Journal of Food Engineering 56 (2003) 181–188

www.elsevier.com/locate/jfoodeng

Market and marketing of functional food in Europe

Klaus Menrad *

Fraunhofer Institute for Systems and Innovation Research (ISI), Breslauer Str. 48, 76139 Karlsruhe, Germany
Received 21 October 2001

Abstract
In the paper an overview is given about the market situation of Functional Food in Europe. The global market of Functional
Food is estimated up to 33 billion US$, the respective market estimations for Europe exceed 2 billion US$, representing less than 1%
of the European food market. Functional dairy products are the key product sector accounting for sales of around 1.35 billion US$
in 1999 in Europe. Mostly multinational food companies as well as international suppliers profit from the market growth of
Functional Food. A limited number of small and medium-sized companies is active in market niches or offer ‘‘me-too’’ products.
Specific efforts in nutritional research, product development and marketing are necessary to realise long-lasting market success of
Functional Food products. Therefore the market is characterised by a high rate of product failures. General success factors for the
marketing of food (like tasty products, convenience, variety) play a crucial role in Functional Food as well.

2002 Elsevier Science Ltd. All rights reserved.

Keywords: Food; Health; Functional food; Europe; Marketing

1. Introduction concerning the market volume of such products. Based

on a definition of Functional Food by which ingredients
Food industry companies have rather high expecta- with an additional health-value have been added to
tions in food products that meet the consumers’ demand foods (and this is announced to the consumers), the
for a healthy life style. In this context Functional Food global market of Functional Food is estimated to at
play a specific role. These foods are not intended only to least 33 billion US$ (Hilliam, 2000c). The most impor-
satisfy hunger and provide humans with necessary nu- tant and dynamic market represents the USA with an
trients, but also to prevent nutrition-related diseases and estimated market share of more than 50%. In the USA,
increase physical and mental well-being of consumers. the market is differentiated in Functional Food with
However, no clear definition has been developed for specific health claims achieving a turnover of around 0.5
Functional Food so far (Menrad et al., 2000). Despite billion US$ and Functional Food without claims with
the existing regulatory uncertainties, Functional Food an annual turnover of at least 15 billion US$ (Hufnagel,
products have been launched in Europe since the mid 2000). In total, Functional Food have a market share of
90s. In the following an overview about the market sit- around 2% in the US food market (Anonymous, 2000a).
uation of Functional Food as well as marketing-related Another important market is Japan, where the first
aspects is given, focussing mainly on Europe. products focussing on specific health targets have been
marketed. In this context, Yakult Honsha (founded in
1955) plays a significant role by developing products
2. Markets of functional food based on the probiotic lactic acid bacteria Lactobacillus
casei Shirota which are sold as fermented milk drink in
Due to the differing definitions there are specific dif- 65 ml bottles. In 1984, the concept of Functional Food
ficulties to analyse the development of the Functional was first promoted by Japanese scientists studying the
Food market, resulting in strongly varying estimations relationships between nutrition, sensory satisfaction,
fortification and modulation of physiological systems
(Hosoya, 1998). In 1991, the Ministry of Health intro-
*
Tel.: +49-721-6809-330; fax: +49-721-6809-476. duced rules for approval of a specific health-related food
E-mail address: [email protected] (K. Menrad). category called FOSHU (‘‘food for specified health
0260-8774/02/$ - see front matter
2002 Elsevier Science Ltd. All rights reserved.
PII: S 0 2 6 0 - 8 7 7 4 ( 0 2 ) 0 0 2 4 7 - 9
182 K. Menrad / Journal of Food Engineering 56 (2003) 181–188

