Mintel forecasts that the UK crisp and snacks market will grow by an estimated six per cent over the six years to 2012 to reach a value of £2.46bn (€3.62bn) at current prices.
After two years of declining sales, the UK crisp and snack sector grew by just under 2.5 per cent in 2006, and further growth is anticipated in 2007, the report said.
Consumers are looking for healthier products, but that they don't want to compromise on taste or quality, Mintel stated in its analysis..
The current increase in sales is mainly due to developing demand for premium products such as hand cooked crisps or baked snacks made with alternative ingredients, according to the report.
Sales of standard or regular crisps dropped by three per cent between 2004 and 2006, while sale of premium brands increased by four per cent over the same period.
Demand for hand-cooked crisps in particular has grown by about 20 to 30 per cent in recent years, the report said.
While premium products generally have lower amounts of fat, Mintel suggests that these brands are also more appealing to consumers because of perceived freshness and quality.
Manufacturers are benefiting from added value sales, as consumers view crisps as indulgent treats, as so buy more expensive ranges, rather than as an everyday snack, Mintel stated.
Shorter production runs are becoming more common, as crisp companies launch different flavour ranges for seasonal and other promotional items.
The popularity of such products is due to the changing demographic of the UK population, as adults tend to buy the more expensive premium products as compared to children, Mintel believes.
Declining birth rates will reduce the under 15 population over the next few years, while the 45 to 55 age group will grow by about 11 per cent by 2011, the market analyst stated.
Crisps marketed at children have experienced lower sales over the last five years, falling by 3.3 per cent in 2006 alone.
The report advises manufacturers to focus on reformulating classic "child-friendly" brands such as hula-hoops to give them a healthier image, as it points out that parents are more likely to buy snacks for the family that they perceive as being "good for health".
The report also warns that, perversely, consumers are turning away from brands created specifically for the "lite" or diet market, and sales of products such as Walkers Lites fell by 16 per cent in 2006.
Mintel suggests that although consumers want healthier products, they perceive these brands as not being as tasty as regular brands, hence the continuing popularity of flavours such as ready salted, salt and vinegar and cheese and onion.
In real terms, with inflation for food taken into consideration, this represents 3 per cent rate of decline.
Therefore the industry faces significant challenges in keeping up significant levels of growth rate, mintel says.
The drive to healthy eating will continue to cause consumers to question their purchases of crisps and snacks, and restrictions on advertising to children will also impact on demand in a key target market.
The report questions how long the premium sector of the market will be able to sustain volume sales in the long term.
It also warns that the industry faces a tough task in promoting crisps and snacks as healthy snacking options in the face of strong competition from alternatives such as fruit and cereal bars.
Crisp manufacturers are willing to continue the fight however, and many have already rolled out innovative new lines that target health conscious but taste-sensitive consumers.
UK crisp maker Kettle Foods is adding to its lentil Crispy Bakes range, launching salt and malt vinegar bakes to join other flavours such as tomato, basil and green peppercorns and mild cheese and sweet onion.
United Biscuits UK (UBUK), one of the UK's largest crisp manufacturers, reformulated this year many of its core brands to re-establish the products as healthier snacks, and brands such as Hula Hoops are now made with rice flour, Maize and wheat bran.
According to market analyst group Leatherhead International, the US, UK and Germany have established markets for rice snacks and sales in these regions totalled $264m (€210.5m) last year.