a result, this space is ripe with market challengers and, from the incumbents’ perspective, acquisition targets.
Incumbents in the food industry have been comparatively far more responsive to emerging market trends than developing their own functional foods products.
Physical health maintenance and improvement is a common category for functional foods. While functional ingredients cater to a variety of health needs, the most highly sought-after benefits include digestive health, heart health, increased energy, anti-inflammatory and immune support, according to an InsightsNow survey. Digestive health, in particular, is a popular product trend thanks to the mainstream usage of probiotics. Products like FlappedJack cookie bar, Culture Republick ice creams, and HI! Happy Inside cereal (made by Kellogg, in a rare instance of a market incumbent jumping on the trend) all added probiotics to their respective products to add a functional spin to food products that are usually deemed sugary and indulgent.
Regulating energy levels and managing stress in response to the time of the day is also an in-demand function being embraced by food startups. Companies like LÜME and Eat Your Coffee provide bite-sized energy boost throughout the day with naturally caffeinated snacks. Know Brainer, on the other hand, makes a series of snacks that claims to sharpen cognitive function, improve mood, and balance hormone levels.
One particularly popular group of functional foods for adjusting energy levels is the crop of “made-for-sleep” snacks. From Nightfood’s sleep-friendly ice cream and Good Day Chocolate to the Evening Calm line of snacks made by Good Source Foods, the market is aflush with products designed to prepare you for bedtime, dovetailing nicely with the rise of sleep tech in recent years. According to Mintel’s “2020 Food and Drinks Trend” report, 80% of consumers snack before bed, and 50% of consumers report dissatisfaction with their own night snacking behavior.
Regardless of the specific functions they serve, these new entrants are leading a market trend and showing the food industry a new approach to product design and marketing. The aforementioned macro trends that led to the rise of functional foods are showing no sign of decline, which means that it would be smart for more food and beverage companies to start considering functional foods not just a line extension, but as a new mindset for product improvement and a fundamental part of the customer value proposition.
Future Value Drivers
Looking ahead, there are four tech-driven disruptions developing across the broader food value chain that will shape the future evolution of functional foods:
New Ingredients to Open New Possibilities
Over the next five years, monitoring sugar intake will be top-of-mind for 23% of Americans, according to a Nielsen study. With sugar gradually falling out of fashion, some forward-thinking CPG food companies are starting to explore new ingredients that are being introduced to market via new research and legislation to pre-emptively fill its void.
For example, the recent wave of marijuana decriminalization and legalization across the states has also brought CBD-infused products into the market. Although some states and cities have taken measures to ban CBD-infused food and drinks, the macro trends suggest that they are here to stay. Consumers report that increasing sleep, reducing anxiety, and relieving chronic pain were among the top reasons for purchasing CBD-infused products, which aligns with many functional foods’ approach of marketing a feeling, not a product. Right now, regulations generally prohibit most CBD-infused products to market on these functional claims, pending further studies on CBD’s effects. This could change over the next few years, thus opening up a new product category for brands to compete in.
Beyond CBD, up-and-coming functional ingredients and supplements, including essential choline, acerola, various natural extracts from superfoods, or even natural psychedelics like mushrooms and peyote (recently decriminalized in Denver and Oakland), could all be incorporated into functional food design sooner or later to achieve various effects. It is up to brands to keep a close eye to developments in research and legislation so as not to miss out on new opportunities.
Data-Driven Personalization to Propel Adoption
With increasing adoption of wearable products, coupled with a broader trend moving towards digital health, the food we eat and its effect on our bodies and minds will become a quantifiable component of our personal data. This could propel the adoption of functional foods in two ways: one, when biometric data generated by wearables becomes something as mundane and widely available as the location data generated by our phone’s GPS, people will be able to receive immediate feedback after eating or drinking something, and see data such as their blood sugar levels react in real time. Quantifying our bodily response to food could offer evidence to their effects, thus dissuading people from consuming unhealthy foods and embracing the ones that work for them. Two, advancement in at-home genetic testing and other commodification of genetic sciences could lead to better personalization at a fundamentally individual level.
Granted, the wearables in market today are not nearly sophisticated enough to track our cholesterol level, blood sugar level, or emotional state. But as they develop those capabilities — and there are plenty of projects in development to suggest they could get there before long — users would have to actively resist linking their biometric data to their food consumption and the resulting behavioral modifications. One of the major challenges in digital health is how to effectively help consumers make sense of the unprecedented amount of health data generated by wearables and, based on those insights, provide accurate, actionable suggestions for consumers to improve and maintain their wellbeing. Functional foods could play a big role in providing a personalized solution to the latter part of this impending challenge. It will be interesting to see how brands will develop and market customizable products in response.
Functional foods could play a big role in providing a personalized solution to offering actionable suggestions for wearable users.
Interestingly, this could be the practical use case that 3D printing has been waiting for. 3D food-printing devices or countertop appliances that prepare individual breakfast mixes, drinks, or salad dressings based on personal vitamin and mineral needs already exist, and it won’t be that big of a stretch to imagine 3D printed foods based on your nutritional and functional needs. The popularization of personalized functional foods could be what pushes DIY food makers to become viable consumer products.
Better Discovery via Visual and Voice Search
With more and more functional foods items entering the market, consumers will soon be facing an overwhelming amount of choices that can be hard to discern. As search methods diversify with visual and voice search, both of which provide intuitive, of-the-moment access to AI suggestions, a future scenario may develop where our food consumption is heavily influenced, if not dictated, by algorithmic reconsiderations.
In addition, as AI research continues to advance, the algorithms behind visual and voice search could one day pick up on our mood without us explicitly stating so. Amazon has been reportedly developing an emotion-detection capability for Alexa that discerns the emotional state from the sound of users’ voices. When that becomes a reality, it will provide a new stream of data that Amazon can leverage to recommend mood-regulating or de-stressing snacks to you, perhaps before you even realize you need them.
Vertical Integrations for a More Holistic Approach
Right now, the world of functional food is still very fragmented, with most brands taking a siloed approach to product development and marketing. However, consumer reality is that most people don’t think about individual food products as much as they pay attention to their entire diet. The biggest growth area of functional foods, therefore, lies in figuring out how to incorporate into other parts of the food value chain and create functional diets instead of disparate items of functional foods. Integrations into various points of food production and distribution, or consumer touchpoints such as grocery retail, restaurants, and connected kitchens, will no doubt open up new spaces for functional foods to achieve the kind of mass market reach and maturity to disrupt the food industry and introduce a new set of consumer expectations.
In conclusion, the overall functionality of food is becoming increasingly important in consumer choices. To stay ahead of the curve, food and food-adjacent brands need to embrace this wellness-driven trend with a science-led approach, and focus on providing added functional value to increasingly pragmatic and health-conscious consumers.
Want to Learn More?
The rise of functional foods is a relatively new trend that will grow increasingly integral to the food industry and its future. How will your brand apply it to enhance your brand messages and go-to-market strategies? The Lab is closely monitoring disruptions in the food industry and charting the future of food. To learn more, and discuss how your brand can leverage these opportunities, reach out to Josh Mallalieu at josh@ipglab.com and ask for a category disruption report on this and many other topics.
