The pandemic of obesity and correlated
illnesses, such as diabetes and cardiovascular diseases, has
fueled a renewed interest in nutritional science as a means to
promote healthier eating habits. Increasingly informed
consumers are shifting preferences towards natural and
functional foods, emerging markets that bring major economic
opportunities. This article will discuss the most recent
trends in nutritional research and present the tax credit
opportunity available for innovative food companies.
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
New or improved products,
processes, or software
Technological in nature
Elimination of uncertainty
Process of experimentation
Eligible costs include employee wages, cost of supplies, cost
of testing, contract research expenses, and costs associated
with developing a patent. On December 18, 2015,
President Obama signed the bill making the R&D Tax
Credit permanent. Beginning in 2016, the R&D
credit can be used to offset Alternative Minimum tax and
startup businesses can utilize the credit against payroll
The Weight of
Several aspects contribute to the
unprecedented relevance of nutritional research. An increase
in the obese and overweight population has amplified health
concerns, particularly when it comes to weight-related
illnesses, such as heart disease, stroke, and diabetes.
The average American male is now 194 pounds and the average
female is now 165 pounds. Compared to weight levels from 1960,
men are 28 pounds heavier on average, and women 24 pounds,
while at the same time neither gender is more than an inch and
a half taller.
According to the Centers for Disease Control and Prevention,
more than one-third (34.9 percent or 78.6 million) of U.S.
adults are obese. A 2012 study published in the Journal
of Health Economics estimated the annual medical spending for
an obese person to be $3,271, as opposed to $512 for the
non-obese. At a national scale, this comes to $190 billion a
year in additional medical spending as a result of obesity, or
20.6 percent of U.S. health care expenditures.
The accompanying map illustrates the prevalence of
self-reported obesity among U.S. adults in 2013. Shockingly,
no state has a prevalence of less than 20 percent.
In response to the global pandemic of obesity and its
consequent burden on public health budgets, governments have
enabled tighter regulations for the food industry. These
include food labeling requirements that help consumers make
informed choices and maintain healthy dietary practices.
Soon to be implemented, the Food and Drug Administration’s
proposed Nutritional Facts label will require manufacturers to
separately list added sugars and to make the amount of
calories more prominent.
In November 2014, more than 75 percent of
voters in Berkley, California approved a special tax on sugary
drinks, making it the first U.S. city to pass such a measure.
The tax consists of a penny-per-ounce on sugar-sweetened
beverages, such as soda, energy drinks, and juices. This
precedent is likely to create momentum for other cities to
implement stricter regulations aimed at discouraging the
consumption of unhealthy food and beverage.
Nutritional science is key when responding to an increased
pressure that comes not only from governmental regulations but
also from ever more health-conscious consumers. The U.S. has
experienced a shift in consumer attitude concerning the
nutritional content of food and beverage and its relation to
recent survey by the nonprofit organization International Food
Information Council revealed that 71 percent of consumers
considered healthfulness a major determinant of how they
bought food, a 10 percentage-point increase from the 61
percent registered in 2012.
Naturality and functionality are two major trends in the
current food and beverage market. Nutritional and material
sciences are the basis for innovative efforts aimed at
creating new, healthier products and altering the structure of
The growing demand for “natural” food and
beverage has become an overarching driver of innovation. As
naturality becomes a basic consumer requirement, more and more
companies engage in making their products as natural as
Though definitions vary, naturality is often related to being
free from artificial colors, preservatives, or additives. It
is also linked to having as few ingredients as possible. The
transformative power of naturality is seen in the following
I. Organic and Gluten-Free:
Recent studies have proven that organic crops and
organic-crop-based foods contain higher concentrations of
antioxidants than conventionally grown foods. Conventional
crops also present greater concentrations of residual
pesticides and the toxic metal cadmium.
With an unprecedented demand and a growing presence among
traditional grocers, organic brands have experienced major
growth over the last few years. Organics are no longer the
domain of trendy; they are, actually, everywhere.
According to the latest United States Organic Food Market
Forecast & Opportunities, the U.S. organic food market
should experience a CAGR of 14 percent between 2013 and
2018. The Nutritional Business Journal expected the
sales of organic products to reach $35 billion in 2014, as
shown in the accompanying chart.
