What’s the Story? 

The health and wellness movement has made great strides over the past few years and the trend only intensified during the pandemic. CPG companies are positioning themselves and their brands to appeal to consumers as they focus their attention on leading healthier lifestyles. We discuss four key health and wellness trends in the CPG industry.

Why It Matters

We expect wellness to remain the pre-eminent multiyear trend driving consumer spending shifts in 2022, only amplified by the pandemic prompting consumers to focus more on mental and physical wellness.

Health and Wellness in CPG: Coresight Research Analysis 

Coresight Research’s US Consumer Tracker found in December 2020 that one-quarter of US consumers expect to retain the changed behavior of focusing more on health and wellbeing in the long term, as shown in Figure 1.

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Figure 1. US Consumers That Expect to Retain the Changed Behavior of Focusing More on Health and Wellbeing Post Crisis, by Age (% of Respondents) [caption id="attachment_137645" align="aligncenter" width="700"] Base: 438 US respondents aged 18+ surveyed on December 15, 2020
Source: Coresight Research [/caption]   According to the most recent report by the Centers for Medicare and Medicaid Services from December 2019, US health expenditure reached an estimated $4.01 trillion in 2020 and is projected to hit $6.19 trillion in 2028, an increase of 54.3%. Although much of this is covered by insurance—which can also present a financial burden—there are still out-of-pocket costs, which are projected to reach $1,603 per person per year in 2028, up 31.1% from 2020. With consumers facing higher healthcare costs in the coming years, we expect to see many turn to the wellness movement to prevent chronic diseases and limit exposure to health-related financial pressures. We anticipate that consumers will look to health and wellness products and trends in the adoption of healthier lifestyle choices. Figure 2 presents four key health and wellness trends in the CPG industry, which we discuss below.

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Figure 2. Key Trends in Health and Wellness in the CPG Industry [caption id="attachment_137646" align="aligncenter" width="700"] Source: Coresight Research[/caption]     1. Startup Acquisitions Outside of Traditional Health-Focused Products CPG companies are expanding their health and wellness scope by acquiring startup brands, with many going beyond just buying out vitamin and supplement startups. The acquired companies range across several CPG categories, including snacks and water supplements, focusing on new and innovative products compared to the more traditional health and wellness offerings.

• In May 2021, Nestlé Health Sciences acquired functional hydration tablet maker Nuun for an undisclosed amount. The move followed the company’s $5.7 billion acquisition of several core brands from nutrition and supplements maker The Bountiful Company in April 2021.
• In April 2021, Unilever acquired Onnit, a Texas-based nutrition supplements brands for an undisclosed sum. The purchase follows the company’s acquisition of electrolyte drink mix brand Liquid IV in November 2020.
• Mondelez acquired keto-friendly chocolate brand Hu for $340 million in January 2021.
• Confectionery, food and pet product manufacturer Mars acquired healthy snacks and bars company Kind North America in November 2020.

