Blazing a trail

Jakob Tolstrup Kristensen, Clearwater International Partner in Denmark, explains why growth in the health foods sector will continue to soar.

As consumers become ever more conscious of their wellbeing, demand for health foods has soared in recent years. Nowhere has this been more evident than in Scandinavia which remains one of the world’s leading markets for health foods.

In Denmark organic food as a share of the grocery market has increased from 7% in 2010 to 10% in 2016. The number of Danes who live partly or completely as vegetarians increased from 4% in 2010 to 8% in 2016. And sales of ‘free-from’ products doubled from 2012 to 2016, while the number of available Nordic Ecolabel products also doubled from 2013 to 2016.

A number of factors are at play in driving this growth. Consumer knowledge about what is healthy to eat is undoubtedly the most significant. Today there is simply a wealth of information available online about healthy foods. Ultimately we are doing it for ourselves and our children when it comes to eating well.

I mention children deliberately. In Denmark producers know that mothers with young children are one of the most important target markets, and are particularly influential in driving take-up of specific foods, such as organic products, across the wider population.

Online impact

The impact of online goes far beyond just education about what is good for you. It is also playing an increasing role in terms of regulation regarding traceability. As more products such as fish oil, vitamins and food supplements move online, consumers want to know exactly where they are coming from.

more established brands will have to significantly up their marketing efforts to stay competitive to compete with these new kids on the block

Online also drives more price competition in the market, something we have seen in more traditional supermarkets in the area of healthy foods. In the early days selective supermarkets served a very niche audience which was prepared to pay a significant premium for products such as organic goods.

To an extent this is still true as high demand for organic products continues to drive premium prices. But prices are starting to become more competitive as discounters enter the market, often with own-label products, and healthy foods become attractive to a whole new emerging middle class.

In response more established brands will have to significantly up their marketing efforts to stay competitive to compete with these new kids on the block. They are no longer serving niche markets and need to recognise that in their wider strategy.

This global rising middle class is just one reason why this market growth will continue to soar in coming years across the world. At the same time new trends will continue to emerge too. For instance biodynamic products, a form of organic farming, are increasingly catching the eye with strong demand in markets such as Germany.

M&A activity

Against this backdrop we have continued to see major M&A activity across the market.

A landmark deal last year saw Amazon acquire upmarket grocery chain Whole Foods, an acquisition which the US giant is using in markets such as the UK to broaden its range of groceries and offer more organic products. Closer to home Swedish company Midsona acquired Danish business Urtekram, the largest manufacturer of organic food and body care products in the Nordic region.

A landmark deal last year saw Amazon acquire upmarket grocery chain Whole Foods

There has been consolidation on the producer side too. For instance last year Årstiderne, the leading Danish organic food company, received an investment from the Triodos Organic Growth Fund which provides equity to businesses in the organic food and sustainable consumer sector across Europe. Årstiderne delivers around 35,000 meal boxes a week to some 55,000 customers.

Clearwater International has also been very active in this sector. The team recently advised the owners of Dalby Mølle, a producer of oats and related gluten-free cereal products, on its sale to the Good Food Group. Dalby’s primary product is organic oats and the majority of its products are produced under private label for customers in Denmark and Germany.

The deal is also a perfect example of the global opportunities on offer. As the demand for free-from and organic alternatives to traditional staples in the consumer market increases, vast export opportunities lie ahead and Good Food Group’s experience in trading with international markets will further strengthen the export of Dalby’s products.

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