It seems like the North American Food and Beverage sector will
have to take the saying "Health is Wealth" a little more
literally. The sector is witnessing changes in consumer
preferences toward health and wellness and "good-for-you"
products due to rising health consciousness and increasing public
and governmental concerns regarding obesity and other
The American Heart Association estimates that currently about
one-third of U.S. adults are obese. If the current obesity growth
trends continue, total healthcare costs attributable to obesity
could account for as high as 16% to 18% of US health
expenditures. A number of factors are often cited for this
harmful trend -- for example the rise of motorized transport and
sedentary jobs -- but the main culprit seems to be unhealthy food
Health consciousness is inevitably increasing among the masses
and Americans are gradually refraining from high calorie soft
drinks and energy-dense food high on fat and sugars but low on
vitamins, minerals and other micro-nutrients. As a result, the
demand for healthier food and beverage alternatives is
Accordingly, food and beverage companies are fast changing
their priorities to focus more on health and wellness products.
The companies are coming to realize that future profit and sales
lie not in a sugar-laden fizzy can.
Are Colas Losing Their Sizzle?
Beverage giants are witnessing declining sales of carbonated
beverages, especially the colas, due to this emerging health and
wellness fad. So growth in the beverage segment is possible only
by shifting away from high calorie carbonated beverages to
healthier products like juices, energy and sports drinks.
The Coca-Cola Company
) is expanding its portfolio of non-carbonated drinks which
include Powerade sports drinks and Minute Maid fruit juices.
Coca-Cola Enterprises Inc.
) is also slowly shifting its product mix from colas to energy
drinks and other non-carbonated beverages.
) is looking beyond its traditional coffee business and making an
effort to bring more nutritional and healthy products to its
menu. These include Evolution Fresh juices, Starbucks Refreshers
energy drinks and new wholesome Salad Bowls. Starbucks vows to
post calorie information on its menus across its U.S. stores
Offering healthier versions of their existing products is also
a smart trick adopted by some of these soft drink companies to
lure customers. To reinvigorate sales of its sparkling beverages
like Coke and Fanta, The Coca-Cola Company is offering more
choices to customers in package sizes, sweeteners and beverages
(including more low- and no-calorie selections).
Its no-calorie version of Coke -- Coca-Cola Zero -- is doing
quite well. In fact, a market research conducted by the cola
giant during the London 2012 Olympics showed Diet Coke, Coke Zero
and water accounted for 73% of their sales, with red-label Coke
only making up 23%.
) low calorie cola, Pepsi Next, which contains 60% less sugar,
achieved nearly $100 million in retail sales in less than 12
months in the market. PepsiCo is now making evolutionary natural
sweeteners and flavorings aimed at reducing calories to
re-vitalize declining sales of its colas. The food and beverage
giant also aims to grow its nutrition brands like Quaker,
Tropicana and Gatorade.
Following the success of Dr Pepper TEN (the low calorie
version of its Dr Pepper brand of soft drinks),
Dr Pepper Snapple Group Inc.
) plans to expand its TEN platform to revive its carbonated soft
drinks (CSD) sales. Accordingly, the company launched TEN
versions of 7UP, Sunkist Orange Soda, A&W Root Beer, Canada
Dry Ginger Ale and RC Cola brands in the U.S. in early 2013.
Coca-Cola Enterprises has already launched products with new
sweetener alternatives, such as the zero-calorie sweetener Stevia
in both Nestea and Sprite.
With consumers becoming more and more aware of the pitfalls of
obesity and its popular connection made with CSDs, the beverage
makers are donning the role of the new health pundits. In their
more responsible avatars the cola giants are not only providing
transparency in labeling but are also promoting fitness and
nutrition education programs.
Food Companies Not to Miss Out on the Health
Food companies are also working hard to meet the evolving
demand for food products with improved nutrition or simpler
ingredients. Some of
General Mills Inc.
) recent innovations, mainly in the yogurt category, add more
nutritional value to the packaged food with more fruits,
vegetables and fiber, and less fat content.
This global consumer food company has also expanded its U.S.
organic and natural foods business. The idea is to appeal to the
growing number of health conscious customers that prefer the
convenience of packaged food without compromising on health.
Kraft Foods Group
), which was split off from
Mondelez International Inc.
) last year, also offers a variety of products with improved
nutritional profile like Planters NUT-rition, Oscar Mayer Selects
and more low-fat cheese options. The packaged food company has
also re-formulated products to add beneficial ingredients,
fruits, vegetables and vitamins. Its Capri Sun Super V beverage
contains a full serving of fruit and vegetables.
Convenience food maker
Campbell Soup Company
) strategy has been to make its existing portfolio healthier
through initiatives such as reducing the sodium (salt) content in
Tyson Foods Inc.
) chicken business has gained momentum recently as an increasing
number of health-conscious consumers are opting for chicken
instead of red meat because of the associated health risks.
Demand for burgers, seafood, pizza, soup and pasta has declined
in the past few quarters giving way to servings of breakfast
sandwiches, chicken nuggets, tacos, fried chicken and wraps.
Restaurants Not to Lag Behind
Of late, it has been a fad among U.S. eateries to serve a
healthy menu owing to consumer preference for fresh, organic,
nutritious and low calorie food.
Upscale Mexican restaurant chain,
Chipotle Mexican Grill Inc.
) is seeing consistent traffic growth at its restaurants as
customers endorse its naturally raised/locally grown ingredients
like pork, chicken and beef. Chipotle is the only national
restaurant company to use fresh produce since 2008.
Offering gluten-free or 'wheat-free' foods is also fast
becoming another trend for restaurant chains. Though these foods
are not exactly low calorie, they do provide alternative choices
for people with food and dietary restrictions. While
Domino's Pizza Inc.
) offers gluten-free crusts, coffee and baked goods chain Dunkin'
Donuts owned by
Dunkin' Brands Group Inc.
) sells gluten-free pastries in some markets.
Is the Health and Wellness Trend Here to Stay?
The food and beverage companies can price their healthier
products at a premium to cash in on this emerging trend. However,
tight consumer spending trends and a shift towards lower priced
products will act as a headwind.
Cash strapped consumers may decide to forego expensive health
food for cheaper but simpler products. Thus the challenge is to
provide value products with health benefits. The companies'
capability of crafting healthy products at a reasonable price
should finally emerge as the real winner.
COCA-COLA ENTRP (CCE): Free Stock Analysis
CHIPOTLE MEXICN (CMG): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
DUNKIN BRANDS (DNKN): Free Stock Analysis
DR PEPPER SNAPL (DPS): Free Stock Analysis
DOMINOS PIZZA (DPZ): Free Stock Analysis
GENL MILLS (GIS): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
KRAFT FOODS GRP (KRFT): Free Stock Analysis
MONDELEZ INTL (MDLZ): Free Stock Analysis
PEPSICO INC (PEP): Free Stock Analysis Report
STARBUCKS CORP (SBUX): Free Stock Analysis
TYSON FOODS A (TSN): Free Stock Analysis
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