In 2014, organic products sold under
Kroger’s store brand reached over $1 billion. Kroger has more
than 35,000 products that are organic or natural, with about
one-sixth of those added in the past year.
Incorporating the nutritional and safety benefits of organic
foods into their products is a major challenge for many
companies. The surge in demand for organic food has fueled an
increased interest in local or small-scale brands with strong
focus on organics. Examples include General Mills’ $820
million acquisition of Annie’s, a California-based maker of
natural and organic pastas, meals, and snacks.
Gluten-free is also one of the fastest-growing food
categories. Market Research Company, Mintel, estimates the
category will produce more than $15 billion in annual sales in
2016, a 48 percent growth from 2013.
Over the past few years, gluten-free has gone from a celiac
disease-targeted, niche product to mainstream. According to
Nielsen, the portion of households reporting purchases of
gluten-free food products hit 11 percent in 2013, rising from
5 percent from 2010.
The value of gluten-free consumers cannot be overlooked –
their average grocery basket amounts to around $100, while the
one of a regular consumer is only $33. No wonder that a
growing number of food companies are engaged in nutritional
research aimed at expanding their lines of gluten-free
products. The challenge is to offer the same taste, texture,
and overall product performance of non gluten-free versions.
According to Rebecca Thompson, a marketing manager at General
Mills, when introducing gluten-free brownies, cookies, and
cakes, Betty Crocker went through a highly experimentative
process, which sometimes required doing a thousand different
samples to get the right recipe.
Ongoing innovation efforts focus on enhancing the quality of
gluten-free items, particularly when it comes to better
texture, longer shelf life, and increased levels of
nutritional benefits, including fiber, protein, omega-3 fatty
acids, and vitamins.
II. Fruits and Vegetables:
Research has continuously uncovered the benefits of fruits and
vegetables, which include their relation to digestive health,
immunity, satiety, sports recovery, glucose uptake and insulin
response, energy, and mood.
With the objective of capitalizing on consumers’ growing
demand for such natural health benefits, companies are making
fruit and vegetable innovation a new strategic focus. In 2011,
PepsiCo opened a fruit and vegetable research and development
center in Hamburg, Germany. The €17 million state-of-the-art
facility is intended to improve the quality and taste of
existing products and develop new product lines.
Acknowledging that many juices lack some of the nutrients
present in the whole fruit or vegetable, the company has
developed a method for improving the nutritional profile of
juices. It consists of adding fiber and polyphenol-rich
co-products from fruit and vegetable juice extraction back to
juices. PepsiCo’s research has shown that juices containing
skin, peel, pulp, and seeds provide various benefits, such as
increased satiety, better glycemic control, and improved gut
Spanish-French multinational corporation Danone is also
investing in the healthy juice market. Over the last years the
company acquired specialized businesses such as smoothie maker
Immedia and probiotic juice brand ProViva. It also engaged in
a joint venture with Charlotte, North Carolina-based Chiquita
Brands International, to market fruit-based drinks.
The U.S. has seen a proliferation of the juice market,
particularly raw and cold-pressed juices, which retain more
nutrients and oxidize more slowly than juices produced from
centrifugal machines with a blade. Promising benefits such as
increased energy, rejuvenated skin, and normalized digestion,
the so-called juice cleanses are booming all over the country.
Natural snacks are also an important trend. Companies are
investing in innovative methods that preserve fruits and
vegetables, making sure they become a part of modern,
on-the-go lifestyles. Such is the case of Crunchies Food
Company, America’s leading natural snacking brand. Crunchies’
patented freeze-drying process takes away water while
maintaining fibers and nutrients. Without the need for
additives or preservatives, the gluten-free, GMO-free snacks
are of great appeal to health conscious consumers.
III. Sugar and Salt Reduction:
Research from the Harvard School of Public Health has recently
tied sugary drinks to an epidemic of obesity in the United
States. Evidence is growing that exaggerated sugar
consumption can lead to fatty liver disease, type 2 diabetes,
cardiovascular disease, and kidney disease.
In the U.S., added sugar is used in approximately 75 percent
of packaged foods. It is added to foods by an industry whose
goal is to engineer products to be as irresistible possible.
