Health focus

by Keith Nunes
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On April 10, Peter Brabeck-Letmathe addressed the shareholders of Nestle S.A., Vevey, Switzerland, at its annual general meeting for the last time as the company’s chairman and chief executive officer. Paul Bulcke was named c.e.o. of the world’s largest food company that day and media reports about the meeting focused on speculation about how Nestle may change under Mr. Bulcke’s leadership. Lost amid the speculation was a significant statement made by Mr. Brabeck-Letmathe — "I would like to note that we have succeeded in our strategic reorientation towards nutrition, health and wellness.

"Today we respond to the demands of a consumer who expects the food industry to provide ever more sophisticated products with added health benefits. What is more, individuals with very specific nutritional requirements — athletes, for example — can also find products that meet their needs among the range we offer."

It was two years earlier when Mr. Brabeck-Letmathe put forth the strategy of transforming Nestle with a focus on health, wellness and nutrition. That the company was able to reposition its global operations around the concept of health and wellness underscores how deeply entrenched the strategy has become for many of the world’s leading companies.

This story will look at how four leading food companies have approached the concept of health and wellness. It is a mistake to imply that the production of food products with a nutritional benefit is new. What is new is the focus companies are placing on the trend and how some are using it to grow and transform their businesses.

The transformation of Nestle gained momentum through a series of acquisitions between June 2006 and today. First there was the Jenny Craig acquisition, which gave the company a position in the weight management portion of the health and wellness segment. That acquisition was followed in December 2006 with the purchase of Novartis’ Medical Nutrition business, which gave Nestle added strength in the health care sector.

Nestle acquired the Gerber baby food business from Novartis for $5.5 billion in April of 2007 and gained a strong position in the infant nutrition business. The acquisition also meant health, wellness and nutrition accounted for 10% of the company’s total sales, which were 107,552,000,000 Swiss francs.

But acquisitions were not the only aspect that drove Nestle’s growth in nutrition. The company has set aside a significant amount of money for research and development in an effort to develop new technologies for delivering health benefits through food.

"Over the last few years we have drastically modified the way in which we conduct our research and development," said Mr. Brabeck-Letmathe in April. "We are working increasingly with universities, other research institutions and third-party companies — often start-ups — with a view to covering, as far as possible, all the areas that might be of interest to us.

"The field of investigation has grown spectacularly, and we believe it is vital to closely follow all the axis of research in order to maintain an innovation pipeline that keeps us one step ahead of our competitors. We are currently the clear No. 1 among nutrition and health companies, and we aim to maintain this position over the years and decades to come, which is why we will continue to invest significantly in research and development.

"Our spending in this area already amounts to CHF 1.9 billion ($1.81 billion), with more than a quarter of research costs attributable to nutrition in its strictest sense. This proportion clearly demonstrates the level of importance we attach to the concepts of nutrition and health."

Groupe Danone goes all in

Paris-based Groupe Danone, a global manufacturer of fresh dairy and water products, and the parent company of The Dannon Company, Inc., White Plains, N.Y., has taken its strategic approach to health and wellness and made it the sole focus of the company.

"Ten years ago, (Groupe) Danone was a diversified food company essentially based in Europe with a lot of business in France and today it has a completely different face," said Emmanuel Faber, co-chief operating officer, during the Consumer Analyst Group of New York conference in Boca Raton, Fla., this past February. "If I turn to what ultimately drives this company, which is healthy food, we have moved from 40% of our business being healthy 10 years ago to 84% before we swapped Numico against our biscuits business last year. All of this has been made on leveraging the very strong functional brands that our teams have developed over the last 10 years."

The transactions Mr. Faber referred to include the sale of Groupe Danone’s biscuits and cereals business to Kraft Foods Inc., Northfield, Ill., and the acquisition of Royal Numico in July of 2007. The Royal Numico acquisition allowed the company to establish a position in the global baby food market.

