Pierce Hollingsworth

Annual “healthy foods” sales in the United States last year were pegged at $20 billion, with a 10% annual growth rate, according to Datamonitor, a New York research firm. These figures include all nutritionally enhanced foods such as orange juice with calcium, vitamin-enhanced cereal, breakfast bars, and herbal-fortified beverages. However, Datamonitor doesn’t include organically grown meats and produce, often included with healthy foods.

Highlights in some of the “healthy” categories are surprising for both their size and growth:
• New Age beverages, which the retail trade defines as bottled functional drinks, fortified teas, sports drinks, and smoothies, will hit nearly $9 billion in sales this year.

• Sales of natural foods, which includes organics and some processed foods without added sugars, salt, or preservatives, are climbing at the rate of 15% per year, according to Natural Business, an industry newsletter.

• Sales of meat alternatives jumped 41.7% in conventional retail stores and 17.7% in natural food stores during last year, according to AC Nielsen.

• Frozen natural foods are hot, with sales of frozen entrees, pizza, and convenience foods increasing 18% in conventional supermarkets and 23.7% in natural foods stores for the same period, according to AC Nielsen.

• Organic frozen foods will have a compounded average annual growth rate of 40% through 2002, according to the Organic Trade Association.

• Specialty tea sales, including herbal and green tea, grew 14% as a category last year, according to Traditional Medicinals.

• Bagged and packaged green tea sales increased from $294 million in 1998 to $347 million in 1999, according to AC Nielsen.

Driving this growth are two generations at opposite ends of the age spectrum—Gen-Y and the Baby Boomers. Gen-Y is today’s teenagers, and its buying muscle rivals that of its Boomer parent generation. Today’s teen population should continue to expand until 2010, when the number of 12- to 19-year-olds will hit 35 million, according to Teen Research Unlimited, Northbrook, Ill. The firm estimates that the current 29 million teens will spend $100 billion on food, clothes, music, and entertainment this year and will have a big impact on family food purchases. More than half of teenage girls and a third of teenage boys do some food shopping weekly for their family, and they buy what they like. This adds up to $50 billion, or about $58 per week for teen food shopping. The food dollars go to predictable choices—pizza, macaroni and cheese, hot dogs, salty snacks, ice cream, and cookies. But an increasing portion is spent on healthy alternatives.

“Kids today are much more health-conscious than ever and recognize the benefits of eating healthy alternatives such as fruit, raw vegetables, and yogurt,” states Paul Kurnit, president of Griffin Bacal, a New York, N.Y.–based communications agency whose Kid Think division specializes in the youth and family markets. “What is really surprising is the number of kids who enjoy snacking on healthy foods.”

Teens are extremely brand conscious. “The act of buying can be one of independence or conformity, self-expression, or socialization,” says Peter Zollo, author of Wise Up to Teens: Insights into Marketing and Advertising to Teenagers. “Since they have yet to inherit the financial responsibilities adults have, they are free to spend their money as they wish, giving them the ability to affect brand sales in a big way. Being cool is the central factor in whether or not to purchase a particular brand.”

Arizona Iced Tea markets New Age beverages to teens through innovative packaging and products. “They have created momentum for the brand through a discovery strategy,” states Robin Austin, a principal with Fusion 5, a Westport, Conn., marketing and consulting firm specializing in teens. “Most companies want to go out and tell everyone what they have done. Arizona Iced Tea isn’t big on conventional marketing, and as a result it gets a lot of people talking among themselves about the company and the products.”

This marketing philosophy has helped several niche companies achieve success where major players have stumbled. Just weeks after Kellogg killed the rollout of its home-grown Ensemble line of functional foods late last year, the company announced plans to double the advertising budget for its new Worthington Foods acquisition. Kellogg purchased the successful Worthington, Ohio–based company for $307 million because of its enormous brand strength in the healthy foods market. Worthington Foods’ Morningstar Farms line, which commands a 50% share of the loosely defined veggie foods segment, is the biggest meatless food brand in the U.S. Sales totaled $170 million last year, with average growth around 15% per year for the past several years.

Global giant H.J. Heinz entered the healthy foods market last year through the acquisition of Hain Food Group, Uniondale, N.Y. Hain had grown at a rate of nearly 20% per year since its formation in 1993. Last year’s sales totaled $330 million, with products like Westsoy soy milk–based beverages and Terra Chips.

In addition, independents like Amy’s Kitchen, Santa Rosa, Calif., are pushing natural and organic foods further into the mainstream. It is one of the pioneers in frozen natural and organic foods. “Growth in the natural frozen food market is coming in both mainstream grocery and natural food stores,” states Andy Berliner, company president. “But grocery is growing faster, largely because of expanded distribution over the past few years. Everyone realizes it’s not just a fad, it’s a trend.”

So, while big companies are pushing into healthy foods, it’s at least partly through purchase of smaller companies that have niche-specific, special-interest, successfully marketed foods. These smaller, niche-specific product companies are a major source of new products, both for major company purchase and for consumers looking for something different and specific.

Contributing Editor