Food makers look to health as downturn defense

CHICAGO Thu Mar 20, 2008 12:59pm EDT

CHICAGO (Reuters) - The food industry is turning to healthier product lines to fight off the effects of the weak U.S. economy and help price hikes stick after a big leap in commodity costs.

The emergence of so-called health and wellness foods with lower fat, sugar and salt are aimed at keeping consumers buying premium brands even amid the escalating credit crisis, high fuel prices and housing meltdown.

Industry giants such as Kraft, General Mills, Sara Lee, ConAgra, Unilever and Danone all told the Reuters Food Summit in Chicago that healthy products were on top of their menus in insulating themselves from the U.S. economic malaise as they showed much higher growth than more-traditional selections.

Some companies said the health benefits of the new products helped attract customers squeezed by the price rises forced by the spiraling cost of commodities such as wheat, corn, milk and crude oil.

Kraft Foods Inc KFT.N, which leads the industry in North America, said health and wellness was key, and its "better for you" products were growing two to three times as fast as others.

The maker of Oreo cookies, Philadelphia cream cheese and DiGiorno pizzas said its healthy initiatives covered 30 percent of its lines and stretched across all of its five categories of beverages, snacks, cheese, grocery and convenience.

"Health and wellness is a priority," Rick Searer, president of Kraft North America, told the Reuters Summit.

General Mills Inc (GIS.N) said all its breakfast cereals, including Cheerios, contained whole grain as part of its health and wellness drive. In addition, its Yoplait yogurts have added vitamin D, and the company has introduced low sodium-soup choices at its Progresso brand.

"Consumers will not necessarily pay more, but they will buy a lot of them, and we have had great success with our Fiber One fast-growing snack bar," said Chief Executive Kendall Powell.

Sara Lee Corp SLE.N said the trend toward healthier food products had helped it counter the sharp rise in wheat and feed grain prices, which have hit its namesake baked goods, Jimmy Dean sausages and Hillshire Farm deli meats.

"If we sell more whole grain bread and reduced-fat meat, it does benefit us, as these products are high-margin and growing quickly," said C.J. Fraleigh, chief operating officer of North American operations.

Like its rivals, Sara Lee has increased prices for core food categories of bread and packaged meats, he said, but so far, volumes have not suffered and consumers have not been shifting to cheaper products.

ConAgra Foods Inc (CAG.N) Chief Executive Gary Rodkin said his company's move toward healthier fare and away from commodity-type products was crucial as he looks to push up prices of such menu choices as Healthy Choice meals and Hebrew National hot dogs.

"Seventy-five percent of our research and development is into health and wellness, where we have a robust pipeline," he said.

NOT JUST A U.S. THING

Companies based outside of the United States, but which do much of their business there, are also looking to healthier products for growth as the economy slows.

Unilever Plc/NV (ULVR.L) (UNc.AS) said it was cutting out fats, sugars and salt from its foods as a way to bolster its health and wellness lines.

Some of the fastest growth at the European food giant has come from healthier products such as its cholesterol-lowering minidrink Promise Activ supershots, low fat ice-cream and Hellmann's mayonnaise, and Lipton tea, said Bauke Rouwers, senior vice president of foods for the Americas region.

"The long-term trend towards better food and people looking after themselves is here to stay," Rouwers said at the summit.

France's Danone (DANO.PA), which in the past couple of years has introduced yogurts made with live bacteria, said the health benefits of the probiotic products should mean strong revenue growth at its $1 billion North American Dannon unit.

The world's biggest yogurt maker says Activia, launched in 2006, aids digestion and that DanActive, introduced in the United States in 2007 and known in Europe as Actimel, strengthens the body's natural defenses.

Dannon raised prices of the products last August and in February by 4 percent to 6 percent, due largely to the near-doubling of milk costs.

Still, Dannon Chief Executive Juan Carlos Dalto said he had seen no effect on demand for the two products, which make up 40 percent of the unit's sales.

"We are very optimistic we will see nice double-digit growth in the years ahead" in North America, said Dalto, even though the two products cost 10 percent to 30 percent more than other yogurts.

(For summit blog: summitnotebook.reuters.com/)

(Editing by Lisa Von Ahn)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.