Recent studies have shown that sugar is addictive and presents
drug-like properties, such as cross-sensitization,
cross-tolerance, cross-dependence, reward, and opioid
In a context of increasing awareness about the health
implications of sugar consumption, the rise of alternative
sweeteners stands out as an example of how naturality can
redefine the food market. Plant-based sweeteners, such as
stevia and Lo Han Guo, are gaining ground as substitutes of
artificial, arguably toxic aspartame.
According to Mintel and Leatherhead Food Research, the value
of stevia as an additive for use in food and beverage
manufacture totaled $110 million in 2013 and should to grow to
$275 million by 2017. Major companies are already
turning towards stevia to cut calories – Coca-Cola uses the
natural sweetener in more than two-dozen products globally.
Truvía, the stevia brand owned by Minneapolis-based Cargill,
is taking advantage of this market opportunity. In addition to
Truvía packets and spoonable versions, the company developed
the Truvía Brown Sugar Blend and Baking Blend, both specially
designed to replace sugar in desserts and baked goods while
cutting 75 percent of calories.
In the U.S., too much sugar comes together with too much salt.
Nine out of ten Americans consume exaggerated amounts of
sodium, most of it being in their food before it gets to the
table. Excess sodium consumption can lead to high blood
pressure, stroke, heart failure, osteoporosis, stomach cancer,
kidney disease, kidney stones, enlarged heart muscle,
osteoporosis, and headaches.
According to a review published in the New England Journal of
Medicine, consuming too much salt is responsible for more than
1.6 million cardiovascular-related deaths annually.
The U.S. Food and Drug Administration is expected to issue new
salt guidelines for the food industry aimed at reducing sodium
consumption. Research is underway to find potential
substitutes – seaweed granules, molasses, and nutritional
yeast are considered promising options.
The major challenge for food producers is that product choices
are typically shaped by longstanding habits and ingrained
preferences. In other words, one’s favorite food consistently
tastes the same. Meaningful changes in core ingredients for
food products require laboratory activity. For this reason,
large food manufacturers have huge contingents of chemists,
scientists, and nutritionists constantly seeking solutions to
concerns created by emerging awareness, particularly when it
comes to sugar and salt reduction.
Unilever, for instance, has already reduced the use of salt in
its products by 25 percent and is engaged in reducing the
sodium content by a further 15-20 percent. In addition to
pursuing alternatives to conventional salt, the company is
working on technologies that address sensory and taste
perception and would help understand ways that consumers can
experience satisfying taste while enjoying food with reduced
salt levels. The study of salt receptors in the tongue is
Some fast-food chains have been successful in reducing sodium
in their menus as well. Subway, for instance, reduced sodium
by 35 percent in their Fresh Fit sandwiches and 30 percent
across its entire sandwich menu in the past four years. This
was possible by cutting sodium in their bread and deli meats.
Industry leaders have also made significant progress towards
sugar reduction. As part of its commitment to improve the
nutritional profile of its products, Nestlé has reduced the
amount of table sugar in its products by 32 percent between
2000 and 2013. They have committed to a further reduction of
10 percent in certain products by 2016.
Proactive wellness is currently a leading
consumer dietary trend. As a result, functionality has become
another buzzword in the food and beverage industries.
Consumers increasingly look for products that bring benefits
beyond basic nutrition.
The so-called “functional foods” promise to promote better
health, increase longevity, and prevent the onset of chronic
diseases. The most popular functional foods often contain
fibers, antioxidants, heart-healthy ingredients, vitamins and
minerals, omega-3 fatty acids, vitamin D, calcium, and whole
Over the next three years, the U.S. is expected to become the
world’s largest market for functional foods, outperforming
Japan, which is currently the number one. According to
Leatherhead Food Research, the global market for functional
foods was worth $43.27 billion in 2013, an increase of 26.7
percent over four years. The U.S. was responsible for $16.5
billion of such sales, a 29 percent increase in relation to
The outstanding performance and revenue potential of the
functional food market has triggered significant innovation
and encouraged companies to explore new territories. In
America, the recent Greek yogurt boom is an iconic example.
The category, which represented merely 1 percent of total
yogurt sales in 2007, captured 44 percent of the market in
2013, leading traditional yogurt brands, such as Dannon and
Yoplait, to introduce their own Greek lines.
Throughout the country, food and beverage companies are
engaged in nutritional research aimed at developing new
products and formulations that contribute to consumers’ health
and wellness. The following sections explore the most
prominent trends in the functional food market.
