Clean Label trend to restructure the sourcing landscape of food flavors and colors industry

Abstract

With increasing emphasis by consumers and regulatory bodies to mandate clean labels and transparency of ingredients in their products, the flavors and food color industries are undergoing a dynamic transition phase in switching to natural counterparts amidst several challenges. This trend has offset a cascading impact on various domains such asR&D, supply chain andsourcing, price competitiveness,and raw material availability. A gradual shift in power in favor of suppliers of natural flavors and colors,and large companies with an ability to incorporate changes to their supply chain has begun to set the trend for emerging players in the market, instigating a need to reshape the sourcing landscape. Several challenges are faced by the flavor and color industries during this transition such as the supply consistency of raw materials, compatibility of the natural ingredients with the existing formulation, compromising on price advantages in the market, lack of availability of natural counterparts, ability to sustain in the market, etc. However, with the market for confectionery, beverages, baked and packaged foods (the major consumers of natural flavors, sweeteners and colors) projected to grow significantly in the next five years, the market for natural flavors, sweeteners and colors can also be expected to grow concurrently.Incessant developments in R&D, technology and more cost conscious alternatives gaining entry into the market, and further fine tuning in the sourcing patterns/practices can be expected in the coming years. In this light, lesser expensive alternatives such asnature identical ingredients which provide the same functionality can be expected to gain significance in the market.

The switch towards clean labels and its impact on sourcing in the food flavors and colors industry

•Though there is no concrete, standardized definition of a clean label, a commonly accepted concept of clean labels imply that the ingredients used in that food product are from natural sources and free from artificial colors, flavors, preservatives and common allergens. Increasing consumer awareness on health and wellness has led to regulatory bodies mandating food manufacturers to list their ingredients transparently, even with some products offering a more customized label, right from serving sizes to the type of ingredient to whether a particular ingredient needs to be chosen with discretion. Today, the clean label has moved from being a trendto becoming a mainstream mandate, primarily in the developed economies

•Two colossal industries that are being impacted significantly by this clean label shift are the flavorand food color industries. Owing to the significantly high cost of flavors and colors from natural sources, the current practice involves manufacturers resorting to inexpensive synthetic alternatives, which provide the same functionality, and the cost contributing to only a fraction of the total product cost, thereby reducing their overall spend significantly. However, with the negative image “artificial” ingredients are gaining amongst consumers, especially the millennials and baby boomers, manufacturers are left with little choice but to replace their artificial ingredients with theirnaturally derived counterparts