#04: Exploring Trends In The Better-For-You CPG Food Market, 2023

Every time I walk into a Whole Foods, Sprouts, or boutique health food store, I think to myself, "This place was designed to take my money."

I'm a sucker for a healthy snack in cool packaging with lots of buzzwords.

Keto almond-butter cups? I'm in. High-protein, zero-sugar cereal? I'll go get a spoon. Cheese puffs made with quinoa and cheddar from grass-fed cows? Three bags, please. Reishi mushroom adaptogen coffee? Where's my mug!?

The products that I'm describing fall into the category of "better-for-you" consumer packaged foods. The "better-for-you" part is meant to distinguish and position these products from their more traditional, less healthy counterparts.

Magic Spoon is a good example. Their cereal looks and tastes like sugary children's cereal, but is "better-for-you" because of its low sugar, high protein, clean ingredient label.

Better-for-you food products have been lining grocery store shelves for decades.

Back in the 1960's, margarine was touted as the better-for-you version of butter. This was when butter was believed to be causally linked to heart disease. Consumers were looking for an alternative that retained many of the qualities of butter, such as a creamy texture and rich mouthfeel, with none of the heart-stopping downsides. Of course, it turned out that margarine was far less healthy than butter, which has since made a comeback.

Fast forward to the 1990's and early 2000's, where low-calorie, low-fat snacks were the better-for-you product of choice for anyone watching their waistline. The absence of fat came with the addition of loads of sugar, however, and these once "better-for-you" products have turned out to be quite the opposite.

But in the last decade, the better-for-you consumer food market has become far more sophisticated and nuanced than simple low-sugar or low-fat varieties of popular snacks.

Health conscious consumers are more savvy than ever, and they're looking to the ingredient label for more than just the calorie count. They care about what type of oils a product was made with, whether or not it's gluten free, and which type of artificial sweetener was used, if any. They also care about what beliefs and causes the brands that they buy support, such as fair trade, eco-sustainability, or organic farming practices.

It's important to understand today's health-conscious consumer because they're making purchasing decisions in a vastly different environment compared to just ten years ago. Today, health-conscious consumers have more information and choice than ever before.

Popular health and wellness personalities, such as Peter Attia, Andrew Huberman, and Max Lugavere, to name just a few, have provided free, high-quality education on nutrition, fitness, and health through their podcasts and social media. Hundreds of others, whether they're scientists, health professionals, or regular people with an interest in nutrition, have sprung up during the same time to give their opinion on the optimal human diet, many of whom have garnered a large and loyal following in the process. Consumers are also more aware than ever before of the impact that their buying decisions have on the planet and people who produce their food.

Fairtrade International, an organization that creates socially and economically fair trading opportunities for farmers and craftspeople with businesses who want to sell their products, reports that Fairtrade sales grew to $1.4 billion in 2020, up 18% from the previous year. Sales of certified organic foods have also increased in recent years, with the organic food market predicted to outpace growth of the overall food industry by 5% through 2027. The consumer health category is expected to outperform the overall CPG market in 2023, and consumers are expected to focus even more on the preventative health benefits of the food they buy. This prediction comes not only from data on consumer spending, but also from the growing desire of consumers to eat healthier and have less impact on the environment.

In recent years, whole new businesses have formed to make healthy, socially, and environmentally friendly food products more accessible to consumers. Hive Brands, founded in 2020, is an online marketplace that makes it easy to "buy what you believe in". Hive has their own certification process for brands that want to sell through their market, requiring them to meet specific standards for ingredient integrity, recyclable packaging, carbon footprint, and commitments to social goods. Thrive Market, another e-commerce startup, offers a one-stop-shop for consumers looking for organic and non-GMO products.

The two overarching trends driving consumer spending on better-for-you food products are education and accessibility. But there are other trends influencing this market, and they're worth exploring in some detail.

Today, we'll look at some of the top trends in the "better-for-you" consumer food industry, and what impact I expect them to have in the future.

Functional Foods

Outside of water, coffee is the most popular beverage in the world.

It's consumed daily by over a billion people worldwide. Some take it black, others with cream and sugar, and still others opting for whatever latest concoction Starbucks has thought up. But in recent years, a growing number of consumers have been looking for more than just energy from their daily cup of coffee.