uses’’) which included the establishment of specific 1999 and 2000 (Fig. 1). This represents 19% of all in-
health claims for this type of food. In February 2000, the novations during this period. Functional products have
total number of approvals under the FOSHU label been mainly launched in the softdrinks, confectionery,
reached 174 with an estimated market value of around 2 dairy, bakery and babyfood market, while all other
billion US$ (Heasman & Mellentin, 2001). In total more product segments contribute to 8% to Functional Food
than 1700 Functional Food products have been laun- innovations compared to 38% of all innovations in the
ched in Japan between 1988 and 1998 (Heasman & total food and drinks market in Germany.
Mellentin, 2001) with an estimated turnover of around This concentration on specific product segments is
14 billion US$ in 1999 (Hilliam, 2000c). even higher when analysing the current sales values of
According to the available estimations, the market of specific Functional Food products in Europe. Presently,
Functional Food products which make specific health the European market of Functional Food is dominated
claims on the packaging or in the advertising exceeds the by gut health products, in particular probiotics. Among
volume of 2 billion US$ in Europe. In case a broader those dairy products are the key product sector ac-
definition is used, it is estimated that the European counting for sales of around 1.35 billion US$ in 1999
Functional Food market has a monetary market volume (Hilliam, 2000c). Germany, France, the United King-
of 4–8 billion US$ (Hilliam, 2000c). This means that in dom and the Netherlands account for around two thirds
Europe the current market share of Functional Food is of all sales of functional dairy products in Europe
below 1% of the total food and drinks market. Within (Table 1).
Europe Germany, France, the United Kingdom and the Functional dairy products have shown an impressive
Netherlands represent the most important countries growth during the recent six years, bringing the market
within the Functional Food market. In general, the in- volume in Germany from around 5 million US$ in 1995
terest of consumers in Functional Food in the Central to 419 million US$ in 2000, of which 301 million US$
and Northern European countries is higher than in account for pro-, pre-biotic and other functional yo-
Mediterranean countries. There are no exact figures ghurts and around 118 million US$ for functional
available measuring the monetary market volume of drinks (Fig. 2). In the recent three years the latter
Functional Food in Germany in 2000. Based on the achieve higher growth rates than functional yoghurts in
available information in the most important product Germany––a phenomenon which can be registered in
categories it can be assumed that the Functional Food
market in Germany exceeds 600 million US$. This still
represents a market share of below 1% of the total food Table 1
and drinks market in this country. Functional dairy products in Europe by country 1999 (Source: Hil-
Functional Food products are not homogeneously liam, 2000c)
scattered over all segments of the food and drinks Country Value (million US$) Share (%)
market. This can be illustrated by analysing the distri-
Germany 283 21
bution of newly launched products in the market. Ac- France 240 18
cording to the data of the Worldwide Innovations United Kingdom 222 16
Network of the market research institute Datamonitor The Netherlands 150 11
(Anonymous, 2001), 305 products have been launched Other countries 450 34
Total Europe 1345 100
in the Functional Food segment in Germany in the years

Fig. 1. Innovations in the food and drinks market in Germany (Source: Anonymous, 2001).
 K. Menrad / Journal of Food Engineering 56 (2003) 181–188 183

Fig. 2. Market development of functional dairy products in Germany (Sources: Biester, 2001; Hilliam, 2000a; Menrad, 2000).

