In November 2015, FDA announced a proceeding to solicit comments on use of the term “natural" in the labeling of human foods. FDA invited comments on various questions, including whether to “establish a meaningful definition for ‘natural’ so that this term would have a common consumer understanding, and whether it should prohibit ‘natural’ claims entirely on the grounds that they are false or misleading."

FDA’s proceeding wasn’t entirely unexpected. The term “natural" on food labels has been the subject of citizen petitions filed with FDA and the target of class action litigation in recent years, prompting requests from federal judges that FDA determine whether genetically engineered foods may be labeled as “natural," “all natural," or “100% natural."

But what is the FTC—the agency responsible for cracking down on deceptive and unfair business practices—doing about natural claims in the market?

In April 2016, FTC announced four companies marketing skin care products, shampoos and sunscreens online agreed to settle charges against them. According to the agency, the companies falsely claimed their products were “all natural" or “100% natural" even though they contained synthetic ingredients. “‘All natural’ or ‘100 percent natural’ means just that—no artificial ingredients or chemicals," Jessica Rich, then director of FTC’s Bureau of Consumer Protection, said in a statement at the time. “Companies should take a lesson from these cases." Nine months later, FTC issued a summary judgment decision against a company for falsely advertising its sunscreen product as “all natural" after the company admitted eight percent of its sunscreen formula is a synthetic ingredient.

Despite the enforcement actions above, the number of class action lawsuits involving the term natural appears to far outweigh related FTC activity. According to a report by the law firm Perkins Coie LLP, in 2015 alone, 53 class action lawsuits were filed targeting products or ingredients labeled as “natural" or “all natural."

During The Big Natural, an event held in Las Vegas by the Natural Products Association (NPA), FTC official Richard Cleland cited the challenges surrounding the term natural facing the courts and regulators. “The courts themselves are really struggling with that term right now in the context of private litigation," said Cleland, who explained his agency has publicly acknowledged it doesn’t have sufficient “information to really know or understand how consumers interpret the word natural.

“What’s needed in this area, and we’re looking at different ways to get there, is … better consumer research," divulged Cleland, assistant director of Advertising Practices with FTC’s Bureau of Consumer Protection. Cleland indicated the research must focus on what the term natural “means to consumers, and what it might mean to regulators. “I think it’s fundamentally a different question than things like low-calorie or some of those terms that FDA has defined before because I think this is a consumer understanding issue," he said.

Asked whether his agency is conducting its own consumer research to help define the term, Cleland responded, “All of the options are on the table. … All I can say is this is an issue … that we are actively looking at right now."

Part of the conundrum facing regulators, he explained, is the “natural" issue isn’t confined to one category of products like dietary supplements. “You have different kinds of products that make natural claims," Cleland said, “and the consumer understanding of the word natural may depend on what kind of product is being attached to" the term.

Mark LeDoux, founder, chairman and CEO of Natural Alternatives International Inc., who moderated a Q&A with Cleland during the event, suggested the industry would react positively to any help from regulators in clarifying the definition of the term natural.

Cleland responded, in part, “I think again it’s something that we are giving some thought to."

LeDoux, chair of NPA’s board of directors, recommended the industry and FTC continue the dialogue on the issue.

To the extent the “natural" topic impacts NPA and the core group of members who attended the event, Cleland suggested the industry consider formally requesting that FTC examine the issue.

But Charles Sipos, a partner in Seattle with Perkins Coie who has defended a number of class action lawsuits involving the term natural, told INSIDER he doesn’t believe FTC’s examination of the issue is warranted. “I think at this stage, that … isn’t really necessary or appropriate because the FDA has already acted," he said, referencing FDA’s 2015 Federal Register notice.

Finally, Sipos argued FTC’s nominal interest in the “natural" issue thus far reflects “the fact that even as to natural claims that have been challenged in an ongoing litigation, there’s just not much quality of proof there that consumers are being misled by these claims."

Naturally, plaintiffs’ lawyers who have sued conventional food and dietary supplement companies for misleading claims disagree. And until regulators provide additional clarity around what “natural" actually means, the ambiguity surrounding the term, and the legal headaches facing the natural products industry, are likely to endure.

