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Successful nutrition science in the global market. Presented by. Presentation. Director of a company dedicated solely, since 1995, to researching, analysing and forecasting developments in the business of food and health, globally. Offices in London, New Zealand, US and Finland.

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  1. Successful nutrition science in the global market Presented by Presentation

  2. Director of a company dedicated solely, since 1995, to researching, analysing and forecasting developments in the business of food and health, globally. Offices in London, New Zealand, US and Finland. Publishes New Nutrition Business. Julian is also co-author of Functional Foods Revolution, the best-selling (54,000 copies sold) and first-ever book on the business of functional foods, now translated into Japanese. He is also co-author of the The Food & Health Marketing Handbook.

  3. The challenge • Consumers may say in research that they know that: • “This nutrient is good for me.” • “I should have more of this good thing in my diet.” • “Environmentally friendly packaging is important to me.” • “I am interested in the carbon footprint of what I buy.” • But getting them to translate that into making a sustainable choice or a healthier choice when they are in the supermarket is driven by their beliefs about: • Taste • Price • Convenience • Packaging design • Their beliefs about “what is right for me as an individual” and “the future of the planet”

  4. Technology, health and environment • Yoghurts that are organic, GM-free, free-from • rBGH (bovine growth hormones) • Company donates 10% of profits to organic • farmers to help them convert and invest in • improving their production. • Plants enough trees each year to off-set its CO2 • emissions and is a carbon-neutral company. • Undertakes social campaigns, such as carrying • pro-gun-control messages on its yogurt lids • No advertising, the advertising budget is used to • fund the communication campaigns of child • poverty action groups

  5. Technology, health and environment • Ingredients include the patent-protected, clinically- • proven probiotic L. reuteri from Sweden’s BioGaia • and fructo-oligosaccharides (inulin) from Belgium’s • Orafti • No health claims on the label • Brand marketed on consumer benefits and wellness, • not on ingredients and disease-prevention • Growth from zero to a US$300 million brand. • Today the company is owned by Danone. • Stonyfield Farm founder and CEO Gary Hirschberg • became Danone’s chief strategist in North America.

  6. Danone grameen bank

  7. But who makes the money?

  8. Who earns what • In 2002 (the year Stonyfield sold out to Danone) the • brand had retail sales of $300 million. • Of this: • The retailers earned $100 million • Stonyfield earned an 8% pre-tax profit ($24 million) • after all costs. • BioGaia – Stonyfield was its biggest customer – had • total company sales of $2.8 million and was showing • an operating loss of $1.8 million • This brand made money for everyone except the • people who had done the science on which it was based.

  9. Few technologies turn a profit The flaws in science most commercialisation models are more apparent than ever. 2001 on behalf of a client we reviewed 50 IP-based nutritional ingredient businesses in Europe and North America. Criteria included must already have some commercial sales, must be established five years or more. Of the 50 only two were making a profit Reviewed same group 2003, 2005, 2008. Only six now making a profit, some disappeared, some absorbed by larger groups.

  10. Forbes Medi-Tech: What science commercialisation often looks like Total sales 98-08 C$62m (NZ$86.5m) Cumulative losses C$106.5m (NZ$148.5m)! Capital invested over C$100m (NZ$140m)!

  11. A path to commercialising science can only be based on understanding consumers and markets…

  12. “Health” has fragmented • Natural • Free-from preservatives • Free-from pesticides • Dairy-free • Lactose-free • Wheat-free • Gluten-free • Sugar-free • Reduced-sugar • Reduced-fat Today’s market for “health” is fragmented into many, often overlapping, niches - which means that nutrition-oriented products most often perform as niche products.

  13. The nutrition science life-cycle • Healthier products and ingredients appeal initially to early adopters and gradually evolve towards the mainstream. • Very few science-based products have yet made it to the mainstream. • The time to commercialise is long - plan for ten years. SALES Volume EARLY ADOPTERS - People with illnesses and allergies to fix and the “lifestylers” MASS MARKET Unit selling price (price per litre) TIME Source: Food & Health Marketing Handbook, Mellentin & Wennström

  14. Products that talk about medicalised benefits appeal most (only?) to those who need those benefits right now Sales of cholesterol-lowering products are niche! Even in Europe. Rarely do they account for more than 3% of any market (measured by volume). LIFESTYLE CONSUMERS MASS MARKET CONSUMERS TECHNOLOGY CONSUMERS Source: Food & Health Marketing Handbook, Mellentin & Wennström

  15. The lifestyle consumer • An early adopter if the product supports their self-image. • Willing to pay a price premium for health – but want ”wellness” products • Skews to higher income, education and age. LIFESTYLE CONSUMERS MASS MARKET CONSUMERS TECHNOLOGY CONSUMERS Source: Food & Health Marketing Handbook, Mellentin & Wennström

  16. Digestive health brand Activia is marketed with the same messages everywhere: Helps improve slow transit Helps improve digestive transit time Supported by message that helps reduce bloated feelings – a key message for women everywhere. Benefit can be experienced by the consumer The concept “works” across all cultures and has created a €2.5bn brand (NZ$5bn). 55

  17. Feel the benefit…

  18. The mass market consumer • Unwilling to pay a premium price • Prefer to get their benefits from trusted brands • Very slow to accept new ingredients – and may reject anything they have not heard of, • even from a trusted brand • Few examples of mass-market success NICHE MARKETS EARLY ADOPTERS MASS MARKET Source: Food & Health Marketing Handbook, Mellentin & Wennström

  19. Consumers prefer natural benefits over added science Pom Wonderful sales >$95m per annum. Despite selling at a 400% price premium to rival brands. Supported by $12 million of research into the heart health benefits of pomegranate juice. Minute Maid HeartWise achieved sales of $35m before falling to $20m.