other countries (e.g. France, Switzerland) as well (Hil- Menrad et al., 2000), without achieving considerable
liam, 2000a; Menrad et al., 2000). Another important sales values. In contrast to these segments, it can be
aspect of the market development of functional dairy assumed that cholesterol-lowering spreads will gain in-
products in Germany is the fastly growing relevance of creasing relevance in the coming years due to the market
private label brands in recent years. In particular the introduction of e.g. a functional variety of Becel mar-
retail company Aldi has gained continuously market garine of Unilever (named ‘‘Becel proactiv’’), containing
shares (to around 26% of the monetary market volume phytostanol esters which are supposed to lower the
of functional yoghurts in 2000) (Biester, 2001), which cholesterol level. A product with similar characteristics
was accompanied by decreasing average product prices named ‘‘Benecol’’ has already been launched by the
for functional yoghurts. Finnish company Raisio in some Scandinavian coun-
Another important product category within the tries in the mid 90s (Menrad, 2000). In the babyfood
Functional Food segment are non-alcoholic beverages market in particular hypoallergenic babyfood show
fortified with the vitamins A, C and E or other func- constant growth in recent years in Germany (H€ using,
tional ingredients. Although there is a relatively high Menrad, Menrad, & Scheef, 1999). In addition, several
number of products available in this segment, the mar- pro- and pre-biotic products have been launched in the
ket still is rather small and fragmented in most Euro- babyfood market (H€ using et al., 1999; Menrad et al.,
pean countries. Germany is the only country in Europe 2000).
with a sizeable functional drinks market, mainly due to According to the available future market estimations,
the success of ACE drinks in this country. In 1999 these it can be assumed that Functional Food will increase its
beverages reached a market volume of 89 million US$ market volume in the coming years considerably. Most
up from sales of around 15 million US$ in 1996 (Hil- market estimations assume that 5% of the food market
liam, 2000b). In 2000 more than 117 millionliter of vi- represent the growth limit for Functional Food in Eu-
taminised non-alcoholic beverages have been consumed rope in the coming 10 years. In this sense Functional
in Germany (Von Pilar, 2001), which equals to around Food will not develop to a mass market in future, but
1% of the total consumption of these beverages. Most of represents a multi-niche market with a high number of
the leading fruit juice companies have products in the rather limited product segments and very few high vol-
functional drink market in Germany particularly ACE ume product categories.
drinks.
In Europe other relevant product categories in the
Functional Food market represent confectioneries and 3. Suppliers of functional food
chewing gums for dental hygiene, bakery products and
breakfast cereals as well as cholesterol-lowering spreads. When analysing the supply structure of Functional
In the first two product segments a big variety of Food, the difficulty emerges that the Functional Food
products has been introduced in the market in recent ‘‘industry’’ is almost as fragmented and difficult to de-
years (Biester, 2001; Hilliam, 2000a; Menrad, 2000; fine as the market. Taking into account these difficulties,
184 K. Menrad / Journal of Food Engineering 56 (2003) 181–188