Bulletproof Coffee, created by entrepreneur and biohacker Dave Asprey, gained popularity among those following low-carbohydrate and keto diets around 2017. The drink includes medium-chain triglycerides, or MCT oil, coffee, and grass-fed butter. Bulletproof Coffee is meant to provide mental clarity, burn fat, and provide lasting energy with no crash. MCT oil promotes ketone production in the liver, which our brains can use for energy when we've depleted our glucose stores, and the fat from the butter is supposed to level out the caffeine release and provide micronutrients.

The MCT oil and grass-fed butter in Bulletproof Coffee are considered functional ingredients.

The focus on adding functional ingredients to foods is part of the larger trend among consumers of viewing food-as-medicine, which we'll talk about a bit later. For now, all you need to know is that functional ingredients are any ingredients inherent in, or added to, a food product that may confer some tangible health benefit.

MCT oil has become a popular functional ingredient to add to coffee since the launch of Bulletproof. Brands like Super Coffee add it to all of their beverages, along with whey and plant protein.

Other coffee brands have sprung up to address different consumer health desires.

Four Sigmatic offers several ground coffee blends infused with different varieties of functional mushrooms, each offering a range of benefits. Their Think Ground Coffee, for example, contains organic Lion's Mane and Chaga mushroom, promoting "Mental Focus + Energy", and claims that consumers can "see results in as little as 7 days with focus that tastes unbelievably delicious".

The pandemic only ramped up consumer desire for functional ingredients in food, especially those that promote a healthy immune system.

Food products that contain pre- and probiotics have garnered special attention in this category. Recent research and popular science books that have been published in the last five years have made consumers acutely aware of the role that our microbiomes play in keeping us healthy.

Supergut, for example, makes protein bars, shakes, and drink mixes loaded with pre-biotic fiber from grains and vegetables, an ingredient known to support and feed a healthy gut microbiome. Good Culture has succeeded in making cottage cheese, among other dairy products, wildly popular in recent years, by promoting the rich probiotic content and simple ingredient profile of their products. Only a few months ago, they launched a line of lactose-free probiotic milk.

Functional ingredients are attractive to makers of better-for-you food products because they can be added to traditional staples, without disrupting the tastes and routines that consumers have developed, while enabling them to promote specific health benefits of their products.

This is important, because consumers are looking to address their health needs on an ever more granular level with the foods that they buy. Tastewise, a food and beverage research firm, reports that in 2023 consumers are expecting specific functional benefits from their foods at different times of the day. Consumer interest in ingredients that support metabolism are up 35% YoY, and interest in sleep support from functional ingredients up is 56% YoY. Foods that support reproductive health among women have also been trending upward, with 37% more women turning to food products with functional ingredients that support fertility in 2022 compared to 2021.

Nielsen, the consumer research firm, published a 2023 report on CPG health and wellness trends, highlighting the functional ingredients primed for high growth and expansion in the coming years. Monkfruit, a natural non-sugar sweetener, and turmeric, shown to help soothe inflammation, are both expanding into an increasing number of consumer products.

Big industry players have been slow to incorporate functional ingredients into their products, but have gone the route of investments and acquisitions of smaller health food brands to get in on the action. Companies like Kelloggs, Tyson Foods, and Mondelez have all spun up in-house venture firms and accelerators to gain a stake in the functional food movement, as well as keep up to date on the latest consumer trends.

In the coming years, I expect we'll see functional ingredients find their way into even more packaged food products on the market.

COVID-19

When COVID-19 broke out, it was quickly realized that metabolic health was one of the biggest mortality risk factors.

Many U.S. patients hospitalized for Covid were obese, and obesity tripled the risk of COVID-19 hospitalization for those who were infected.

The pandemic is largely behind us, but it has had a major impact on how consumers view the food that they purchase. Consumers have more of a mindset focused on food-as-medicine and preventative health than ever before, and are looking to food as a way to support long-term health and prevent disease.

The Hartman Group, a Seattle-based research firm, said in a 2023 report on the consumer health and wellness market, "consumers are centering their attention on fundamentals after the urgency felt during the pandemic. After three years with health and immunity as a top priority, consumers are refocusing on the basics – those aspects of health and wellness that are most important to them, most directly impact their overall well-being and quality of life, and that are most within their control."

Food is almost certainly at the top of that list.

Better-for-you CPG brands that can speak to consumers desire to bolster their health will likely do well now, and over the coming years. Victor Martino, a columnist for Just Food, says that COVID-19 is, "the key reason for this new state of health and wellness in America. It’s created a new mindset among consumers that’s elevated prevention and the role consumable food and beverage products can play in health and wellness to new heights of importance in day-to-day life, quality of life and longevity."

