High R&D costs a barrier to prebiotic growth
manufacturers of the gut health ingredients prebiotics looking to
drive into the soaring US market.
Currently valued at $15 million (€12m) in 2003, the market is projected to reach $103.2 million (€85m) by 2010, according to a new report from market analysts Frost & Sullivan.
Started at a grass roots level in smaller facilities, the large multinational companies are now on board and trying to focus on nutrition science to add value to their products and thereby leverage their profit margins.
"Validation from well-controlled, multi-expertise trials that are mechanism driven is perceived as an essential requirement for the prebiotic industry to grow," writes Frost & Sullivan.
Although scientific validation is a prerequisite for success, prebiotics manufacturers are hampered by the high costs of R&D activities. Labs, research equipment and the hiring of trained professionals require substantial investments.
"If initial expenses are very high, it is extremely difficult for manufacturers to get adequate return on investments," said Frost & Sullivan research analyst Savithri Ramalinga. "While linking the products with health benefits can generate greater demand, it is challenging in terms of time, resource and investments."
The impact of this challenge is likely to be greater for pioneering entrants. Late entrants that adopt the 'imitate and improve' strategy can take advantage of their lower R&D costs to meet profit margins. On the other hand, pioneers have the advantage of possessing greater mind-share among end users.
Currently, most mass-market consumers have only an ambiguous understanding of the actual benefits offered by prebiotic ingredients. While most consumers are aware of companies that manufacture food and beverages, they are unaware of the companies that manufacture the ingredients that go into the products. Raising awareness levels is, therefore, integral to expanding the prebiotic market.
"Though awareness levels are low, health consciousness is slowly becoming a trend," adds Ramalinga. "Increasingly, consumers are beginning to go through the food labels and ingredient listings before making choices and manufacturers are recognising consumer education as being the corner stone of any marketing strategy."
Prebiotics have successfully been incorporated into a wide variety of products such as baked goods, sweeteners, yogurts, nutrition bars and meal replacement shakes.
Like their European counterparts, American consumers are increasingly opting for natural alternatives over conventional medicine to promote general well being. The market for functional ingredients like prebiotics is poised to expand.
According to the report spending on advertising and marketing efforts are likely to prove profitable in the long term.
'Authentic claims go a long way in establishing communication with consumers. Consequently, companies with nutritional labels that impart healthy, feel-good messages are likely to elicit very positive responses from consumers, who are ultimately the driving force behind any market,' adds the report.
The overall European prebiotics market is still at an embryonic stage, with the €72 million fructan (inulin and fructooligosaccharide) segment the most developed. The market for resistant starch products is still developmental with that for other prebiotics (galactooligosaccharides, lactosucrose, soy oligosaccharides and tagatose) even less advanced.
This is reflected in the small number of suppliers in the fructan segment - leaders include Beghin-Meiji, Cosucra, Orafti and Sensus. Competition is, however, set to intensify following the entrance of several new market participants attracted by the growth potential in this segment. According to Frost & Sullivan, the market will grow to €179.7 million by 2010.
