Functional foods and beverages are poised for ongoing growth, driven by strong consumer interest in these types of products and increasing research around their efficacy, according to presenters at a Food Edge conference session on Thursday.
“The opportunity…for emerging brands in the functional space is absolutely there,” said Lauren Abda, cofounder at Branch Venture Group, an angel investor group focused on food startups.
Investment firms are looking closely at the growth potential of small companies in the functional food space, she said, as are larger food and beverage companies seeking to grow through acquisition.
Key to the growth potential of emerging companies in the functional food and beverage space is their scalability, Abda said at the session, titled “Functional Food and Personalized Nutrition for Better Health Outcomes.” The tendency for large food companies to be highly risk-averse could have implications for the growth of functional food startups after they are acquired, she said. Concerns about food safety and having reliable sources for ingredients could prompt the acquiring companies to change the way products are made, for example.
“Are the benefits of the product being maintained as they scale?” she said.
Trey Lockerbie, cofounder and CEO of Better Booch, a kombucha maker based in Huntington Park, California, said he believes kombucha is a functional beverage with strong growth potential that could follow in the path of other fermented products, such as wine and beer, with the added benefits of supporting gut health.
“I think there’s a common misperception that because of the fermentation, it’s hard to scale, but you see what beer and wine are doing,” he said.
Research in the Pipeline
The panelists, who also included Ian Miller, chief development officer at Durham, North Carolina-based Pairwise, and moderator Gretchen VanEsselstyn, director of education at the Specialty Food Association, agreed that more scientific research is in the pipeline that will support the growth of functional foods. Many functional foods are already being used by people around the world who have come to understand their health benefits, the panelists said.
“That’s driving a lot of the adoption of these…foods and beverages that are showing up on shelf today,” said Abda. “We are taking a lot of cues from countries around the world and the foods they eat.”
Miller, whose company is using CRISPR gene-editing technology to develop more palatable greens and berries under the Conscious Foods brand, said the concept of functional foods is nearly universal.
“I think ‘food as medicine’ writ large is as old as human history,” he said.
Lockerbie said he believes research around the importance of gut health to immunity will be supported by more scientific research during the next three to five years.
“I think a lot of the science is going to catch up to what the Eastern part of the world has known for a very long time, which is that these naturally occurring foods, like live enzymes, are good for the body, and good for longevity,” he said.
Among the other emerging functional ingredients that might someday be showing up in more foods are ketones, said Lockerbie. The chemicals, which are produced by the liver and are the basis for the low-carb “keto” diet trends, have been increasingly used by marathon runners, he said.
“It is a fermented product, technically, and it is something I could see being added to drinks,” he said.
Abda said spices and herbs are another broad food category that could be further developed for functionality in foods.
Growth in Foodservice
Foodservice is proving to be a viable channel for the introduction of functional ingredients, the panelists said.
VanEsselstyn cited her recent observations of the increasing use of sumac as an ingredient on menus, as one example.
Atlantic Sea Farms, a company backed by Branch Ventures, entered the market through the foodservice channel with the first branded seaweed salad in the market, Abda said.
Restaurants can generate buzz and media coverage around the use of functional ingredients, she said, which can drive consumer demand and opportunities in retail, she said.
“[Foodservice] is an important path for ingredients that may not be as familiar to consumers,” said Abda. “It works; it just takes time.”
Lockerbie noted that Better Booch has recently expanded its distribution into two foodservice accounts: Veggie Grill and Tender Greens. He also said he’s seen more and more restaurants adding kombucha, including both hard kombucha on tap and non-alcoholic kombucha.
Miller said building consumer awareness for the Conscious Foods brand will be an important part of Pairwise’s strategy when the company begins rolling out its products at retail next year.
“Our default strategy for our greens and berries is traditional retail,” he said, although he said the company remains open to foodservice opportunities as well.
Miller said that as functional foods grow in the market, transparency and communication will be key to consumer acceptance. Companies need to lead off their messaging with the benefits that their products provide to consumers, rather than the technology that is used to make them, he said.
Lockerbie said that when it comes to functional foods, successful branding will be key to consumer adoption.
“Our mission at Better Booch has been to create a ‘secret agent of health’ — which is a product that consumers crave and want, and they think about the functionality after the fact,” he said. “It’s not the functionality driving the marketing; it’s the brand driving the marketing.”
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