Natural flavors and ingredients are some of the fastest growing food and drink trends. Consumer desire for natural ingredients, an overhaul in the FDA regulations, and increasing pressure for more understandable product labels have fueled the acceleration in naturally flavored products.

The supply chain for natural and organic ingredients, however, can be rife with landmines for food and beverage companies. Launched and failed products litter the product launch roadside as casualties of consumer desire without purchase. The natural flavors global market alone is worth $3.3 billion though it is unlikely that synthetic additives will be entirely replaced by natural or organic alternatives. It is expected to grow at a rate of 9.1% per year as products steadily move toward natural ingredient replacements. Food additive sales as a whole are estimated at $24.5 billion with a forecasted growth of 2.5% annually.

Consumer Demand Versus Actual Purchase

The Newport Consulting team has worked with food companies that find themselves in the natural ingredient versus low cost end product conundrum. Natural, organic and fair trade trends started several years back. Innovative companies eager to take advantage of this trend began formulating new products and ingredients touting these benefits. They wanted to be a first-mover into the marketplace. However, many of these companies often found themselves with fledgling new products. Consumer demand indications were not inline with actual consumer purchase.

The dilemma was between the need for natural organic products and the associated higher costs of producing them. The coffee industry has been a leader in organic and fair trade offerings. However, this industry is sensitive to the raw material costs where even a five-cent increase can be the difference between offering a viable fair trade organic product, and not being able to do so. Sometimes wanting to offer natural ingredients and convincing consumers to pay for them are at opposite ends of the spectrum.

Consumer buying patterns show that just 10% of the population is adamant about buying natural and organic foods regardless of economic factors. The rest of the population tends to buy better-for-you-foods when they believe they can afford it. When economic times get tough, they purchase more economical foods that are typically made with synthetic additives. Synthetic additives are cheaper to produce and thus easier on the shrinking consumer wallet.

The rising costs of raw materials and the energy needed to both process foods and transport them to market are increasing food prices generally. The added expense of creating natural and organic foods adds another price premium that some consumers desire but simply won’t pay. This is slowly being overcome through increased demand coming into alignment with buying behavior. The supply to and increased purchasing power of large multinational, multi-product companies is also providing commodity market stability. This in turn encourages more farmers to supply non-GMO, natural and organic raw materials.

In Part 2 of the natural additives discussion, the purpose of food additives will be discussed as well as the trends and regulations in food additives for the coming years. Part 3 will discuss the advantages of a sustainable and traceable supply chain.