CPG companies have previously focused on the health and wellness space by either targeting traditional health-focused products such as vitamins or acquiring startups related to organic products. However, this category focus has shifted toward functional beverages and healthy snacks and bars, which claim to be wellness-orientated by having healthier and simpler ingredients than rival products. This indicates that health and wellness trends are expanding into more food categories. CPG brands face substantial costs to incubate new health-focused brands from the ground up, including diverting resources from their larger, profitable businesses. Rather than building the brand themselves, more companies are turning to acquisitions to take a ready-made wellness brand with a compelling story to the next level. Furthermore, these startups often succeed in the areas that large companies typically don’t perform as well in, namely niche categories, targeted distribution and social media prowess. 2. Demand for Clean Beauty and Increased Transparency  Shoppers are increasingly conscious of the ingredients in their beauty products, with the growing focus on health and wellness translating to amplified demand for natural beauty products, often referred to as “clean” beauty. We have seen increased vigilance about ingredient safety in makeup and skincare products amid the pandemic. Coresight Research estimates that US sales of natural cosmetics and skincare products, deemed to be clean beauty, reached $3.2 billion in 2020, up 3% year over year. This compared to a 3% decline in the overall US cosmetics and skincare market, based on Euromonitor International data. The rise in clean beauty in the US has also been fueled by growing awareness of the stricter regulations that govern beauty industries in other parts of the world. The European Union, for example, has banned approximately 1,300 chemicals in cosmetics, a category that covers makeup, lotions, hair dyes, deodorant, nail polish, shaving cream and other beauty products. In contrast, the US is lagging behind in enacting measures on ingredient safety in beauty and personal care products. The US Food and Drug Administration currently bans only 11 ingredients from beauty products for safety reasons. Beautycounter, a leading American clean beauty brand, currently has a ban on more than 1,800 ingredients (up from 1,500 in February 2020) from its formulations, which it refers to as its “Never List.” In April 2021, US capital investment group Carlyle acquired a majority stake of Beautycounter for $1 billion—showing the growing attractiveness of clean beauty in the eyes of investors. In July 2021, Coty relaunched its Kylie Cosmetics brand with cleaner formulas. The updated formulas avoid animal oils, parabens or gluten—along with a long list of over 1,600 other potentially harmful and irritating ingredients. In February 2021, Estée Lauder announced plans to increase its investment in Canada-based clean skincare company Deciem Beauty Group from 29% to 76%.  Estée Lauder closed the transaction in May 2021. Companies such as Sephora are moving a step further by offering vegan-friendly (products that do not contain any animal-derived ingredients) and cruelty-free products (products that have not been tested on animals) with sustainable packaging to differentiate themselves from the competition. Technological advances have allowed large and small beauty brands alike to sustainably create and ethically test products. While the most common clean beauty products are currently skincare and cosmetics, we expect to see beauty brands and retailers continue to branch out into categories such as fragrance, haircare and nail polish, choosing to eliminate controversial ingredients from their product formulas. Within the beauty industry, wellness-related CBD beauty products are also poised to grow exponentially, with consumers interested in CBD for its attributed calming and anti-inflammatory properties. Coresight Research estimates that the US market for CBD health and wellness products—including skin care, sleep care and cosmetics—will grow from $350 million in 2020 to $1.0 billion in 2025, at a CAGR of 24.0%, propelled by consumers’ interest in CBD’s functional properties. 3. Plant-Based Foods Are Here To Stay—and Set To Grow The pandemic propelled sales of plant-based foods at a time when interest in the sector was already surging as consumers increase their focus on personal health, food safety, sustainability and animal welfare. According to data from the Good Foods Institute, US plant-based food sales increased by 27% year over year in 2020 (versus growth of 12% in 2019) to more than $7 billion. The growth in plant-based retail food sales in 2020 was more than double that of the overall US grocery market, estimated at 12% by Coresight Research. Plant-based meat sales amounted to $1.4 billion in 2020, up 45% from 2019. This was the highest annual growth rate among all plant-based categories. Additionally, 18% of US households purchased plant-based meat in 2020, up from 14% in 2019, according to the Good Foods Institute. Many consumers are seeking out ways to reduce their meat and dairy intakes and are looking for alternatives with similar nutritional values and tastes but without the associated concerns. Most plant-based alternatives are marketed as not containing cholesterol, or offering less saturated fats, trans fats and more fiber and vitamins as compared to their animal-based counterparts.