six main types of actors in the commercial Functional SmithKline, Johnson & Johnson or Abbott Laborato-
Food segment can be identified in the EU and in the ries. In particular, Novartis Consumer Health has
German market: launched a series of Functional Food products including
biscuits, cereal, cereal bars and beverages in different
• Multinational food companies with a broad product European countries under the ‘‘AVIVA’’ brand in 1999.
range. However, due to lower sales than expected, Novartis
• Pharmaceutical and/or dietary products producing withdrew the AVIVA products from most markets after
companies. one year (Biester, 2001). One important motivation for
• National ‘‘category leaders’’. pharmaceutical companies to invest in Functional Food
• Small and medium-sized companies (SMEs) of the are the shorter development times and lower product
food industry. development costs compared to pharmaceutical prod-
• Retail companies. ucts (Menrad, 2000). In addition, pharmaceutical com-
• Supplier of ‘‘functional ingredients’’. panies have intensive experience in organising clinical
trials to substantiate health claims of a specific product.
Since the mid 90s several multinational food com- A third group of Functional Food producers are
panies (like e.g. Nestle, Danone, Unilever, Kellogg, companies specialised in a particular product category
Quaker Oats) have introduced Functional Food prod- which mostly belong to the market leaders on a national
ucts into the EU and German market. This relates in level. Examples for this type of companies represent
particular to the market of functional milk products Molkerei Alois M€ uller (with its functional ‘‘ProCult’’
which was initiated by the market introduction of dairy products), Ehrmann (‘‘DailyFit’’ dairy products),
Nestle’s LC1 yoghurt in 1995 followed by the Actimel- Bauer (with several probiotic dairy products), Eckes
line of Danone. One major impetus for the marketing of (ACE drinks) or Becker Fruchts€afte (ACE fruit juice) in
functional milk products by European food companies Germany. In most countries of the EU as well as in
was the market introduction of one of the leading Jap- Switzerland, in particular in the dairy industry the
anese probiotic milk products named ‘‘Yakult’’ in 1994 leading companies on a national level are often among
in the European market (Menrad, 2000). These three the producers of pro- or pre-biotic dairy products
companies still have a leading position in the functional (Anonymous, 2000b; Menrad et al., 2000).
dairy market in Europe. Another example represents There is a limited number of small and medium-sized
Unilever which has introduced a specific functional va- food companies (SMEs) active in the Functional Food
riety of Becel-margarine (named ‘‘Becel proactiv’’) in the market as well. These companies mostly produce func-
EU in 2000. This margarine is supposed to lower the tional products for market niches or offer ‘‘me-too’’
cholesterol level in the blood. products following the pioneering products of the mul-
These multinational food companies with established tinational companies (H€ using et al., 1999). Often these
and well-known brands have the resources necessary products can ‘‘survive’’ only for a rather short time
for product development and marketing of Functional period (e.g. up to two years). In general, SMEs lack the
Food. While in general the total costs from the product know-how and resources for own intensive R&D ac-
idea to market introduction of new food products are tivities and cannot afford to spend high sums in specific
estimated to several million US$ (Weindlmaier, 2000), information or advertising activities necessary to open
the development and marketing costs of Functional a specific segment of the Functional Food market as
Food products may exceed this level by far. According pioneering company. The same relates to long-lasting
to expert estimations the costs for product development clinical trials (e.g. intervention studies with high number
and market introduction of Nestles LC1 yoghurt and of patients) which may be necessary to show efficacy of a
the Becel proactiv margarine of Unilever exceeded 50 specific ‘‘functional ingredient’’ (Menrad et al., 2000).
million US$ each. Most of the multinational food Food retail companies are increasingly starting to
companies offering Functional Food products have their introduce private label brands especially in the relatively
own R&D departments and specific in-house resources ‘‘mature’’ markets of functional dairy products. In
and expertise in nutritional and food technology re- Germany this relates in particular to food discounters
search. Some of these companies spend up to 2% of their like Aldi, Lidl and Penny which launched pro- and pre-
turnover for R&D activities (Weindlmaier, 2000). In biotic dairy products in recent years. It is estimated that
addition to product development the proof of efficacy of Aldi which launched its probiotic dairy brand ‘‘Bi’AC’’
Functional Food products in clinical studies requires in 1997 will generate around 78 million US$ turnover
some time (several months up to more than one year) with probiotic yoghurt (around 26% of the probiotic
and relatively high financial investments. yoghurt market in Germany) (Biester, 2001). In other
A second type of Functional Food producers repre- European countries (e.g. Switzerland) food retail brands
sent pharmaceutical or dietary products producing play an important role in the functional dairy segment
companies like e.g. Novartis Consumer Health, Glaxo as well (Menrad et al., 2000).
 K. Menrad / Journal of Food Engineering 56 (2003) 181–188 185

