New York City’s recent failed attempt to ban Big Gulp-sized sodas was an overt, high profile example of the growing movement to prevent ill health and disease through better nutrition. At the other end of that spectrum—past the proliferation of low-sugar, low-fat substitutes; foods augmented with health-boosting fiber and helpful bacteria; and even beyond the recent explosion in the vitamin and nutritional supplement sectors—a trend toward “pharma foods” has begun blurring the lines between meals and medicine.
 
In part, this is as wise as the adage “an apple a day keeps the doctor away.” But in this high-tech era, the trend is moving into very sophisticated and specialized territory, including, for example, nutritional shakesfor early stage Alzheimer’s patients.
 
In total, global nutraceutical sales were an estimated $142 billion in 2011 and are expected to grow to $180 billion by 2017, according to a PwC report“Food as Pharma.” But BCC Researchsaid the growth will be faster and higher, estimating the nutraceutical market will top $207 billion by 2016. What’s more, nutraceuticals command an average 25% profit margin, which is “well beyond the single-digit percentages that food companies make on many of their consumer products,” noted Pharmaceutical Market Europemagazine.  

Market Drivers
So what’s fueling this surging trend, and how can food and beverage manufacturers ride its waves?
 
A globally aging and more health-conscious population, coupled in the U.S. with prohibitive healthcare costs, is powering an ever-greater interest in the preventative, restorative and potentially therapeutic properties of food. More than one-in-three people now diagnose themselves using online resources, according to a recent Pew Research survey, and self-medication is also on the rise—including consumers who opt for nutritional products.
 
Understanding the various points of entry in the market is the first key for food and beverage manufacturers. Four major categories have evolved in wellness foods, as described by the PwC analysis:
 
·      Better-for-you foods that are smaller portions of traditional foods with less of the ‘bad stuff,’ including salt, fat and sugar—and now also ‘free’ of trigger substances such as gluten, wheat, dairy, etc.;
 
·      Functional foods supporting general health, such as probiotic yogurts, calcium-fortified milk and breads, cereals and more with boosted fiber;
 
·      Nutraceuticals, or food supplements in liquid and powder forms, which are “taken” like vitamins rather than eaten, but are derived from food rather than concocted out of artificial substances; and
 
·      Pharma Foods, which is the new frontier where lines between pharmaceutical and food companies are becoming blurred, typically involving a preventative or curative element for specific diseases or physiological function.
 
For food companies, this last category of products represent a vast and open landscape for innovation with higher profit margins, while for drug companies, the nutritional products arena is a low-regulatory space in which to expand their consumer base.
 
Both pharmaceutical and food companies can find themselves out of their comfort zone when it comes to pharma foods, with different barriers to entry.  Food companies will need to expand their R&D capabilities to enhance their scientific credibility while developing relationships with new types of partners, including drug stores and health practitioners. And pharmaceutical companies come with scientific credibility, but they will have to learn to compete on taste and to develop relationships with supermarket retailers.
 
Representatives of both industries are rushing to overcome these obstacles. In 2011, Nestlé created two new divisions: Nestlé Institute of Health Sciences and Nestlé Health Science S.A. The Swiss food giant followed that up with its largest acquisition to date, paying $11.9 billion for the infant nutrition division of pharmaceutical giant Pfizer—a sum the New York Times Dealbook calleda “high premium.” Also in 2011, French food giant Danone acquired Complan UK, which specializes in nutritional supplements, energy-drinks and meal-replacements.
 
Meanwhile, Pfizer and other pharmaceutical companies, including Reckitt Benckiser and Church & Dwight, are also gobbling up smaller vitamin and probiotic companies. Abbott Labs, which is already a big player in the nutritional market with its Ensure, Pediasure and Similac products, spun off its pharmaceuticals into a separate company, AbbottVie, last January.

How to Profit 
Though the big players have been first to get in the game, the nutraceutical space is open for companies of all sizes. Here are some ways to capitalize on the trend:
 
·      Market the health properties of regular foods, keeping an eye on the science. For example, cranberry juice has long been a go-to staple for chronic sufferers of urinary tract infections. In research publishedin the Canadian Journal of Microbiology in June, that conventional wisdom got a scientific boost with a study showing that cranberry juice acts to retard the spread of infections, which can shorten their duration.
 
·      Strive for a healthy balance of the less-good-for-you ingredients in product formulation. Nutritional label reading is on the rise with certain market segments paying close attention. Consider segmenting products with a healthier version that has lower sodium, less sugar or no gluten.
 
·      Consider adding one of the popular nutra-foods to your product formulation and market it. Ginseng, palmetto extracts and ginkgo biloba have well-known properties, and additional fiber or protein can also improve a product’s nutritional bottom line. Tetra Pak’s customers seeking to develop new product formulations have access to the R&D facilities at its Pilot Plant in Denton, TX.
 
·      When considering whether to approach the supplement or pharma-food sectors, understand the research and development costs and barriers to entry can be considerable. Partnerships between food and drug companies offer opportunities to maximize the upsides and minimize the downsides for each. Food companies bring experience with formulation, packaging, marketing and distribution while pharmaceutical companies have mastered the maze of meeting health claims and other regulations. Companies can cut costs and time-to-market by not trying to re-invent the wheel.
 
As the global population continues to age, preventive and curative nutritional products will continue to gain market share. Companies with the foresight to position themselves accordingly will be poised for healthy growth.