Growing Popularity of Nutritional and Health Products Helps Sustain Demand for Flavors

12/01/06 With consumers across the globe becoming more health conscious, demand for nutritional and healthy food is on the rise. This growing trend is, in turn, having a positive impact on the demand for flavors as consumers are not willing to compromise on taste, according to Frost & Sullivan. Hence, with strong growth forecasts in the low fat and low sugar foods and beverages market, there is bound to be a continued increase in the global demand for flavors.

The consistent development of new and innovative flavors is also driving the growth of the flavors market. As consumers today are more receptive and appreciative of foods and ingredients from across the globe, manufacturers are continually researching new products and tastes to tap into this market. As a result, flavor houses are developing new exotic flavors such as lychee and guava as well as providing novel combinations of original favourites such as strawberry and mint. Furthermore, they are producing tools to help manufacturers precisely define the flavors they want and this extends to preferences in cooking techniques such as roasting, grilling, or frying for meat flavors. "Considering the highly progressive nature of the flavors industry, major market participants are making significant investments in R&D activities in order to differentiate their product offerings," notes Frost & Sullivan Research Analyst Kaye Cheung.

"Hence, the development of new technologies and delivery systems that improve the application of flavorings in food products is likely to be crucial to the future development of this highly competitive market." Among the key challenges affecting the flavors market is the growing trend toward consolidation and the increase in price pressure. The top five market participants account for an estimated 54.0 percent of total revenues and large flavor houses are expanding their application base by acquiring smaller specialised companies.

Smaller flavor companies are finding it difficult to stay competitive as a result and the trend toward consolidation is further spreading down the supply chain, reducing the customer base for ingredient suppliers. On the other hand, pricing pressure is partially as a result of the increasing consolidation in the fast moving consumer goods (FMCG) market.

Due to their heightened buyer power, large food manufacturers operating on a global scale are exerting pressure on flavor suppliers to reduce their prices. In dealing with these challenges, collaborations with raw material providers may offer smaller manufacturers a competitive edge. Also, as the western markets are nearing saturation, expansion into developing markets such as those of Eastern Europe, the Middle East, and Asia is likely to provide more lucrative opportunities.

The global flavoring market was valued at $4.80 billion in 2005 and is likely to touch $6.22 billion in 2012. Beverages are the leading application segment for flavors and represented a consumption share of 31.1 percent in 2005. Regionally, the United States, Japan, and Western Europe presently dominate flavor consumption. Most of the future growth is likely to be in the Asia Pacific region, particularly in developing countries such as China and India. "Success and growth in the flavors market hinge on innovation, which is essential to meet the varied and fast changing needs of the customers in a cost-efficient and effective manner," says Ms. Cheung.