Eggs, yogurt and milk. Basic, reliable and boring foods that form the foundation of everyday diets.
But today, they are the new darlings in the food industry as some of these ubiquitous items have been transformed into “functional” foods – those enriched with nutrients such as proteins, fatty acids and probiotics to bring additional health benefits and win more consumers.
Producers of staples – often small and niche – are outgrowing their bigger competitors as their positive cash flows and solid business models, backed by societal trends, attract investors.
This is in stark contrast to the post-Covid trends of a few years ago. Back then, companies developing novel technologies such as meatless 'meat', lab-grown protein and vertical farming commanded high valuations thanks to exciting growth prospects.
But sci-fi failed to turn into reality. Many of those disruptors had unproven business models and high initial and operational costs. The taste, health benefits and pricing did not live up to end-users’ expectations. They launched at an unfortunate time just as inflation and interest rates were about to peak in the post-pandemic disruption. Many went out of business or have had to substantially pivot away from their original missions.
As consumers go back to basics, other factors have combined to make some of the staple ingredients highly coveted items.
Take eggs. Earlier this year, grocery shoppers from New York, Denver and Chicago were finding egg shelves empty at their local supermarkets and facing a 50% surcharge for eggs at some diners. The outbreak of avian flu primarily affected industrial indoor egg production facilities, sending egg prices to a 10-year high.
The only eggs left in the aisle were pasture-raised free-range ones, from premium egg producers whose better welfare practices and open-air setups had mitigated the spread of the disease. Some of these egg boxes are equipped with a QR code which allows consumers to trace their eggs back to the hen that laid them,lending transparency to the supply chain.
On top of better provenance traceability, pasture-raised eggs have a better nutritious profile than those from industrial cage systems, containing more omega-3 fatty acids, vitamins D and B and antioxidants thanks to the hens’ access to natural, pasture-based diets. They are less at risk from a disease that is prone to spread rapidly through industrial farms where hens are often caged indoors.
Consumer demand for basic staples like eggs is considered inelastic – in other words, consumers are less responsive to higher prices. And consumers are willing to pay a higher price for healthier options. A study has found in most experiments – 23 out of 26 – grocery shoppers would pay more than 30% extra for healthier alternatives.https://pubmed.ncbi.nlm.nih.gov/36342169/
Functional yogurt
Yogurts are also trendy again. Consumers preferring healthy eating and active lifestyles are boosting demand for functional foods and drinks, such as fortified yogurt and drinks loaded minerals and protein, which offer benefits like improved gut health.
The functional food and beverage industry is growing fast, projected to reach over half a trillion dollars by 2028 from the current USD281 billion. Statista
In this category, smaller and pure play businesses are competing well with larger food companies and enjoying double-digit growth.
A greater use of weight loss drugs, such as GLP-1, appears to be playing a crucial role. A study released earlier this year has found that consumers are modifying their food purchasing behaviour after adopting appetite-supressing drugs in favour of nutrient-dense items, such as yogurt. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5073929
Households with at least one GLP-1 user reduce grocery spending by
approximately 6% within six months of adoption, with calorie-dense processed items such as crisps and sweet bakery items showing the largest spending decreases. Instead, they have more money to spend on nutrient-rich staples.
Stricter regulation against junk food is also fuelling demand for healthy staples and supporting specialised plant-based or organic food retailers. In the UK for example, the government will introduce legislation to restrict the promotion of food and drinks that are high in fat, salt or sugar, including “buy one get one free” deals and TV ads before 9pm, from October 2025.
Eggs and yogurts may be bog-standard commodities but they are changing the landscape of the food industry.
Investment insights
By Mayssa Al-Midani, senior investment manager, thematic equities, Pictet Asset Management
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Innovative food companies offering staple food items with a new twist, such as premium eggs, fortified yogurt or milk enriched with vitamins, enjoy the prospect of strong growth, backed by strong business models which capitalise on broader social trends towards healthier eating and away from ultra-processed food. We find that these companies are often small and mid cap, niche and high quality; many of them are headquartered in the US.
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Functional food and beverage are a fast-growing industry, projected to reach over half a trillion dollars by 2028, nearly double the current size. Share prices of pure-play innovators such as US-based Vital Farms have more than doubled in the past year, compared with low single-digit growth for typical consumer staple companies.
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Growing adoption of anti-obesity drugs will likely accelerate behavioural change among consumers and emphasise the trend towards healthy eating, benefiting functional food producers.