Sodium is found naturally in a variety of foods such as milk, meat and shellfish; however, most dietary sodium is found in processed foods and restaurant meals. More than 40 percent of sodium intake comes from 10 types of foods, including cold cuts, pizza, soup and savory snacks. With global health organizations and scientific bodies urging consumers to decrease daily sodium consumption, several key food industry leaders are taking proactive measures to implement reduced sodium initiatives.

Table of Contents

• Viewpoint: Spotlight on Sodium
  by Judie Bizzozero
• Sodium Reduction: Health Concerns Driving the Market
  by Judie Bizzozero
• Clean Label Snacks Get Creative
  by Melissa Kvidahl
• Case Study: Farmhouse Culture
• Case Study: Marys Gone Crackers

Takeaways for Your Business

• 95% of U.S. households consume salty snacks, with 94% of Americans snacking at least once per day.
• Nestlé USA, General Mills, Mars and Unilever are among the market leaders voluntarily reducing sodium levels.
• Salt alternatives, additives and unique salt varieties may aid a brands sodium reduction efforts.

Everyone loves a little sweetness in their life. The trick is balancing that sweetness with added calories. Several low-calorie/non-caloric sweeteners have entered the market over the years. A variety of sweeteners provides many options to meet consumer preferences. At the same time, consumers are looking for health options for sweeteners, specifically those that balance taste, calories, glycemic index and possible prebiotic effects. Likewise, innovative companies that can create these products are seeking to provide strong trademarks to protect their brand investment.

The leading patent filers for sweeteners appear to be large food, nutrition or chemical companies, which may result due to the long-term interest of food companies in non-caloric/low-calorie sweeteners and the chemistry intensive aspect of these products. The presence of large innovative companies may also indicate a high barrier to entry, at least for the creation of new sweeteners.

Brand owners look to associate their great-tasting products with delicious names, while avoiding the sour taste of confusion or descriptiveness. The term “sweet," or variations thereof, has been listed over 2,000 times in the identification of goods associated with a trademark filed for dietary and nutritional supplements.

These terms help consumers understand the product will have a sweet taste. However, successful registration of marks that include words such as “sugar," “taste" or “sweet" often requires some unique or imaginative term coupled to these common terms. Of the 406 marks that incorporate the term “sweet," 69 percent are no longer active or pending. This may indicate the increased challenges associated with owning a distinctive mark that includes the term “sweet." Trademark counsel can help in acquiring, maintaining and protecting these difficult marks, providing an asset for supplement manufacturers.

For more information on intellectual property (IP) in the sweeteners market, read INSIDER’s Sweeteners Digital Magazine.

Attorney Andreas Baltatzis is a director at KramerAmado PC (krameramado.com), a boutique law firm specializing in intellectual property (IP). He represents a number of innovative nutritional supplement and nutraceutical companies that improve people’s lives every day. Baltatzis also helps companies prepare and implement IP strategies by obtaining patents and trademarks that protect their innovations and cash flow, as well as advising clients on successfully launching new products and brands.

Gideon Eckhouse is a senior associate at KramerAmado, with more than 10 years of experience in patents and trademarks. He assists innovative nutritional supplement and nutraceutical companies in protecting their IP throughout the world. Eckhouse counsels and implements global trademark strategies for new brand launches. Additionally, he prepares and prosecutes patent portfolios protecting new products coming to market.

On June 13, FDA announced it is extending the compliance date for food and beverage manufacturers to implement the updated Nutrition Facts label that was approved in last summer. FDA did not give new dates for compliance, but stated the “extension will be guided by the desire to give industry more time and decrease costs, balanced with the importance of minimizing the transition period during which consumers will see both the old and the new versions of the label in the marketplace."

In May 2016, FDA finalized the Nutrition Facts and Supplement Facts Label and Serving Size final rules and set the compliance date for July 26, 2018, with an additional year to comply for manufacturers with annual food sales of less than $10 million. After those rules were finalized, industry and consumer groups provided the FDA with feedback regarding the compliance dates. After careful consideration, the agency determined additional time would provide manufacturers covered by the rule with necessary guidance from FDA, and would help them be able to complete and print updated nutrition facts panels for their products before they are expected to be in compliance. Details of the extension will be provided through a Federal Register Notice at a later time.

