Market Report, "France Food & Drink Report Q2 2010", published

March 22, 2010 - PRLog -- French food and drink companies invest heavily in research and development (R&D) and the country is a world leader in the functional food sector. There has been speculation that the functional sector may be hit hard by the economic downturn, and this speculation was supported by  Danone's decision to withdraw its Essensis skin-enhancing yoghurt brand from the French market after reporting that sales were suffering due to the global economic crisis. However,  BMI would regard this development as a minor setback for a sector and our core view is that the functional food sector will outperform the wider food and drink industry in developed markets over the next five years. This functional food sector has enjoyed a decade of uninterrupted growth. While the withdrawal of Essensis from the French market does suggest that consumers may be becoming more discerning about which functional products they buy, there is little evidence that the sector is in crisis. Indeed,  BMI believes that the trend towards functional food is now so well established, and the health benefits so appealing, that the market is likely to continue to grow even if the overall market for food and drink in Europe enters a period of stagnation. The most resilient growth during the downturn is likely to lie in the area of neutraceuticals - food and drink products sold for a specific medical purpose and often sold through chemists rather than traditional grocery retailers. The resilience of this sector has been reflected in the annual results posted by  Nestlé and Danone with Nestlé's Nutrition division reporting sales growth of 7.7% and Danone's medical nutrition arm delivering revenue growth of 12.1%. The strong prospects for this sector were highlighted by the acquisition of French functional food producer  Nutrition & Santé by Japanese neutraceutical specialist  Otsuka Pharmaceutical in January 2009. Nutrition & Santé is a leader in the European functional foods market with a turnover of EUR260mn in 2007 and 12 market leading brands. These include the Isostar sports nutrition brand, the Gerlinéa slimming brand and the Gerblé brand which is used to market a range of products designed to cater to specific dietary needs. Otsuka's decision to purchase Nutrition & Santé at a time when the European consumer goods market is depressed reflects the resilience of the neutraceutical sector, which has continued to grow at a time when other parts of the food and drink industry have been stagnating or in decline. While the withdrawal of Essensis can be regarded as disappointing and suggests that firms are going to have to work harder to convince consumers of the merits of their functional products, there is little reason to think that the long-term prospects for the sector have changed. We therefore continue to hold our core view that the functional food sector will outperform the wider food and drink industry in developed markets over the long term.

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