Functional Foods can be described as the food products that are capable to meet the general health and wellbeing needs of the customers. The functional foods are consumed for the managed and prevention of compromised health problems and conditions. In easy words, every food which is promoted on a better health platform and supported by scientific evidence to improve the health. This report describes the conditions of the functional food market of Australia. It will help the Australian food companies in the commercialization and development of their products and services.
The functional food industry is one of the fastest growing industry at national and international level. The main factors that help the industry in competing with customer’s choice are strong scientific substantiation for health purpose, product efficacy, general product awareness and product safety.
The number of certified organic and natural food operators has increased by 5% in 2016 in comparison to 2015. The export has increased by 16 % in the same year. This data shows the growth in the functional food industry of the Australian Economy.
Australia is the largest exporter of the functional food and organic food products around the world. However, the sales in only one percent to the total sales of food products but this would tend to increase in the near future due to increase in health issue in the society (Anon., 2017).
The total sales form the domestic market was 1.72 billion in FY 2015-2016 which was 0.32 higher than the projected one. The regular increase in the number of sellers and buyers also indicates the increasing profitability of this industry (White, 2018).
Porter’s Five Forces Framework
The market analyses of the Functional food Industry can be understood with the help of the below-mentioned table and its explanation.
The industry contains the moderate level of competitiveness among the main market players, which is expected to remain constant because of the customer loyalty and brand image of the companies. The existing organizations are enjoying a high level of customer trust and thus they do not have to worry about any new entering company in the industry. The GDP of the economy is also increasing which shows that the customers are able to spend a sufficient amount for healthy food and living (Hobbs, et al., 2014).
Threat of Substitutes
The threat of substitutes is high as the companies are limited and providing the specific products having different qualities from each other. The customers can get their choice of products to form a number of stores but they all are different from each other in terms of their ingredients. The increasing demand of customers for having a healthy lifestyle is the main reason because of which, most of the companies have been started to provide a range of similar products to each other. This threat can be decreased from low to medium with the help of a good plan for the promotion of functional food products and their benefits (Das, et al., 2016).
Barriers to Entry
The barriers to entering into the organic food industry are generally high as the products are produced with 100% pure and natural ingredients. It needs a huge investment in capital and human resources. For entering into this market, one needs to have the knowledge about the organic farming and needs to maintain good relationships with the farmers. The Australian government is also very strict for the companies working in this industry that either they are providing the real organic food or not. Along with this, customer’s loyalty towards the existing brand can also act as a barrier for any new company to establish its business.
Bargaining Power of Suppliers
The bargaining power of suppliers is moderate as there is a number of suppliers are available in the market. The Australian Economy is considered having a most appropriate land from the point of view of farming the organic products. Thus, the raw material is available to the suppliers very easily and at low cost in comparison to any other country. Thus, the switching rate of organic food selling organization in terms of their suppliers is quite high (Vella, et al., 2014).
Bargaining Power of Buyers
The bargaining power of buyers in the organic food industry in continuously decreasing as a result of an increase in the number of substitutes. There are many alternatives products are available in the market makes the buyers more sensitive and they tend to search for the best deal. This is also the result of an increase in a number of the store around the country as this enable buyer to compare all the available options without going anywhere (Doyon & Labrecque, 2008).
Opportunities and Threats
- The increase in awareness regarding healthy aging, kids nutrition, and appetite control may help the companies to increase their sales by providing appropriate products.
- Availability of agricultural land and sufficient financial resources.
- The functional food is largely based on the plants and animals and it increases the chances of exploitation of natural resources. For example, for the production of fish oil and seeds, the fishes are killed in large number which is not right in an ethical manner.
On the basis of the above study, it can be concluded that the Functional Food industry is an emerging sub-industry of the food market of Australia. The industry has covered a large area to food market because of the customers’ demand regarding the healthy food and healthy life. However, to sustain in this industry for long-term, it is required to maintain the quality of products, which is not an easy task and required to be handled with a lot of care.
It is to be recommended that for being successful in this industry, an organization needs to provide the products at a reasonable rate by earning a low level of profit margin. Along with this, an organization like Whole Foods is required to invest in an agricultural land so that it can acquire quality products for the purpose of maintaining brand image and increasing the faith of customers.
Anon., 2017. Growing hunger for organics: Can Australia keep up with demand?. [Online]
Available at: https://www.intheblack.com/articles/2017/09/01/organic-food-demand-australia
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Berardi, S., 2013. Whole Foods Market goes global. [Online]
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Das, R., Biswas, S. & Banerjee, R., 2016. Nutraceutical-prophylactic and Therapeutic Role of Functional Food in Health. Journal of Nutrition & Food Sciences, 6(4), pp. 1-17.
Doyon, M. & Labrecque, J., 2008. Functional Food: a conceptual definition. British Food Journal, 110(11), pp. 1133-1149.
Hobbs, J. E., Malla, S. & Sogah, E. K., 2014. Regulatory Frameworks for Functional Food and Supplements. Canadia Journal of Agricultural Economics, 62(4), pp. 569-494.
Vella, M. N., Stratton, L. M., Sheeshka, J. & Duncan, A. M., 2014. Functional food awareness and perceptions in relation to information sources in older adults. Nutrition Journal, 13(1), p. 44.
White, M., 2018. Australia's organics-sector boom: the stats. [Online]
Available at: https://www.aginnovators.org.au/news/australias-organic-industry-boom-stats
[Accessed 7 August 2018].