Flavour of the month
There are many materials used in food processing that impart 'flavour' making the flavours market a difficult one to measure. This analysis focuses on 'top note' flavours, including single flavours, fruit flavours, essential oils and oleoresins.
Top-note flavours:
* Generally strong, concentrated/low inclusion rate
* Mostly developed as single focused additives, can be sweet or savoury
* Today, many flavours are extracted from a natural plant, fruit or root but top notes also include synthetic copies thereof as well as the inclusion of high impact aroma chemicals
* Top note flavours are generally used to impart 'true' flavours to food such as lime, orange, tomato, onion, coffee, chocolate, strawberry and vanilla
* Increasingly, top notes may also be blended to form more complex 'compound' flavours such as Thai, tropical fruits, beef or green tea
* Can be used alone or to boost a natural ingredient
Main uses:
* Confectionery (mainly fruit and mint flavours)
* Ice cream and yoghurt (vanilla, chocolate and berry)
* Baked goods (vanilla, fruit, coffee and chocolate)
* Soft drinks (cola and fruit flavours)
Further to the above, it is not always easy to define flavour. There are many examples where one ingredient may be classified in several ways: some colouring agents may impart flavour, and so on. In order to measure the usage of concentrated flavours (where usage levels may vary significantly) in a consistent way, we have often had to make assessments for each product segment based on average usage rates.
However, it is considered that the most important results of this analysis are the detail, consistency, orders of magnitude of the relevant markets and their trends.
In general, the trend of the 'base' market determines the growth in usage of the flavours contained therein. So if the market for ice cream grows, so will demand for vanilla and chocolate flavours for ice cream. However, there are some exceptions:
- Where the base market exhibits an increase in flavoured variants. In the bottled water segment there may be only 3% of waters that are currently flavoured but this percentage may be growing faster than total bottled water consumption itself
- Where more combinations of flavour, or stronger flavours, are being used
- In some markets there has been a trend towards more natural flavours. This has had the effect of increasing values faster than base market growth
- Conversely, market pressure has forced certain companies to remove flavours and substitute with natural ingredients. The soft drinks sector is a good example where the growth of juices and smoothies has had the effect of reducing the overall incidence of flavour usage. However, as the total sector continues to show fairly strong growth, this reduction of flavour usage may be disguised within the data
Volume and value measurements of flavours can also demonstrate differences in their respective fortunes. Because market values can be deceptive, we have also tried to measure the volume usages of flavour by segment. Together, volume and value data are capable of giving a better perspective on each segment's true performance.
Market size
RTS analysis puts the global market for flavours (as defined) to have been worth $6.16bn in 2005, at a usage of 280,000t of flavour material. Of this, savoury flavours account for about 24% by value. While the North American Free Trade Association (NAFTA) region dominates global usage with a 37% volume share, the EU(15) sits comfortably in second place with 22%.
This means that the EU(15) market for flavours equates to some 62,390t of material at a value of $1.85bn. Average annual usage grew by 1.8% between 2000 and 2005, although some slow down is now expected.
The largest market in the EU is Germany, followed by the UK. France is next, followed by Spain, Italy and The Netherlands. Over the past five years, the largest annual growth rate came from Spain, at 3.6% usage per year. Growth rates of around 2.5% per year were enjoyed by Sweden, Portugal, Ireland and Finland. The lowest growth was seen in Germany, at 1.3% per year.
As the food manufacturing industry is increasingly expected to perform the task of 'home-cooking' on behalf of the consumer, then it follows that there has grown a need for industrial ingredients of all types that make this possible. Flavours are not only an important part of this development but demand can be expected to continue to increase at a rate in excess of overall food consumption. However, in response to market trends, there are changes taking place in the nature of flavours being demanded, including:
* Quality (including 'freshness')
* Natural flavours/clean labelling;
* Stability and solubility of naturals
* Novelty and innovation (including ethnic)
In addition to attaining fresher-tasting food, market demands will increase for naturalness and purity. One result is that there will occur an even greater substitution of flavours, where possible, by more natural sources such as extracts, spices and pulps.
At the same time, the range and types of flavours and their functions will broaden. This will be in response to an industry attempting to provide its customers with an increasing variety of foods and formats served in an increasing variety of locations.
These key factors are conspiring to shape a yet more diverse and demanding food and drink market. This, in turn, leads to the conclusion that ingredient suppliers must be geared up to supply the industry with smaller quantities of a much wider variety of ingredients and special blends.
It follows that the industry must become more prepared to develop and target products to increasingly diverse sectors of consumer need. In addition, as foods more closely represent, reflect and enhance lifestyles, so they will compete more directly with other consumer goods which reflect the same values, such as clothes and leisure goods.
