Nutrition: It's a family affair

by Eric Schroeder
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In the wake of Nestle S.A.’s recent agreement to acquire the Gerber business of Novartis AG for $5.5 billion, interest in nutrition, and specifically, infant nutrition, appears to be gaining momentum for some of the world’s largest food and beverage companies.

According to global research firm Mintel, the baby food and drink market is expected to remain relatively flat, edging upward to $3.6 billion in 2011 from $3.5 billion in 2006. For food companies, key to success may be increased interest in convenient, nutritious foods designed for toddlers and organic foods for babies of all ages.

"There is a stronger emphasis placed on nutrition and combating obesity in the younger years than ever before," said Erin Fowler, an analyst for Mintel. "Parents are looking for the proper nutritional mix for their children earlier. However, they are still feeling the pressures of a time-deprived society, so more convenient offerings that can promote better health for toddlers are a necessity."

One way consumers believe they may do this is by incorporating organics into infants’ diets. Illustrating the mainstream appeal of infant nutrition has been the growing number of outlets offering affordable organic products. Wal-Mart Stores, Inc., Bentonville, Ark., through its Parent’s Choice Organic infant formula and Gerber Tender Harvest organic baby food, is optimistic it will be able to grow the category.

Also making accessibility easier is the acquisition of baby food manufacturers by larger, global food and beverage companies. With wider recognition and deeper pocketbooks, global companies hope to strengthen their presence in infant nutrition.

Gerber going global?

Once completed, the acquisition of Parsippany, N.J.-based Gerber will help boost the Nestle Nutrition business to nearly $8.5 billion in sales, up from $4.4 billion in 2006. While the Gerber purchase alone does not account for the $4.1 billion jump in sales, it fills an important slot in the company’s effort to focus operations on nutrition.

Gerber offers about 300 food products for babies, toddlers and infants as well as a baby care line, wellness products and life insurance. Gerber, which was founded in 1928, is active in more than 50 countries and has about 4,500 employees. In 2006, Gerber had net sales of $1.6 billion and operating income of $307 million.

"Added to Nestle’s existing baby food business in the U.S. and its overall North American business, this makes Nestle a very clear leader in infant nutrition in the U.S., where, unlike Western Europe, having babies remains in vogue," said Rob Mann, a food analyst in London.

Nestle tried unsuccessfully to acquire Gerber in 1994, but was outbid by Sandoz Ltd. A more aggressive approach and the belief the company

was an ideal fit alongside recent acquisitions of Jenny Craig and Novartis Medical Nutrition led to the purchase of Gerber, which, at 82% market share, is the leading baby food business in the United States.

What Nestle hopes to accomplish with Gerber remains to be seen. While well known in the United States, Gerber is a virtual unknown brand in the European market. Nestle has had good success with transferring traditional American brands into Europe, though, as evidenced by the growing global presence of pet food maker Ralston Purina, which Nestle acquired in 2001.

In an April 12 conference call, Richard Laube, chief executive officer of Nestle Nutrition, said Gerber’s non-U.S. business — predominantly Mexico, Central America and Poland — represents about 21% of total Gerber sales.

"We know the brand has a good meaning in several markets that we have seen," Mr. Laube said. "Now it’s inappropriate to tell you what those markets are, but I think you can take some guesses. So the brand is strong and in the markets where the brand is present, as we’ve seen from the U.S., the brand can go into adjacent areas — baby care, we get some licensing revenue from clothing, the insurance business."

Mr. Laube added Gerber "has really opened up our eyes" on the opportunity for infants between the ages of 12 and 36 months.

"This Graduates business is exciting, and we have not fully applied that to us," he said. "So that we roll out the Gerber brand name, put that under another brand name that is trusted in the market, I think we can capture this opportunity at least conceptually. That’s the most exciting part that we’ve seen."

The company also has shown headway in growing its nutrition business in general.

