Healthier Foods Boost Bottom Line
Here’s some food for thought: Everywhere, it seems, people are dropping their Oreos and grabbing ahold of all-natural cereal bars instead.
Healthier fare is a rapidly growing part of the food business, and companies that have missed the trend are paying a steep price.
Kraft Foods Inc. demonstrated this last week when it announced that it would close 20 factories, eliminate 6,000 jobs -- 6% of its workforce -- and reorganize its operations worldwide in part because it hadn’t done enough to exploit this turn in consumer tastes. The move came after Kraft suffered a decline in per-share earnings for 2003’s fourth quarter and underwent a management shuffle in December.
Although the company still boasts a bunch of very popular and profitable products, including Kraft Macaroni & Cheese, Oscar Mayer hot dogs and those ever-naughty Oreos, analysts say it needs to do much more to promote its healthier offerings. Among them: the Balance Bar and soy-based Boca Burgers.
A study by Scott Van Winkle of Adams Harkness & Hill, a Boston investment bank, estimates that natural and organic foods make up a $15-billion market, which is growing at 20% a year. That is more than six times faster than the conventional packaged-foods industry.
These better-for-you foods, as some analysts call them, include Kashi, product of a La Jolla company, and other twiggy-looking cereals that one used to find only at health stores. Nonfat milk and cheese, as well as sugar-free candy, are also counted in this category.
Most of the companies that supply healthier chow, including Hain Celestial Group Inc. and Canada’s Sunopta Inc., are relatively small. But some corporate behemoths have gotten into the act, embracing this market more swiftly than Kraft has.
For example, Dean Foods Co. has aggressively pushed Silk brand soy milk in supermarket refrigerator cases. And Nestle, the Swiss giant, is well-known for playing up the nutritional value of its products.
One thing is clear from all this: Healthier eating is no mere fad.
Indeed, consumers have been moving in this direction for more than a decade, or since Congress passed the Nutritional Labeling and Education Act of 1989, which required that food packages carry health information.
Demand for healthy and organic foods also has increased markedly as aging baby boomers have looked to control their weight and stay fit. Fat has become a particular concern, not least because the government’s Centers for Disease Control and Prevention estimate that 20% of Americans are obese -- not merely overweight but heavy to an extent that they are susceptible to diabetes, heart disease and cancer.
As if to underline such dangers, a lawsuit was brought last year against McDonald’s Corp., accusing the company of fostering obesity. The lawsuit was dismissed, but the fast-food chain has been refining its menu to include more salads.
“A lot of people are eating fewer carbohydrates,” McDonald’s chief executive, James Cantalupo, was reported as saying last week. “If that is what our customers want from us, we’re going to provide it.”
Another sign of the times: Even football fans are apparently watching their waistlines. Frito-Lay, the snack-foods division of PepsiCo Inc., is running full-page ads for Super Bowl Sunday proclaiming that its potato chips and Tostitos contain zero grams of trans fatty acids, which boost bad cholesterol.
To be sure, there are other factors thrusting change upon the $300-billion packaged-foods business. Private-label items are enjoying faster sales growth than are branded goods, according to Daniel Peris, an analyst with Federated Investors. And discount outlets, such as Wal-Mart Stores Inc., are selling more food, pushing down profit margins for producers.
Yet the biggest driver of all seems to be an insatiable hunger for what Kraft calls “health and wellness” products.
For its part, Kraft promises to beef up -- or should that be chicken up? -- its marketing in this area. Meanwhile, Kraft is aiming to remove trans fats from hundreds of products, including Oreos.
In doing so, Kraft spokeswoman Nancy Daigler acknowledges, “there is a risk” -- namely, that the cookies might not taste so good anymore because it’s the fat that helps release flavor. But an even bigger risk these days is that a food company will fail to acknowledge that healthier products are what make for a healthier bottom line.
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James Flanigan can be reached at jim.flanigan@latimes.com. To read
previous columns, go to latimes.com/flanigan.