The current structure of the industry may have to change to accommodate such challenges. The supply of all ingredients may also need to change from single items towards more complex 'intermediate food products'.
Inevitably, new technologies will need to play their part in meeting the demands of the manufacturer (efficiency, application and delivery, cost-effectiveness, quality) as well as the consumer (freshness, novelty, safety, health, image).
For example, some new developments include new methods of encapsulation and extraction as well as the development of new flavours, flavour masking, enhancers and cooling agents.
Growth opportunities
RTS research has highlighted that the main areas of focus for growth and profitability over the next five years will encompass:
* Use of technology to improve extraction, flavour profiles and stability of naturals
* Soft drinks, which are still by far the largest segment but carry lower margins
* Developments in added value confectionery, cereals and baked goods
* Specialist areas of food and drink
* Improved application and flavour delivery
* Clean labels
* New and novel products
* Combining flavours with health and other functional ingredients
For the period 2005 to 2010, we expect to see a slowdown in the growth of flavour usage. Greatest annual growth rates are expected in Ireland, UK, Portugal and Spain. However, their annual rates will only be around 1.8%.
Germany and the UK will continue to dominate EU sales. By segment, beverages will continue to dominate usage. Although the rate of increase in usage of flavours in beverages is expected to slow slightly, there may be opportunities for adding value though innovation, the use of more complex flavours and stable naturals.
Whilst growth in the value and usage of top note flavours will grow slightly ahead of the market as a whole, performance may be suppressed due to a shift towards natural components and natural flavour alternatives such as herbs and spices, and their extracts.
For technological reasons this will not be possible for every food and drink product but there is a definite shift, especially in mature markets, to make consumers more aware of the contents of their food and, consequently, to reduce the number of 'chemicals' that have to be declared. Arguably, 'spice extract' looks better on a label than 'artificial flavour'.
So, while the expected level of flavour growth will be modest, it will continue to be greater than for the market as a whole. The significance of flavours in the food we eat will grow, although there will be greater competition from alternative flavouring materials.
In total, RTS forecasts that EU compound annual growth in the usage of top note flavours will be around 1.2% per year over the forecast period (2005 to 2010).
Value growth is expected to be slightly higher at 1.5%, due to increases in non-beverage usage and the opportunity to add some value in the beverage segment itself. By 2010, the total EU market will be worth around $1.99bn (at 2005 prices and exchange rates) with a volume of 66,000t.
Dominant markets
On a global scale, the US will continue to dominate usage of top note flavours with a share of 27%, although this will decline slightly as emerging markets develop. This is a much greater share than the next nearest country China, which has an 8% share (Germany currently has a slightly higher value share than China but is soon to be overtaken).
Growth by segment
By segment, beverages dominate in the usage of top note flavours and in terms of absolute growth.
Within beverages, soft drinks is one of the biggest product segments in terms of volumes consumed, with more than 300bn litres consumed globally in 2005, of which 82bn is consumed in the EU. Not only is the beverages segment large, but it also continues to show much better growth than for food as a whole.
Some way behind, the segments of meat and savoury, confectionery, yoghurts and desserts and biscuits, cakes and pastries remain the second, third, fourth and fifth largest segments of flavour usage, respectively.
Surprisingly perhaps, the fruit and vegetables segment is forecast to be among the top 10 users of top note flavours by 2010. This segment includes jams and preserves and processed fruits and vegetables, where there are many developments of convenience products using flavours.
In terms of additional growth forecast between 2005 and 2010, soft drinks will still outstrip performance of all other segments, putting on an additional $59M of sales over this period.
Value growth will be significant in the segments of meat and savoury foods ($13M), bagged snacks ($11M), biscuits, cakes and pastries ($10M), yoghurts and desserts ($8M) and confectionery ($7M).
Trends by type
Looking at trends by flavour type, in soft drinks, tropical flavours will continue to perform well. Citrus and berry flavours will hold their own but cola will lose share. Much growth, though, will comprise compound and exotic flavours. In confectionery, tropical and citrus should again perform well, but again, it will be the combination and 'fantasy' flavours that will show the highest percentage growth.
In summary, growth in demand will slow slightly as the market for flavours becomes more competitive with a greater variety of products demanded for a wider range of applications.
Technology will play its part but pressure on prices will remain as manufacturers (customers) cope with their own price pressures. In addition, high rates of new product development will be needed in order to respond to even more changes and demands from the marketplace.
Taken from the latest RTS Express reports. For more information, contact Jamie Rice on +44 (0)1902 422282 or email:
jamie.rice@rts-resource.com
