• by Karlene Lukovitz  @KLmarketdaily, May 26, 2009

While many categories would have welcomed 6% growth last year, that represented a slowdown for functional foods, which grew by 8% in 2007.

U.S. sales of functional foods and beverages -- defined as those that offer a health advantage beyond basic nutrition and employ this as a primary point of market positioning -- rose from $26.9 billion in 2006 to $29 billion in '07 to $30.7 billion last year, according to a new study from Packaged Facts (PF).

To some extent, the numbers reflect category maturation after an extended period of accelerated growth. Sales of the largest functional categories grew at a compound annual rate of 8% between 2003 and 2008 in retail outlets tracked by Information Resources Inc. (IRI), points out PF's "Functional Foods and Beverages in the U.S."

The slowdown also reflects consumers' reduced ability to afford non-essential and more costly specialty items, and the impact on specialty item sales of consumers' continuing shift to shopping at Walmart and other discount retailers.

On the other hand, functional products have some advantages over other specialty products, point out PF's analysts. Consumers are more concerned about maintaining their health in the poor economy, and they may justify spending on functional products as saving them money in the short term by combining food with nutrients that they would otherwise have to buy in the form of more expensive supplements, and as saving them money in the long term by reducing medical expenses.

While single-serve convenience packs may be a tough sell in this economy, "the time is right for value-sized, bulk and multi-pack" versions of functional products, PF advises. Value sizes also offer the advantage of being well-suited to the discount formats attracting growing numbers of consumers.

The analysts expect functional F&B product growth to ramp back up as the economy improves, and project sales to reach approximately $43 billion by 2013.

Yogurt continues to be the largest functional category, with IRI-tracked sales of $3.3 billion for the 52 weeks ending October 5, 2008 -- an 11% increase versus the same period in the previous year. The next-largest categories are canned/bottled tea ($1.2 billion) and cereal/oatmeal ($891 million), although sales for both were flat for the measured period.

Categories showing significant sales gains included energy drinks, refrigerated kefir/milk substitutes/soymilk, refrigerated blended fruit drinks, nutritional snacks/trail mixes, refrigerated juice and drink smoothies, ready-to-drink milk/milk substitutes, and "all other" refrigerated fruit juice. Those showing significant declines included other snack/granola bars and refrigerated cranberry cocktail/drink and juice/juice blends. Breakfast/cereal/snack bars and shelf-stable cranberry juices continued to show sales increases, however.