Sales of gluten-free grew 34% annually in the five years leading up to 2014, when they reached $973 million. While the growth is expected to slow slightly to 19.2% annually through 2019, the total sales will reach a whopping $2.34 billion in 2019 – a 140% increased from 2014, Howard Waxman writes in the Packaged Facts’ Gluten-Free Foods in the U.S. report released in January.
A driving factor of this growth will be companies that offer products that go beyond just gluten-free to also include “a unique selling proposition or value-added component,” Waxman said.
He explained that gluten free foods already “have much to offer consumers with adventurous palates, discerning taste and who follow current culinary trends.”
Therefore, as more products enter the category, increasing competition, manufacturers must create products that “appeal on their own terms” and are not just comparable to conventional foods.
For example, in the salty snack segment, which accounts for the vast majority of the gluten-free foods’ sales and 65% of the market share, manufacturers are using a “full complement of vegetables and legumes” to create snacks that not only are gluten free but also offer health benefits such as increased fiber or nutrients.
Incorporating ancient grains is another way manufacturers can create value added gluten-free snacks, the report notes with the caveat that “of course, not all ancient grains are gluten free – for instances spelt, Kamut and faro are forms of wheat—but many are not. These include amaranth, buckwheat … chia, millet, sorghum and teff.”
Manufacturers that meet consumer demand for broader selection of gluten-free foods will be rewarded by 31% of shoppers who said they would buy more such products if the selection where they shop was better, according to a customer survey conducted by Packaged Facts in July and August 2014.
Likewise, “almost a quarter of the respondents said they make a point of shopping in stores with good selections of gluten-free products,” the report adds.
Retailers also are responding to this with their own ranges of gluten-free products and by “courting the gluten-free consumer with a variety of festivals and events,” according to the report.
The influx of products claiming to be gluten-free in the past few years also prompted Packaged Facts to streamline its definition of gluten-free foods to include only those with front-of-pack labeling in the salty snack, crackers, pasta, cold cereal, cookies, baking mixes, frozen bread/dough and flour categories. Packaged Facts explains it restricts itself to these categories because they "meaningfully define the market." Previously, the firm defined gluten-free as any product with clear labeling as such, but the onslaught of firms marketing "naturally gluten-free" products on their website and not on packaging distorted what the firm considered the actual category.
Fragmentation creates opportunities
While the competition in the gluten-free market is heating up, the category remains highly fragmented, which means smaller companies still can gain a foothold against mega-brands, according to the report.
“The diversified, multinational conglomerates that dominate the food industry at large have only limited presences in the gluten-free market,” with the top five gluten free marketers accounting for only half of the 2014 sales combined, it notes.
Leaders include Gruma SA, which makes Mission tortilla chips and has 13.4% of market share, Boulder Brands (10.8%), Pirate Brands (10.3%), Dale and Thomas Popcorn (9.7%) and a handful of others with less than 5% of share, the report notes.
Entrepreneurs that want to jump into the fray will have the “freedom and flexibility to experiment and innovate” but will be “rewarded for keeping the focus aimed on their original vision,” the report notes.
Health and wellness contribute to growth
Two other factors contributing to the rapid growth of the gluten-free category are the escalating prevalence of health problems associated with diet and consumer interest in the foods for health and wellness reasons, Waxman notes.
He says only about one in 133 people in the U.S. have celiac disease, the only treatment for which is a gluten-free diet, and only about 6% of the U.S. population, or 18 million people, are non-celiac gluten sensitive. Still the market potential for gluten-free foods expands well beyond this group as many consumers have self-diagnosed themselves as gluten sensitive or are avoiding gluten for perceived health benefits.
According to the report, 37% in Packaged Facts survey respondents say gluten-free/wheat-free is an important factor when they shop for food, and 13% say it is “very important.”
“In addition, 9% of consumers actively avoid gluten,” the survey found.
The top reasons shoppers seek out gluten free foods are because they perceive them as generally healthier (25%), to manage their weight (19%), they witnessed a friend or family member benefit from a gluten-free diet (18%), they consider the products to be a “generally higher quality” (17%) and view them as “low-carb” (16%), according to the report.
The gluten-free category also could benefit from increased consumer trust in the claim now that FDA regulations require firms to meet specific standards to make the claim, Waxman notes. He adds the definition and enforcement “will level the playing field among manufacturers.”
Address misconceptions about gluten-free
To achieve Waxman’s projections, manufacturers and retailers must protect the category against misconceptions about the benefits of a gluten-free diet. They also should be aware that the consumer-base may be reaching critical mass, Waxman said.
Price sensitivity is another challenge retailers and manufacturers need to be aware of as a potential category constraints, according to the report.
The Packaged Facts consumer survey found 53% of shoppers consider gluten-free foods to be overpriced and 41% said they would buy more gluten-free products if they were more affordable.
One strategy to address this is to follow Waxman’s suggestion of providing added value beyond just gluten free. Additional health benefits will help consumers believe they are getting their money’s worth for the higher prices.