In issuing first-quarter financial results on April 23, Nestle said it reached its long-term organic growth target of 10% within its Nestle Nutrition business — the first time the company has achieved such growth. Although the improvement did not include the recently acquired Gerber business, Roddy Child-Villiers, head of investor relations for Nestle, said in an April 23 conference call the growth "was delivered to a great extent by infant nutrition, which benefited from the continuing innovation across its product range."

Nestle’s movement in infant nutrition is not limited to acquisitions, though. In late March, the company’s Nestle Nutrition unit announced a collaborative effort with New Zealand biotechnology company BLIS Technologies under which the two companies agreed to carry out research and development of BLIS probiotics for use in infant nutrition products.

According to the companies, scientific evidence suggests BLIS Technologies’ probiotics may boost infants’ immune systems and may prevent upper respiratory tract infections.

Under terms of the agreement, Nestle Nutrition will fund BLIS Technologies’ research efforts in the area as well as be responsible for clinical studies. Nestle will then commercialize the probiotics under license as part of its range of infant nutrition products.

Beech-Nut sees breakthrough

Nestle isn’t the only company making a splash in infant nutrition. Hero, an international brand-focused consumer-foods group founded in 1886 in Lenzburg, Switzerland, has been committed to producing nutritious products in the infant nutrition category for many years.

In 2006, the group generated revenues in excess of 1.7 billion Swiss francs with approximately 4,000 employees in more than 30 countries. One of the group’s most notable moves was the 2005 acquisition of the Beech-Nut Corp. The transaction made Beech-Nut the No. 2 player in the U.S. baby food industry, trailing Gerber. A subsequent acquisition of Semper, Scandinavia’s market-leading baby food brand, has helped make infant nutrition accountable for nearly a third of total group revenues at Hero.

While Nestle hopes Gerber can make a dent in Europe, Hero made its move with the hopes of growing in the United States and Canada.

As a recent example of how the company is making that work, Beech-Nut announced a breakthrough infant nutrition program earlier this month with the mindset of delivering baby foods for specific eating occasions. With the launch of Good Morning and Good Evening baby foods, Beech-Nut has introduced a line of products offering key ingredients to infants already eating solid baby foods, based on the time of day that they are fed and the associated nutritional needs.

The Good Morning line of products provide 1 gram of soluble fiber, giving the food a low glycemic index and enabling a steady release of energy and balanced blood-sugar level throughout the morning.

The Good Evening products feature whey protein, which helps to build muscles when babies grow most — at night. The products also feature prebiotics, which stimulate the growth of good bacteria in the digestive system.

"This new line of products makes choosing what to feed baby a whole lot easier, and more importantly, provides babies with the nutrition that they need to learn and grow at just the right times," said Christoph Rudolf, president and chief executive officer of Beech-Nut. "Good Morning and Good Evening represent Beech-Nut’s commitment to drive innovation and nutrition in infant food, and to provide more choices to parents."

The new line includes two 8-oz dry cereals, and five varieties of 4-oz jarred food each in Good Morning and Good Evening.

New research finds formula for filtering fat

If new research from the Metabolic Research group at the Clore Laboratory at the University of Buckingham in the U.K. is to be believed, there may be an answer for combating obesity in infants.

According to the Society of Chemical Industry, new research published in the American Journal of Physiology shows mice fed a hormone called leptin stayed slimmer and exhibited a reduced risk of developing type 2 diabetes than other mice.

Leptin is the fat hormone that controls appetite in the brain. It is produced throughout life, and while research on the hormone’s effectiveness in human adults has proved disappointing, researchers at the Clore Laboratory now believe it may have value in infant formula and other baby foods as permanent protection from obesity and diabetes.

Mike Cawthorne, who leads the Metabolic Research Group at Clore, said pregnant rats given the hormone tended to give birth to mice that remained lean even when fed a fat-laden diet. Animals from untreated pregnant rats, meanwhile, tended to gain weight and developed diabetes.

The findings have been recognized as good science, though more work needs to be done to determine possible side effects in humans, researchers said.

This article can also be found in the digital edition of Food Business News, May 1, 2007, starting on Page 29. Click here to search that archive.

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