Published by Packaged Facts, the report claims that in many product categories, the trend in developing foods for some of America's youngest and pickiest consumers is the key to category growth.
Sales of goods designed for the nation's 35.8 million kids aged three to eleven exceeded $15.1 billion in 2006, representing growth of 8.5 percent over the prior year, according to Kids' Foods and Beverages. Total growth of the segment from 2001 to 2006 was set at almost 39 percent, with a compound annual growth rate of 6.6 percent.
And over the next five years annual growth is set at 11.5 percent, with the segment estimated to be worth almost $27 billion by 2011.
The new report attributes this impressive market growth to a number of factors, headed by an increased awareness of nutrition and health. Together with growing governmental and parental concerns about childhood obesity, this has resulted in a stream of new health-oriented product innovations, as well as increased 'health-aware' advertising aimed at kids.
But reaching this demographic poses many challenges, said the report.
"Marketers have the unique challenge of balancing fun food formats, 'wow' packaging, and continuously changing variety, with parent-friendly fare that's high in nutrition, convenient, and easy to prepare," said Don Montuori, the publisher of Packaged Facts.
"Creating a connection and building a brand relationship is far more difficult with today's multicultural, media and technology saturated kids than it was even a decade ago."
The report, which examines the performance of 11 product categories, follows a tight definition of what can be classified as kids' foods. These have been limited to goods that appeal specifically to children while not containing enough appeal to register with adults. The products in this category target kids through packaging, formulation or marketing, and usually have some form of play value, or use licensed cartoon characters.
By far the largest segment of the kids' food and beverage market is the beverage category, which came in at just over $4.3 billion for 2006, accounting for almost 29 percent of total segment sales.
Next come frozen deserts, ice creams and frozen novelties, with almost $2.5 billion in sales, representing 17 percent of the market. In third place is cereal, with a 15 percent share.
Lunch kits and sweet snack foods hold almost 8 percent market share each, followed closely by cookies and crackers. Interestingly, kids' dairy products only captured some 4 percent of the market, while fruits and vegetables were bottom of the list, at 1 percent.
Although manufacturers have already responded well to the emerging market for kids' products, the new report stresses that children's constant crave for variety means that a constant stream of product introductions is necessary for companies to maintain their sales volume and market share.
And because today's generation of children have grown up with extensive exposure to a wide variety of media, entertainment and advertising, they have a finely honed sense of what constitutes cool. Meaning that from an early age they pester their parents for the food and beverage products that meet their inner benchmark for "hip" , "fun" and "gotta have" , said the report.
Children "actively seek out new products when shopping, and are very receptive to products that are new and intriguing," it noted, but added that "the new kids' products that have the greatest success know how to crack the code, of not only what kids want, but what parents will buy."
Besides variety, strong appeal features in products targeting children include portability, fun factors, packaging and nutrition. Indeed, the report stresses that companies should not underestimate the ability of children to understand what is good for them: kids tend to know that some snacks are better than others, and research has shown that they are actively looking for foods that are good for them.
The need for healthy children's foods is also being promulgated by government and regulatory bodies.
In 2006, two government offices - the Federal Trade Commission (FTC)and the Department of Health and Human Services - together issued a report that recommends food companies and the Children's Advertising Review Unit (CARU), set nutrition standards for products marketed to kids.
Among its many recommendations are for the entertainment industry to license children's TV and movie characters for healthy and nutritious products; for food companies to revise and improve what they serve in schools; and for food companies to do a better job of reaching out to minority communities to promote healthy lifestyle and eating habits. The report also recommends food companies to look into labels that easily identify lower-calorie, nutritious foods.