Like in the food industry in general, suppliers of food Several mid- and long-term developments in society as
ingredients play a significant role as innovation source well as sociodemographic trends are in favour of Func-
in the Functional Food segment as well. Nearly all main tional Food, so that it can be assumed that Functional
food ingredient producers have introduced ‘‘functional Food represent a sustainable trend in the food market.
ingredients’’ or tried to acquire companies specialised in These developments include the change of the scientific
this field in recent years. This relates e.g. to the world- paradigm in nutritional sciences in order to analyse the
wide most important producers of vitamins (e.g. Roche causal relationships between nutritional factors and the
Vitamins, BASF AG) which introduced specific ‘‘bio- occurrence and prevention of specific diseases, the en-
active’’ ingredients in the market. Other examples are hanced interest of consumers in health and nutrition
companies like SKW Trostberg (now merged with De- aspects as well the ‘‘ageing’’ of the society. In addition,
gussa AG), DSM or Eridania Beghin-Say which have various actor groups with relevance for innovations in
created specific business units for functional ingredients. the food industry favour Functional Food. This relates
An important role on the market of prebiotic ingredients in particular for the food industry and food retailers,
play subsidiaries of major European sugar producers partly also for food scientists and consumer groups.
(like e.g. the S€
udzucker subsidiary Orafti). In addition, a The future market development is influenced by the
relatively high number of small or specialised producers degree of familiarity and acceptance of Functional Food
are offering functional ingredients as well (e.g. in the as well. According to surveys in different European
probiotic field). So far only a limited number of bio- countries consumers often do not know the term
technology companies has specialised on this field de- ‘‘Functional Food’’ or similar wordings, but show a
spite the expected growth perspectives (Menrad, 2000). rather high agreement to the concept. In the United
In general, the suppliers of functional ingredients try to Kingdom, France and Germany, up to 75% of the
proof efficacy of a specific substance and sell it to a wide consumers have not heard the term ‘‘Functional Food’’,
range of food industry companies, thereby creating but more than 50% of them agree to fortify functional
specific formulations. In this sense, innovative suppliers ingredients in specific food products (Hilliam, 1999).
of food ingredients are of high relevance, in particular Thereby the acceptance to a specific functional ingredi-
for product innovations of SME food companies. ent is linked to the consumers knowledge of the health
effects of specific ingredients. Therefore, functional in-
gredients which are in the mind of consumers for a
relatively long period of time (e.g. vitamins, fibre, min-
4. Marketing of Functional Food erals, like calcium, iron) achieve considerably higher
rates of consumer acceptance than ingredients which are
The markets of Functional Food, excluding Func- used for a short period of time (Fig. 3) (e.g. flavonoid,
tional dairy products, have developed very fragmented carotinoids, Omega-3 fatty acids). In the latter cases
in Europe so far. One indication in this respect is the fact consumers often do not know the health benefits of the
that most ‘‘Functional’’ brands have been launched in a specific groups of ingredients and therefore are not able
limited number of countries in recent years. In addition, to assess the health effects (Menrad, 2000). In this sense,
multinational food industry companies as well as other the health image of a Functional Food product or a
companies mostly have introduced rather single prod- specific ingredient represents a necessary prerequisite
ucts than fully developed umbrella brands in the Func- but cannot be regarded as being sufficient for a possible
tional Food market. market success. In addition, consumers are not willing
Like in the food market in general the Functional to change their daily lifestyle or eating patterns for the
Food product segment is characterised by a high rate of consumption of a specific Functional Food product
product failures. One prominent example in this respect (H€ubel, Nowicki, & Weigel, 2001).
represents the AVIVA product range of Novartis Con- Despite the general sociodemographic and behavio-
sumer Health which was introduced in 1999 in several ural trends which are in favour of Functional Food
European countries and withdrawn within around one there are specific challenges in the development and
year because they did not attain the sales expectations. marketing of such products. While in general the total
Expert estimations assume that around three of four costs from the product idea to market introduction of
newly launched food products are withdrawn from the new food products are estimated up to 1 or 2 million
food market within the first two years (Mehler, 1998). US$ (Weindlmaier, 2000), the development and mar-
Despite the lack of exact data for Functional Food in keting costs of Functional Food products may exceed
Europe it can be assumed that the product failure rates this level by far. According to experts estimations the
in this product segment most probably will exceed the costs of product development and market introduction
figures in the total food market, due to the specific of Nestle’s LC1 yoghurt and Becel proactiv spread of
challenges in the development and marketing of Func- Unilever exceeded 50 million US$ each. In addition
tional Food. to resources and know-how in nutritional and food
186 K. Menrad / Journal of Food Engineering 56 (2003) 181–188

Fig. 3. Awareness of consumers on health effects of various functional ingredients (Source: Bech-Larsen, Grunert, & Poulsen, 2001).

