Gluten-free front and center

by Keith Nunes
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Packaged Facts estimated sales of gluten-free foods sold at retail to be $973 million in 2014, and more new products are on the way.

KANSAS CITY — Even the most dominant trends have a life cycle. At the beginning there are the points of inspiration and discovery. A need is identified and then the market cycles into the discovery phase, that critical juncture when consumers may embrace a trend or walk away. If the trend is embraced, then comes the point of momentum followed by growth and eventually maturation. The market for gluten-free products may be entering its maturation phase, the period when the trend begins to fade and becomes an incorporated part of the overall market.

The market for gluten-free foods has been dominated by a variety of middle-market companies trying to serve a fragmented market (momentum). Then more middle companies invested resources in the category (growth) and now even the largest mainstream brands are attempting to capture a share of a segment that has been pegged to fade many times by a variety of industry watchers. Yet investment in the market continues.

Case in point: Cheerios. Few food and beverage brands have as much equity as General Mills’ Cheerios. It is the vanguard of the company’s ready-to-eat cereal portfolio, and company executives do not extend the line in an effort to capture share in a category they do not perceive to have legs.

Come July, five varieties of gluten-free Cheerios will begin appearing on retail shelves. The five varieties are original, honey nut, multi-grain, apple cinnamon and frosted. The gluten-free Cheerios will continue to include oats, which are gluten-free but must be handled properly to avoid mixing in with gluten-containing grains such as wheat.

“We’ve developed a way — years in the making — to sort out the small amount of wheat, rye and barley in our supply of whole oats that are inadvertently introduced at the farms where the oats were grown, or during transportation of the whole oats to the mill,” General Mills said in a blog post published Feb. 11.

The gluten-free Cheerios meet the Food and Drug Administration’s rule for gluten-free labeling, according to General Mills. Only Multi-grain Cheerios needed reformulation. Sorghum and millet, both gluten-free, replaced wheat and barley.

“This is exciting news for the cereal category, probably the biggest news since our commitment to whole grain in every box,” Jim Murphy, president of General Mills’ Big G cereal division, said of the gluten-free Cheerios. “We know there are many consumers, as much as 30% in the U.S., who avoid gluten, and people are looking for more gluten-free options for cereal. So it’s important that we make these five varieties of gluten-free Cheerios available.”

At the Consumer Analyst Group of New York conference, held in Boca Raton, Fla., on Feb. 17, Jeff Harmening, chief operating officer of U.S. Retail for General Mills, said the company sees two key food trends emerging in the United States, a focus on health, of which an avoidance of gluten is a part of, and snacking.

“Consumer interest in gluten-free foods has exploded in recent years,” Mr. Harmening said. “Retail sales of gluten-free foods hit an estimated $9 billion in 2014, and this total is forecast to grow by 60% over the next three years.

“Five years ago we reformulated several varieties of Chex cereal to make them gluten-free and began advertising this news. Sales for Chex had been steadily declining, but since the changes to gluten-free sales are growing double digits. We’ve expanded the Chex portfolio this year with new hot cereal and granola varieties. And starting this summer we are taking the biggest franchise in the cereal category gluten-free. Five Cheerios varieties, which represent 11% of total category sales, will be gluten-free.”

Mr. Harmening added that the investment to make some varieties of Cheerios gluten-free is only the tip of the iceberg as the company looks to make “a broad investment designed to renovate our Big G portfolio for today’s wellness-oriented consumer,” he said.

Executives from The Kellogg Co., Battle Creek, Mich., also made a presentation during CAGNY, but they kept their gluten-free plans closer to the vest. During the question-and-answer portion of the presentation, however, an analyst inquired about the company’s plans.

“We have gluten-free offerings,” said John Bryant, chairman and chief executive officer. “I don’t think we are ignoring that as an opportunity. I don’t think we are trying to drive the entire portfolio to just doing that either. It is about offering choices in the portfolio.

“We didn’t share all of our marketing programs here this morning. We are fully aware that consumers are looking for gluten-free not just in the U.S. but elsewhere around the world increasingly as well and we are driving gluten-free within the portfolio as a choice, one of many choices within the portfolio.”

Putting the market in perspective

The market research firm Packaged Facts estimated sales of gluten-free foods sold at retail to be $973 million in 2014. The company said gluten-free is cementing its staying power as more than a dietary fad and cited Yum! Brands, Inc.’s Pizza Hut business announcement it would offer a gluten-free menu item as an example the market for gluten-free foods may continue growing.