The sweeping overhaul of the Nutrition Facts label is the first in 20 years and includes modifying the list of required nutrients that must be declared on the label, updating serving size requirements, and providing a refreshed design. The regulations apply to packaged foods except certain meat, poultry and processed egg products, which are regulated by USDA’s Food Safety and Inspection Service (FSIS).

In 2014, FDA Deputy Commissioner Michael Taylor estimated the cost to industry at around $2 billion, although he said the regulations are projected to yield $20 billion to $30 billion in economic benefits. FDA estimated the sweeping proposal would impact roughly 60,000 manufacturers and more than 700,000 Universal Product Codes, representing approximately $236.78 billion in sales in grocery stores, drug stores and mass merchandise stores.

This is not the first time FDA has been affected by the new Administration. In May 2017, President Trump unveiled a budget for fiscal year 2018 (FY18) that would reduce expenditures for food-safety programs at FDA, drawing criticism from consumer groups who doubted Congress would support the White House’s plan. The budget includes $1.3 billion for food safety across FDA programs—a reduction of $83 million from funding appropriated in the FY17 continuing resolution, the U.S. Department of Health and Human Services (HHS) disclosed in a summary of FDA’s budget.

Amazon today announced it will acquire Whole Foods Market Inc. for $42 per share in an all-cash transaction valued at approximately $13.7 billion. The deal, expected to close during the second half of 2017, signals times are changing for the grocery retail sector.

The blockbuster deal—the largest in Amazon’s 23-year history—will allow the e-commerce giant to expand its online presence and accelerate its brick-and-mortar grocery retail strategy. The company already has tested the waters through its AmazonFresh online grocery delivery service and its Amazon Go retail concept.

Whole Foods is the No. 1 natural and organic foods retailer and rang up sales of approximately $16 billion in 2016. The company has more than 460 stores in the United States, Canada, and the United Kingdom.

Commonly referred to as “Whole Paycheck," the grocery chain has been chided by consumers for higher-than-average prices, albeit it for products that are natural and organic. Amazon's ability to offer products at lower prices just might mean Whole Foods will lower prices, which in turn, could attract cost-conscious consumers who normally shop at big box retailers like Walmart and Target—both of which have upped the ante in the grocery sector. Walmart and Target have rolled out aggressive e-commerce programs.

Whole Foods also has been under fire for more than a year from a number of fronts including an attempted shareholder takeover, lingering legal battles, and lagging sales due to traditional grocery chains adding more natural and organic products to their aisles. In May 2017, the grocery giant “refreshed" its Board of Directors by appointing five new independent directors, and elevating Gabrielle Sulzberger to the position of Chair of the Whole Foods Market Board of Directors. Mary Ellen Coe also was appointed Chair of the Nominating & Governance Committee.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy," said Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades—they’re doing an amazing job and we want that to continue."

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from its vendors and partners around the world. Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Commenting on the deal, John Mackey, Whole Foods Market co-founder and CEO, said: “This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers."

So What’s The Big Deal?

Elizabeth Lim, senior analyst, Mergermarket, said the transaction is the second-largest U.S. grocery deal on record after Cerberus Capital Management, CVS Health Corp and SuperValue bought out Albertsons in 2006 for $17.4 billion. In addition to being the top grocery deal in the United States over the last 10 years, the Amazon/Whole Foods transaction is also the fourth-largest U.S. deal in the retail sub-sector on Mergermarket record.

U.S. retail mergers and acquisitions in the year to date have reached 53 deals worth $23.4 billion, up 432 percent in value, or more than five times the sub-sector’s total deal value from the same period in 2016. According to Mergermarket data, the deal further boosts the overall consumer sector, which is the top industry so far in 2017, reaching 202 deals worth a total of $127.3 billion. Of this, retail accounts for 18.4 percent of the sector’s value.