technology research, the proof of efficacy of Functional rate institutions and are subject to different regulation
Food products requires knowledge in the medical field regimes, so that a kind of ‘‘grey zone’’ emerges with a
as well. To fulfill the strict requirements of scientific high level of uncertainty. The classification of specific
verification of the efficacy of Functional Food, statisti- Functional Food products to one of the two categories
cally validated data from different model systems, from is of high practical relevance since the factual prereq-
mechanistic examinations on the cellular and molecular uisites, authorities and procedures related to market
level, from retrospective and prospective epidemiologi- entrance differ significantly between the two areas.
cal studies as well as from intervention studies on hu- Definition problems mainly exist for products with
mans have to be presented (Bellisle et al., 1998). So far functions aiming to prevent nutrition-related diseases
only few of the components of Functional Food have and/or to support health (so-called ‘‘health claims’’). In
been examined on all of these levels (Menrad et al., the EU and related national legislation it is currently
2000). forbidden to use disease-related aspects in consumer
Due to the limited consumers’ knowledge and information or product advertisement for Functional
awareness of the health effects of newly developed Food. Therefore, industry interest groups try to extend
functional ingredients, there are strong needs for specific the type of claims allowed for Functional Food.
information and communication activities to consumers Another important success factor for the marketing
in this respect. This relates in particular to pioneering of Functional Food are the price premia for this type
companies opening a specific market segment, for which of food in comparison to ‘‘conventional’’ food prod-
targeted information activities to consumers and opin- ucts. Examples of recently launched Functional Food
ion leaders (like e.g. medical doctors, nutritional advis- products indicate that consumers are only willing to
ers) are regarded as crucial success factor for the accept limited price premia for such products. In
marketing of Functional Food (Menrad et al., 2000). general, price premia of 30–50% are observed in high-
Examples of successful information campaigns indicate volume Functional Food segments like functional
that the message of the health effect of a specific product dairy products or ACE drinks (Menrad, 2000; Menrad
should be transferred relatively simple and easily to et al., 2000). It seems most likely that higher price
understand to the consumer. In addition, specialist ter- premia are accepted by consumers only for such
minology and medical details should be avoided in such Functional Food products, which have a proven health
campaigns. effect related to a disease which directly influences
Another specific challenge represents the regulatory consumers in the near future. However, such products
situation of Functional Food in Europe. From a legal have been rarely launched in the European market so
point of view, Functional Food is positioned in a tran- far. In this sense, relatively high price premia can be
sitional zone between food and pharmaceuticals. In al- regarded as one reason for the limited market success
most all European countries as well as the European of several Functional Food products in recent years in
Union, these areas are traditionally regulated by sepa- Europe.
 K. Menrad / Journal of Food Engineering 56 (2003) 181–188 187

Consumer surveys and other market analysis studies • Production and marketing of functional ‘‘me too’’
in the USA and Europe indicate that the general success products in case the original product or functional in-
factors for the marketing of food are valid for Func- gredient is not protected by patents.
tional Food as well (Bech-Larsen et al., 2001; Childs, • Exploitation and development of functional ingredi-
1997; Potratz & Wildner, 2000; Poulsen, 1999). This ents which have been discovered in public research in-
relates in particular to tasty products, convenience at- stitutions.
tributes, a certain product variety as well as different • Development and marketing of specific functional
packaging volumes. The ‘‘functional’’ component of a niche products with the help of innovative suppliers
Functional Food product is mainly regarded as an ad- since small and medium-sized companies are in gen-
ded value but hardly determines the choice of the eral faster and more flexible than the multinationals.
products by itself. In this sense concepts for Functional • Production of functional private label brands.
Food products should be based on food products with a • Development of functional ingredients in specialised
positive health image and avoid a distinct medical or biotech companies.
clinical perspective.
For the market success of Functional Food it is ad-
ditionally required to serve high-volume distribution
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