“Retailers have embraced the gluten-free trend by stocking more gluten-free items, featuring them in store, and launching their own private label brands,” said David Sprinkle, research director. “In addition, retail chains have been courting the gluten-free consumer with a variety of festivals and events.”

Survey data gathered by Packaged Facts in July and August of 2014 showed that more than a third of consumers said a gluten-free/wheat-free label claim is an important factor when they are shopping. A quarter of the survey respondents also said they had purchased or consumed food products labeled as gluten-free in the three months prior to the survey.

Packaged Facts estimates the market for gluten-free foods will exceed $2 billion in 2019. Factors that will drive the market include demographic groups showing a strong propensity to purchase gluten-free foods, the perception of health problems associated with diet, the improved quality of gluten-free foods, the growing presence of large marketers in the category, and the Food and Drug Administration’s definition of gluten-free, which is expected to level the playing field among manufacturers, according to the market research company.

A point of differentiation

The challenge facing many manufacturers today is standing out in what is becoming a crowded market for gluten-free foods. As a result, ingredient suppliers are being challenged to develop new and improved applications and formulations.

“Gluten-free continues to grow in many categories,” said Colleen Zammer, director of product marketing for Bay State Milling, Quincy, Mass. “We focus on grain-based foods predominantly, and we are seeing requests for more unique and challenging products such as pasta and egg roll wraps, along with either late entrants or companies that want to improve upon earlier versions of cookies, tortillas, crackers and snacks. The flavors tend to trend along the same lines as conventional foods with a nod to various ethnic and fusion flavors, both sweet and savory.”

Vanessa Klimczak, senior product applications technologist with Bay State Milling, added that unique flavors and texture may come from various ancient grains, seeds and legumes, which serve to add complex flavors as well as texture and visual appeal when used internally as inclusions or as toppings.

“We anticipate the sprouted grain and seed trend to also make its way into the gluten-free market because both are linked with health and wellness,” she said.

Executives with Ardent Mills, Denver, see ancient grains growing in popularity as well.

“We are seeing more development of ethnic breads and formats such as chapatti or flatbreads using ancient grains or blends,” said Zachery Sanders, director of marketing for Ardent Mills. “Ancient grains are naturally gluten-free and provide additional upscale appeal to consumers. They provide an effective tool for operators facing gluten-free challenges today.

“Ardent Mills Ancient Grains — amaranth, millet, sorghum, teff, buckwheat and custom multigrain blends — can be used in a variety of applications from pizza dough to flatbread to add whole grain nutrition, exotic interest and culinary authenticity.”

While gluten-free products are perceived as part of the “free-from” movement for people interested in the products and who do not have celiac disease, Ms. Zammer added that companies are adding different health attributes in an effort to differentiate.

“There is definitely a new generation of ‘healthier’ gluten-free products coming to market,” she said. “The starch and gum based formulas are being upgraded with whole grains and seeds, which provide much needed doses of fiber and protein, as well as vitamins and minerals.

“Although gluten-free foods are being launched for a broader consumer base than just those with celiac disease and gluten intolerance, they are still the core consumer of the category. This consumer base can also be more sensitive to certain other foods that are known allergens such as eggs and dairy, and a category of ingredients called FODMAPS (fermentable oligo-, di- and mono-saccharides, and polyols). Therefore developers of gluten-free products are formulating around these ingredients and seeking alternative replacements.”

While gluten-free products sold at retail are enjoying a level of success, food service remains a market segment with untapped potential, but there are challenges.

“Cross contamination is the greatest challenge because there are so many potential points for it to happen,” Ms. Zammer said, but she added there are a variety of services and technologies coming to market in order to address the issue.

“If an operator can conquer that issue with the products and services listed above, the second point will be to deliver a product that tastes as good as one would expect from a restaurant or food service establishment,” she said. “Besides convenience, consumers go to restaurants for foods they would not typically make at home, and they have great expectations for flavor and quality. If a food service operator is going to offer a gluten-free product or line, it has to deliver on the flavor and quality experience consumers expect from their other offerings.

“Another challenge may be that gluten-free foods tend to behave differently than their gluten containing counterparts, and often require different types of preparation than conventional items, especially dough and pasta. Therefore if the gluten-free products are going to be made in house, they may need to purchase different equipment to prepare the foods.”

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