I. Weight Management and the
Protein Opportunity: Food and beverage companies
are consolidating their presence in a niche previously
dominated by supplements and meal replacements. Weight
management has become one of the most important issues for the
launching of new, functional products.
Companies are investing in fiber and protein-enriched products
that offer enhanced satiety and help control the appetite for
longer. Kellogg’s Special K illustrates the huge potential of
the weight management market – the brand’s sales went from
$300 million in 2001 to $1.5 billion in 2010.
Special K’s intensive R&D has led to the development of a
wide range of products, including cereals, bars, chips,
crackers, and even treats, such as brownies and pretzels.
Innovation has focused on developing new recipes that help
consumers “outsmart temptation”. Recent examples include
high protein cereals and bars as well as the Nourish line, a
unique multi-grain blend of superfoods like quinoa, oats,
wheat, and barley.
General Mills has also invested in weight management products,
including Progresso Light, a line of more than 40 soups with
100 calories or less per serving, and Fiber One, a brand of
fiber-rich products, such as bars, cereals, brownies, and
The idea of a high protein, low carbohydrate diet as a
strategy for weight management has become increasingly
popular. Scientific and marketing efforts have consistently
linked protein ingestion to health and healthy weight, fueling
a significant surge in demand.
According to research firm Nielsen, U.S. sales of packaged
foods with protein-related claims on their labels rose to $7.5
billion in the year ending Feb. 15, 2014, a gain of more than
50 percent in comparison to the same period four years ago.
In this context, companies are developing new, more convenient
and on-the-go products that capitalize on the pro-protein
trend. Examples include Oscar Mayer’s recently launched P3
Portable Protein Packs, which contain 13 grams of protein from
food, such as cheese, meat, and nuts; Hormel’s REV brand,
which offers meat and cheese wraps with up to 16 grams of
protein; and Hillshire Snacking, all natural, gluten-free,
The pro-protein trend is also behind major financial
transactions, such as Post Holdings’ $2.45 billion acquisition
of Michael Foods, a Minnesota-based producer of eggs and dairy
goods, and private-equity firm TPG’s $750 million investment
in Chobani, America’s number one Greek yogurt company.
II. Energy and Performance
Nutrition: Increasingly health-conscious consumers
are also more active than ever. No longer restricted to
hardcore athletes and bodybuilders, a renewed sports nutrition
segment has emerged, appealing to recreational sports
participants, casual athletes, and gym exercisers.
recent report by Persistence Market Research valued the 2012
global sports nutrition market at $20.7 billion and projected
a CAGR of 9 percent between 2013 and 2019, when it would reach
The most popular products in this category are sports drinks,
which contribute to better performance and easier exercise
recovery. According to data from Euromonitor International,
sales of sports and energy drinks are expected to grow by 15
percent in off-trade value terms between 2013 and 2018,
reaching $17.9 billion.
Important trends in the sports drinks segment include the
development of ready-to-drink (RTD) protein drinks.
California-based Cytosport, the creator of the Muscle Milk
brand, has recently expanded its RTD line, which currently
offers six different products, including an organic,
gluten-free protein shake. Part of Gatorade’s rebranding
strategy, the Post Game Recovery Beverage, which contains
protein for muscle recovery, also exemplifies this trend.
Energy snacks are an important area in the sports nutrition
market. This segment has experienced a 14 percent CAGR between
2007 and 2012. Based in Emeryville, California, Clif Bar &
Company has been at the forefront of energy nutrition. The
company created a wide range of innovative snacks for athletes
and active people which include organic energy bars, chewable
and gel energy shots to be consumed while training and racing,
and electrolyte hydration shots that help the body absorb and
retain fluid for effective hydration.
Faced with ever more demanding
consumers, the sports nutrition industry must turn to science.
Current challenges include the development of high-quality
products that address endurance, muscle support, energy, and
recovery. In addition to complying with increasingly strict
regulations, such products must also appeal to a very diverse
market, which comprises athletes of all shapes, sizes, and
In this context, energy drinks stand out as a particularly
promising category. They have outpaced the growth in
carbonates in the last few years, and present a solid
opportunity for beverage manufacturers. Despite recent FDA
scrutiny regarding the safety of such beverages, 2013 energy
drink sales registered a 6.7 percent increase in the U.S.
alone, totaling $6.67 billion.
