Food makers look to health as downturn defense

By David Jones - Analysis

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