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Figure 3. 2020 US Plant-Based Food and Beverage Sales: In Total (USD Bil., Left) and by Product (% of Total; Right) [caption id="attachment_137647" align="aligncenter" width="700"] *Includes plant-based butter, creamer, ice-cream and yogurt
Source: The Good Food Institute [/caption]   Unilever and Danone are setting the standard for plant-based alternatives, alongside pure-play companies. As part of its Future Foods commitment, announced by Unilever in November 2020, the company plans to sell €1 billion ($1.2 billion) worth of plant-based meat substitutes and dairy alternatives worldwide annually within five to seven years. The company partnered with food-tech company Enough in June 2021 and microalgae specialist company Algenuity in May to scale up plant-based product development. Unilever-owned ice cream brand Ben and Jerry’s introduced three new varieties of plant-based ice cream made from sunflower butter in 2020. In October 2018, Danone pledged to triple its global plant-based sales from €1.7 billion ($1.9 billion) to around €5 billion ($5.7 billion) by 2025. In February 2021, Danone announced an agreement to acquire Earth Island, owner of plant-based brand Follow Your Heart, which according to the firm, will expand its plant-based food and drink portfolio and contribute to reaching its ambitious target. However, CPG companies will face significant competition from retailers, many of which are enthusiastic about the emerging plant-based food category. For example, Kroger launched a plant-based Simple Truth collection in 2019 and added 53 new plant-based items in its fiscal 2021. Many retailers plan to double down on this category in light of increased consumer demand for plant-based products in 2021 and beyond. Similarly, Albertsons announced plans in December 2020 to introduce 50 new plant-based products across categories such as meat, dairy, frozen and snacks to its O Organics and Open Nature brands in 2021. The company has recognized the plant-based category as a “key segment of growth” for the future. 4. Retail Customization To Drive Personalized Nutrition  We expect personalized nutrition offerings to piggyback on broader demand for customized experiences in the current retail environment. Personalized nutrition is defined as developing customized nutrition guidelines based on an individual’s unique microbiome and genetic profiles. The concept aims to replace the one-size-fits-all approach to nutrition, providing consumers with tailored products to suit their specific needs. Companies that offer personalized nutrition services provide recommendations (such as meal plans, grocery lists, recipes and exercises) that meet consumers’ personal nutritional and health needs and help prevent nutrition-related chronic diseases. Personalization is an emerging trend across consumer industries, such as personalized shopping experiences and made-to-order fashion items or tailored holidays. This emerging trend creates an opportunity for the food industry too, which has lagged behind in offering a customized experience. The ability to customize diets and exercise plans based on an individual’s microbiome and genetics may be the next frontier in nutrition counseling. A personalized nutrition plan may help increase compliance and help consumers target dietary goals that align with what works with their bodies. Personalized nutrition spans multiple industries, from medical diagnosis firms to extract and interpret microbiome/genetic test results, to wearable tech companies that offer ongoing interactive feedback to users and food product suppliers to meet nutritional product requirements. Most of the current personalized nutrition market participants are startups. That said, the growing role of personalization within the food industry has been acknowledged by larger CPG companies, including Nestlé, Danone and Unilever.

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Figure 4. Major Players in the Personalized Nutrition Market [caption id="attachment_137648" align="aligncenter" width="700"] Source: Coresight Research[/caption]   Nestlé has identified personalized nutrition as a major growth opportunity. The company partnered with the University of California San Diego Center for Microbiome Innovation in November 2019 to accelerate the development of innovative nutritional solutions. In September 2018, the company launched a Wellness Ambassador program in Japan where users are asked to provide genetic information and then submit photos of their food via a messaging app called Line. The algorithm then recommends lifestyle changes and specifically formulated supplements to enhance the user's diet. Additionally, the company acquired Persona Nutrition which offers personalized vitamin subscriptions based on lifestyle choices. Danone is moving toward more personalized food solutions, driven by its innovation arm Manifesto Ventures. The company invested in Mitte in August 2018, which offers a personal hydration experience at home and in July 20219 it invested in Nutricia, which specializes in personalized nutrition products for children. In November 2020, pharmaceutical and life sciences company Bayer acquired US-based personalized direct-to-consumer (DTC) nutrition company Care/of, which helps consumers build a nutrition supplement routine specially tailored to their needs. In February 2021, American supplement manufacturer Nature’s Way acquired German personalized nutrition company Baze, which offers an at-home blood test and provides custom vitamin supplements and nutrition plans targeting identified nutritional deficiencies. Despite the presence of a number of players in the market, the personalized nutrition market remains very much in its infancy. One of the most significant barriers to the widespread adoption of personalized nutrition is a lack of depth in research studies to support the thesis that individuals following a DNA or microbiome-based diet can enjoy notable health benefits. As the space gains greater focus, we expect to see an increase in academic studies in the area, the findings of which will likely be critical to the growth outlook for personalized nutrition. We anticipate that startups may not be the frontrunners in this space in the long term, especially as CPG giants increase their activities in this field and leverage their financial strength to acquire emerging innovators.

What We Think

The pandemic has seen consumers place a heightened emphasis on preventative health and wellness, including healthier eating habits, using products without toxic ingredients and exercising more to maintain a healthier lifestyle. This presents opportunities for CPG companies to incorporate healthier options into their product ranges to drive sales. Implications for Brands

• Health and wellness startups typically excel in catering to niche categories using unique strategies and channels. Legacy CPG companies should look to partner, invest in or acquire these startups to stay connected with the emerging consumer ecosystem and understand new market trends.
• Personalized nutrition is still a niche concept, yet the broader tailwinds of a more health- and wellness-orientated consumer, and the rising demand for customized experience across consumer industries more generally, should support further development. As the availability of empirical studies related to personalized nutrition is low, companies interested in venturing into the space should proactively look for partnerships with other players such as universities, research institutes and technology vendors to release research proving the effectiveness of DNA and microbiome-based diets.