“Structural changes in retail have put a lot of pressure on brick-and-mortar supermarket chains in recent years. With changing consumer habits spilling over into decisions in the grocery aisle, and food retailers ceding some market share to even Amazon as well as e-commerce upstarts in the bourgeoning grocery and meal kit delivery space, an uptick in consolidation in the food retail industry is not surprising, with further M&A opportunities expected as assets become available amidst increasing competition, store closures, and bankruptcies," Lim said.

The Amazon Effect

This latest targeting of a prime retail sector is not the first, and it won’t be the last. The company already has successfully cut into sports nutrition, vitamins, and supplement industries via its online presence.

In May2017, Vitamin Shoppe highlighted ongoing challenges in its sports nutrition business, including falling comparable sales tied to the promotional environment in the sports market. In discussing disappointing first quarter 2017 (1Q17) results, Vitamin Shoppe CEO Colin F. Watts, noted within the sports category, the competitive pressure has most affected protein and on-the-go nutrition (primarily bars), followed by sports supplements.

In 2016, INSIDER reported Amazon as the new king of the online protein sales category, passing former leader BodyBuilding.com. Combining all of its online businesses, Amazon is responsible for 57 percent of all online protein powder purchases, and its subscription service outgrew all others with a 3-share-point increase year over year, according to market research firm 1010data.

As both protein and fitness increasingly appeal across demographics, mass retailers have been drawn to the sports nutrition and fitness category, Watts explained. The cluster of brands driving the highest market share have redirected their efforts toward online and mass channels, leaving specialty retailers like Vitamin Shoppe in a difficult competitive position.

The global market for dairy alternative drinks is expected to reach US$16.3 billion in 2018, skyrocketing from $7.4 billion in 2010, according to recent data from Innova Market Insights. Dairy alternative drinks accounted for 7 percent of global dairy launches recorded by Innova in 2016, up from 6 percent in 2015. Actual global launch numbers more than doubled over a 5-year period, and more than half of the launches were positioned as lactose free, nearly 40 percent as vegan and just under one-quarter as GMO-free.

“The dairy alternatives market has seen rising levels of interest in recent years, spurred mainly by consumers increasingly looking for lactose-free, dairy-free and plant-based/vegan options as healthy lifestyle choices, rather than regarding them as simply for those with allergies or intolerances," said Lu Ann Williams, director of innovation, Innova Market Insights. “The category has been further boosted by the growing availability and promotion of plant-based options to traditional dairy lines, particularly beverages, but also cultured products such as yogurt, frozen desserts and ice cream, creamers and cheese."

Significant developments impacting sector growth include the acquisition of WhiteWave in 2016, presenting Danone with the opportunity to further developing its interests in this dynamic market in both North America and Europe. In another key region, Want Want, one of Greater China’s leading food processing companies, recently announced its expansion into soy and other plant-based beverages. China is enjoying particularly strong growth for dairy alternative drinks, with a CAGR of 18.7 percent forecast between 2010 and 2018, reaching a market value of $6.7 billion, compared with a compound annual growth rate (CAGR) of 10 percent in the United States.

Innova called out “Plant Powered Growth" as a top trend for 2017, noting plant-based foods are seeing increased demand from those who do not want to commit to a full vegan or even vegetarian lifestyle, but would rather pick and choose to suit their lifestyle, social life, or health conditions. Dairy alternative launches grew at a CAGR of 20 percent over the 2012–2016 period. Meat substitutes had a CAGR of 14 percent over the period, while the use of a vegan positioning in global food and beverage launches tripled from 2012 to 2016.

“In the move to offer something new, we are starting to see an increasing variety of non-soy plant-based alternatives, including cereals such as rice, oats and barley, and nuts—such as almonds, hazelnuts and macadamias—as well as more unusual options such as hemp and flaxseed," Williams noted. “There has been ongoing launch activity for a range of increasingly sophisticated flavors and blends of non-dairy milks from different sources. In line with the milks market as a whole, there has been a strong move into fashionable milk-based coffee drinks."

Products with free-from label claims have become big business as mainstream society increasingly seeks cleaner ingredients. From gluten, dairy, grains and genetically modified organisms (GMOs) to artificial colors, flavors and preservatives, limiting and omitting certain ingredients is becoming the new norm.