This positive trend should persist in the near future, as
energy drinks expand beyond their previous focus on consumers
aged 18-25 to reach older audiences. A recent report from
specialist food and drink consultancy Zenith International
argued that energy drinks is one of the most dynamic soft
drinks segments, with hundreds of new products being
introduced in the past three years. The recent multiplication
of “energy shot” brands is a telling example.
Research and development efforts have allowed for the creation
of innovative energy drinks with new functional claims, such
as memory and metabolic enhancement. The development of more
natural energy drinks has been the objective of various
companies, which aim at combining functionality and
naturality. According to Zenith International, other
innovation areas include new flavors, low calorie and low
sugar, innovative energy boosting ingredients, added
functionality, and organic ingredients.
Based in Corona, California, Monster Beverage is the leading
innovator in the energy drinks category. The company is
expanding its market share by introducing new products and
bold formulations, which include the noncarbonated Monster
Rehab, a combination of tea, lemonade, electrolytes, and
energy blend, designed to refresh, rehydrate, and revive
III. Health-Enhancing and
Nutraceuticals: It is widely known that diet and
nutrition can contribute to the treatment and prevention of
diseases. An increasing number of innovative food and beverage
companies are developing new, health-enhancing products that
give renewed meaning to the notion of “food as medicine”.
Major focus areas include diabetes, digestive health, high
cholesterol, and bone health. Present in over 30 countries,
Benecol is an example of a medical nutrition brand. Its
products contain a cholesterol-lowering ingredient called
Plant Stanol Esters, which is scientifically proven to help
block cholesterol from being absorbed into the digestive
system, reducing "bad" LDL cholesterol levels while
maintaining "good" HDL cholesterol levels.
With a predicted CAGR of 10.43 percent between 2013 and 2018,
the diabetic food market is a particularly promising area for
innovation. In fact, more than 1.6 million new
cases of diabetes are diagnosed in the U.S. every year.
In response to this daunting trend, Mendham, New Jersey-based
FIFTY 50 Foods is engaged in developing better tasting
products for people with diabetes. From peanut butter and
table syrup to cookies and chocolates, the company offers a
wide range of sugar-free food. FIFTY 50 is committed to
donating 50 percent of profits to diabetes research and has
contributed over $11 million since 1992.
Though consumers of all ages are increasingly concerned with
being healthy, seniors remain over-represented among buyers of
brands with health benefits.
Based on current trends, by 2020, 1 out of 5 people will be
over age 65 and 3 out of 5 will die from a chronic
disease. Nutritional therapy, and the so-called
nutraceuticals, can change existing medical paradigms,
providing alternative methods for disease risk reduction and
In this context, the Nestlé Institute of Health Sciences aims
to develop new products that effectively bridge the fields of
nutrition and health care. By bringing game-changing
nutritional solutions to the market, the institute hopes to
elevate the role of nutrition across six areas, namely, 1)
Aging Medical Care, 2) Critical Care and Surgery, 3) Pediatric
Medical Care, 4) Brain Health, 5) Metabolic Health, and 6)
Over the last four years, Nestlé Health Science made several
acquisitions and investments, the most recent being a $65
million investment in Seres Health, a biotech start-up based
in Cambridge, Massachusetts. Specialized in restoring the
microbiome, Seres Health should help find innovative ways to
treat diseases through the manipulation of the body’s
microbial organisms instead of through traditional drugs.
Anticipating major opportunities in the nutritional therapy
field, Nestlé also announced a partnership with Flagship
Ventures, a Boston-based venture capital firm, to help
incubate nutritional health start-ups.
Danone is also an important player in this market. The
Nutricia Medical Nutrition division aims to improve the
quality of life of people made vulnerable by age or illness.
It is responsible for two major innovations that promise to
increase the physical and intellectual independence of the
elderly – Fortfit, a nutritional supplement that slows
age-related loss of muscle mass; and Souvenaid, a
nutrient-fortified beverage for early-stage Alzheimer’s
patients, developed in partnership with the MIT.
As consumers become increasingly concerned
with health and wellness, food and beverage companies must
turn to innovation to remain competitive. Federal R&D tax
credits are available to support nutritional R&D efforts
aimed at responding to an unprecedented demand for natural and
functional foods and drinks.