Before the pandemic, the global health and wellness food market was already projected to reach a record high valuation of $841 billion by 2022, but that number has since been revised to reflect changes in consumer spending catalyzed by Covid. Global Industry Analytics Inc., now projects that the market will reach a $1 trillion valuation by 2026, compounding 6% annually from 2022 onward.

As a subset of this market, the Better-For-You Food segment is expected to reach $183.7 billion by 2026.

Everyone wants to put the pandemic out of mind, and many have done so already. But the effect it had on how we view health and wellness, and the importance it put on preventing disease before it's too late, will likely stay with us of many years to come.

Food as Medicine

Tying all of these trends together is the concept of food-as-medicine.

The idea that nutrition is key to disease prevention has increasingly taken hold with consumers.  Market research from ICF Next in 2023 found that 78% of consumers strongly agree that eating the right foods will keep them healthy, and 76% believe that food alone may help alleviate certain health problems.

One key difference between food-as-medicine and dieting is that the latter is viewed as restrictive and reactionary, while the former is seen as prescriptive and proactive.

When eating for a specific diet, consumers feel pressure to remove certain foods, and often lower their calorie intake altogether, which has grown tiresome for many. In the Hartman Group's report, they say that consumer's have actually become frustrated with the proliferation of false promises and simple diet-oriented products, such as low-sugar and fat-free products, that turn out to be unhealthy in other ways.

Food-as-medicine, on the other hand, focuses more on introducing foods that confer a functional benefit, helping to prevent disease, and the need to diet, in the first place. Specific functional benefits, such as aiding in sleep, mood, and metabolism are now incredibly important to consumers, as we discussed earlier.

Of course, adding functional ingredients to food alone will not solve metabolic health problems. Dieting isn't going anywhere, as it's still a useful tool for weight loss and can be used to promote healthy eating patterns. But what's important to understand here is that consumers are expecting more out of the food they buy. They recognize that nutrition can be used as a therapeutic and tool in disease prevention over time, and they expect the foods they buy to contain high-quality, beneficial ingredients that support this.

The consumer research firm Nielsen recently put out a report on top wellness trends to watch in 2023, and food as medicine was top among them.

The report finds that consumers are proactively using food as medical support, up 19% from 3 years ago. More consumers are also focusing on how food can impact their longevity, focusing on products that claim to benefit cardiovascular health, sexual health, muscle building, and inflammation.

In a 2022 report from consulting firm Deloitte, it was found that 75% of consumers are seeking more personalized nutrition, further highlighting the desire for food that offers benefits specific to the individual over diets that offer a blanket solution. What's more, the study found that 52% of consumers report wanting to eat healthy food to feel good, whereas only 24% report wanting to do so to look good. This shows that consumers are thinking past the simplistic view of a diet being something they can use to shed a few pounds and look better come beach season, and more toward how the food they eat actually makes them feel on a day-to-day basis.

Better-for-you CPG brands that want to capture the growing segment of consumers who view food as a tool in disease prevention need to get some key things right, according to Victor Martino.

First, brands need to be authentic and truly committed to the mission of promoting consumer health. Consumers have been burned too many times by false claims and low-quality health food products. Second, they need to be competitive on price. Inflation has driven up the cost of CPG, with health-and-wellness brands being no exception. Better-for-you consumer foods are largely seen as products exclusively for the wealthy. There is an underserved market for affordable BFY food products. Third, better-for-you food product claims need to be backed by science and transparent about their ingredients and manufacturing process. Consumers of health food products are more savvy than ever. Brands that cut corners or try to obfuscate the validity of their product's health claims will be exposed. Finally, better-for-you brands need to prioritize being thought leaders in the health and wellness industry. Helping consumers learn about health and wellness and providing them resources goes a long way in building trust.

Wrapping Up

The better-for-you CPG market is a dynamic one that will be fun to watch over the coming years.

I think it's interesting to pay attention to because it's a good barometer for how consumers are thinking about their health. It's also reflective of evolving health and nutrition trends, something I always find fascinating.

Functional ingredients, the impact of Covid, and the concept of food-as-medicine for disease prevention are just some of the trends influencing this space. In the future, I plan to write about some of the other trends in better-for-you CPG foods that I'm interested in, such as the role that health influencers play.

Let me know in the comments which trends you're interested in!