Caribou recently made the bold decision to use only clean label ingredients in its beverages, and created a list of more than 70 ingredients the company has blacklisted. Panera made a pledge to remove artificial flavors, sweeteners, colors and preservatives from its products, and to be more transparent by displaying calorie and sugar content information on signage for self-serve beverages. Chipotle declared it will remove all artificial colors, flavors and preservatives from food menu items. These are just a few of the more recent examples of leading fast-casual and quick service restaurants (QSR) that are publicizing their commitment toward cleaner label products.

Brands producing clean label products are just as pervasive in the ready-to-drink (RTD) beverage and packaged foods categories—and it should pay off. Euromonitor predicts the clean label market will be worth $180 billion globally through 2020, an estimate that the market research company considers conservative.

The trend toward “cleaner” products is largely driven by consumer perception, which is somewhat of a moving target in this arena since the standard is constantly evolving and the definition varies based on the consumer group. Here are three of the most influential sub-trends that are manifesting in clean label:

Natural Function

Consumers want more out of their food and beverages, and the clean label consumer wants natural ingredients with an inherent benefit such chia seeds for their omega-3 content or turmeric for its anti-inflammatory properties. The most desired functional health benefits consumers are currently seeking are increased energy and improved digestion and cognition. So, while the clean label consumer might not be drinking the traditional energy drinks like Red Bull and Monster, they are consuming products like Guayaki, which contains yerba mate tea and High Ball that contains organic caffeine and guarana for energy.

As this trend continues to gain momentum, more brands will incorporate natural ingredients with inherent function as opposed to fortification. The functional food and beverage market has experienced consistent growth over the last several years with no signs of slowing down. According to a report by Technavio, the functional food and beverage market will increase by 7.8 percent each year through 2021, and the next generation of functional beverages will be clean label.

Clean Label Sweeteners

There are a few categories of ingredients that are at the forefront of the clean label discussion; artificial flavors, sweeteners, colors and even stabilizers. Of those, the ingredient getting the most attention (albeit negative) is artificial sweeteners.

The recent study published last April by Boston University researchers, which found that diet soda consumption may lead to stroke and dementia, has only further demonized sweeteners like aspartame and sucralose. However, consumers don’t want to compromise on sweetness or the overall flavor of their beverages. They want the same sweetness without the calories, which leaves sugar alcohols, stevia and its derivatives and monk fruit.

Sugar alcohols like sorbitol, mannitol and erythritol have been used in food and beverages for decades, but are now also starting to be scrutinized. Beverage developers and ingredient suppliers are investing and focusing heavily on creating new technologies that reduce the amount of sweetener needed, and help combat the off-notes and bitter aftertaste associated with natural sweeteners. Expect to see these new ingredient technologies enter the market this year. For more on how the leading consumer brands are addressing sugar reduction, read my March blog post.

Certifications and Claims

Certifications provide an opportunity for brands to distinguish themselves. In addition to mainstream certifications like “Non-GMO Project Verified,” “Organic Certified,” and “Vegan,” we are seeing many new certifications like “Bird-Friendly,” “Salmon Safe,” “Low FODMAP,” “Demeter Certified Biodynamic,” “B Corp Certification,” “Responsible Epicurean and Agriculture Leadership Real Certified.” Since there is no standard definition or certification for “clean label” (yet), it seems the more certifications you have the more transparent your product is, and therefore the more premium it is. In addition to certifications, there are numerous claims and descriptive terms that are not as clearly defined that brands utilize for the same purpose, to capture consumer attention and set themselves apart from competitive products. For the most part, these terms can be used to help position products as clean label without going through the certification process. These claims include terms like artisanal, craft, natural, fresh, hand-made and grass-fed.

Where is it Headed?

Clean label is constantly evolving. Consumers are becoming increasingly aware of food and beverage ingredients and product claims, and are more discerning about which products to purchase.  The beverage categories that have recently seen the greatest amount of growth are those that are being positioned as cleaner label, such as sparkling water and juice hybrids instead of soda, plant waters or waters with enhanced with functional ingredients, certified organic dairy beverages, and wider variety of plant-based dairy alternative beverages.

I’d love to continue the conversation about clean label beverage development or reformulation. As always, you can email me at [email protected].