  20. Feel the benefit…

  21. “Feel the benefit” – what consumers want most One of the biggest advantages a product can have is to deliver a benefit that the consumer can quickly see or feel. A benefit that consumers can feel is the underpinning of many successful brands and will become an even more important in a world in which people are becoming more careful about how they spend their money. • When people can feel the benefit that is being offered to them, they can see that they are getting value-for-money. • The best examples are: • energy drinks • products for digestive health • The two largest segments of the functional food and beverage markets.

  22. Convenient energy for mature consumers – the most successful idea of the last two years Carl Sperber, the marketing director for Living Essentials, which makes the successful energy brand 5-Hour Energy: “We’ve found an audience among working adults. If you’re a 35-year-old man or a bust mother, do you really want to be seen with a product called Monster, Freek or Power Horse?” 68

  23. Energy – new market segments await discovery • US market leader and new category creator is 5-Hour Energy: • 2008 market worth $250m • 2009 will be $700m • Despite recession. 68

  24. Energy drinks – another Asian innovation Red Bull has been on the market in Thailand. Red Bull in the west is still 50% owned by Thailand’s biggest brewing family. Energy shots are also an old idea in Asia… Otsuka Pharmaceutical’s Oronamin C energy drink brand is the biggest functional food brand in Japan, with annual sales of over JPY42 billion ($475 million/€317 million). Launched in 1965, it sells in a 120ml bottle.

  25. New energy shots category grows in recession despite super-premium pricing 59

  26. Digestive health – the biggest trend 19

  27. Digestive health beats recession Italian economy shrank by 6% - Activia sales grew by 19.5%, to €222.5 million (NZ$450 million), despite selling at a 100% premium to regular yoghurts. “It doesn’t have broad penetration among consumers but rather dedicated usage among a narrow slice of consumers – sales are driven by about 5% of consumers.” Source: Danone 27

  28. Digestive health beats recession • The US economy shrank 6% in 2009, but General Mills Fiber One grew by 20%, to total sales of over $225.28 million (€149.8 million). • Despite selling at a 50%-80% premium (compared on a price per kilo or price per ounce basis) over competing cereals. 28

  29. Anlene: the expert brand in movement and bone health Fonterra Brands’ Anlene, the world’s biggest clinically proven bone-health dairy brand. Annual retail sales in Asia in excess of $300 million (€200 million) and an average 75% share of the high-calcium milk market – despite selling at a 100% price premium to regular milk. Concentrate provides four times as much calcium as 250ml of regular milk. Clinically proven brand. But how does the consumer feel the benefit? 29

  30. Demonstrate the benefit

  31. Demonstrate the benefit

  32. Omega-3 products don’t deliver a benefit you can feel… According to Nielsen data, Australian sales of omega-3 milk have declined by up to 30%. Consumers not willing to pay 60% premium for omega-3 milk vs regular milk when benefit is not clear value-for-money. Müller Dairy dropped omega-3 from its Vitality yoghurt ingredients because it “didn’t make any difference” to consumers.

  33. Convenience: what consumers want most Whole fresh fruit is simply not convenient enough for today’s consumers. Even fruit companies, such as Australia’s Ardmona, must offer ‘fuss-free fruit’. 33

  34. Innovation in packaging creates new markets Innovation in packaging is needed to make innovation in science commercially successful. Many of the profitable niches of the last ten years are the result of packaging innovation + science. Packaging signals “this is different”

  35. “Benefit to me” - the key driver of choice

  36. SUV vs “Pious” Two houses side-by-side in same neighbourhood, same type of family homes, both households Generation X, both with kids of same age, with similar education and incomes – but different Individual values. STREET PIC OF PRIUS next to SUV

  37. Are environmental concerns a key driver for food? • “History does not repeat itself – people do.” • Winston Churchill • The trigger for change is when the personal benefit of changing • becomes clear. And even then… • The Greenland Vikings did not respond to climate change • and the depletion of their natural resources. • They were very reluctant to change their food habits: • continued to try and produce dairy and meat even as climate • change made it more difficult and eventually impossible. • refused to substitute with increased consumption of fish • (even though these were super-abundant in Greenland) • owing to low social status accorded to eating fish

  38. To change people must feel the benefit… Those at the bottom of the Viking economic pile were hit first and experienced hunger and deprivation. Those at the top were able to maintain their lifestyle and consumption habits right up to the point where their society could no-longer function. Without clear incentive people change very slowly.… Report on the first academic conference on the psychology of climate change, March 2009.

  39. First step on long road to consumer carbon awareness Tesco has trialed carbon labeling on orange juices and potatoes PepsiCo uses it on many products Many Scandinavian brands use carbon labeling 2007 Tesco told suppliers who were air-freighting product they must place a “by air” label on product because of consumer concern shown in research Tesco supplier ScotHerbs in Scotland was air-freighting fresh herbs from Israel and Tenerife This family-owned company was afraid it was going to spell trouble for their business…. 170

  40. Summary • Whatever challenges we face in the environment, whatever health benefits you • offer, people will respond slowly and only when the benefit of change is very • apparent and personal to them. • Consumer markets are fragmented into many niches, driven by a wide range of • benefits and “values”. • Accept the future of niches, choose your niche – focus on that totally, become an • expert in that niche. • Get as close to the consumer as possible – that is where value is captured most. • Focus on convenience and packaging innovation.

  41. Thank you for your attention Contact: julian.mellentin@new-nutrition.com Or visit: www.new-nutrition.com

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