Weekly comment: Food prices
Will value-added lose out to the basics?
to reduce their reliance on commodities, which can fluctuate wildly
and deliver slim margins. But now that prices of basic foods are at
an all-time high, can value-added foods still compete for their
share of the consumer buck?
The value-added strategy is one that has figured large for food ingredients firms. For instance, DSM Nutritional Products has spent the last three years consolidating the mature vitamin portfolio that came with its acquisition of Roche Vitamins, as stiff competition meant this was no longer enough to stand head and shoulders above the rest. Instead, it has been ushering in exclusive healthy ingredients, like Fabuless to aid weight management, and the purified green tea extract Teavigo. Likewise Tate & Lyle saw its sugar prospects darken under the shadow of sugar reform, and has been busy refocusing on the health and wellness market. Amongst the first ingredients to emerge from its pipeline are its Promitor fibres. The benefit of value-added ingredients is that, by and large, they offer something special or even unique. This is often in the form of a health benefit that can be leveraged to transform a basic food into a functional food. As such, value-added ingredients can command a higher price, and so can the finished products they are used in. Indeed, the fortified and functional packaged foods market has been marching mainstream. Euromonitor International valued Western European sales at €10.88bn in 2006, a 12.1 per cent increase on 2005. But the big question now is, how attached have consumers become to these benefits? And will they still be prepared to shell out for them at a time when the foods they need for basic survival are costing them more? Put yourself in the supermarket aisle. Thanks to wheat fetching unprecedented prices, the loaf of bread you usually buy now carries a price-tag that is a few cents or pence more than last week. A pint of milk is more expensive, and the joint of beef you had planned on roasting for a family dinner on Sunday is going to cost you more than you had budgeted for. You only have a set amount to spend on your groceries. So can you really justify spending an extra euro or pound on a special probiotic yoghurt, instead of the run-of-the-mill variety that you would have enjoyed without a second thought? The mind of the consumer is a scary place, with uncharted nooks and crannies. And of course, everyone has different priorities. There are some who will forgo a packet of chocolate biscuits to get the probiotic yoghurt. Others will be unwilling to cut back on food at all, and will instead reduce their spending in other areas so as to keep buying the goodies they are used to. The latest edition of Defra's Family Food report for 2005 to 2006 found that expenditure on household food and drink in the UK rose by 2.2 per cent to £23.56 per person per week. While spending on fruit was up 12.9 per cent and on vegetables 6.3 per cent, spending on confectionery actually fell by 7.7 per cent. Soft drinks also suffered a dip in spending, by 5.7 per cent. The report authors took these data as pointers towards a general swing towards healthier eating. Although there is a vast difference between basic fruit and veg and packaged foods with added benefits, it would be unfair to say that there is no place for value-added foods in the current climate of high food prices. But it would be sensible to proceed with caution, and not put all your omega-3 enriched eggs in one basket. As there are still some people who regard health products as a luxury and ditch them just as fast as their guilty pleasures when the pressure is on, food companies could be advised to keep an open mind - and not presume that value-added is going to equal added profit forever. Jess Halliday is editor of award-winning website FoodNavigator.com. Over the past decade she has worked in print, broadcast and online media in both Europe and the United States. If you would like to comment on this article, please email jess.halliday'at'decisionnews.com