"This means at the end of the day that, after 10 years plus one the strategy for healthy food for Danone is now completed," Mr. Faber said. "We have gone from 84% to now 100% of our business in healthy food."

Successful fresh dairy products, or what the company calls "blockbuster brands" under the Groupe Danone banner include Activia, a probiotic yogurt designed to improve digestive health; Actimel, which has the functional benefit of improving the body’s immune system; Danacol, for lowering cholesterol levels; and Vitalinea-Taillefine, a product for improving weight management.

"For each brand, there is one functional benefit," Mr. Faber said. "So there is one core target, one consumer insight, one benefit, one reason why, which is backed by science, and therefore a very, very strong identity and functional understanding for the consumer of what he or she gets from our products."

With the strategy of one functional benefit in mind, the tactical aspects of going to market throughout the world are challenging. For each market, the type of product and how it is packaged has to be taken into account.

"We have different products — fresh cheese, kefir, drinkable yogurt in Mexico, and many others — which we adapt to the local culture," Mr. Faber said.

The company also has taken its fresh dairy strategy and is using a similar effort to develop and market its water products.

"Ultimately, we’re talking about drinkable natural hydrating products, which, if you look at how we can build them, we can start from the spring water," Mr. Faber said. "We can flavor the spring water; we can add a fruit or a plant that has a functional benefit and some identified goodness in the mind of the consumer and the science that supports it; and we obviously then can go up to much higher functionalities, like sports or energy drinks."

Sensible Solution drives Kraft Foods

As the health and wellness trend took hold in the United States, Kraft Foods Inc. positioned itself in the segment by launching its Sensible Solution program in January 2005.

"We know consumers really like our Sensible Solution products," said Susan Davison, director of corporate affairs. "All of our health and wellness products are growing at two-times our other products over the past few years. It is an indication to us that consumers are looking for more better-for-you options."

Criteria required to fall within Kraft’s Sensible Solution program include providing beneficial nutrients such as protein, calcium, fiber or whole grain at nutritionally meaningful levels, or delivering a functional benefit, such as heart health, while staying within specific limits on calories, fat, sodium and sugar; or meeting specifications for "reduced," "low" or "free" in calories, fat, saturated fat, sugar or sodium. The products that qualify have the Sensible Solution logo included on the front of packaging as a way to inform consumers the product has healthy attributes.

Kraft’s product portfolio featuring products it categorizes as healthy has been expanding at a rapid rate, Ms. Davison said.

"The first products we featured with the Sensible Solution logo included Kraft 2% milk, cheese, Post shredded wheat cereal, and Crystal Light beverages," Ms. Davison said. "Many of the products already fell into the better-for-you category, but we did not market them that way."

Today, the company has more than 500 products with the Sensible Solution flag in the United States and more than 700 across North America.

"We have Sensible Solution across every aisle of the supermarket — from cheese to beverages to cookies to crackers," Ms. Davison said.

And as the company’s healthy product portfolio has evolved, it has expanded into the area of functional benefits with the launch of its LiveActive brand and several new Crystal Light products. The LiveActive line includes cheese, cottage cheese, yogurt, flavored drink mixes and cereal. Each product features probiotics that help consumers improve their digestive health.

With its Crystal Light line additions, Kraft has extended into the functional arena in another direction. In March, the company introduced several new Crystal Light flavors, including Focus Citrus Splash with caffeine and Metabolism+ Peach Mango Green Tea with green tea antioxidants and caffeine. While not specifically targeted toward health, the products have a functional benefit.

"Consumers are driving this," Ms. Davison said. "They are interested in health and wellness, and maintaining a healthy lifestyle. We are offering them choices that fit with their desires but also don’t sacrifice the other things they want, like taste and convenience."

Heinz’s health initiative

For the H.J. Heinz Co., Pittsburgh, the health and wellness trend is an integral part of the company’s strategy to combat the rise in raw material prices. Health and wellness is viewed as a way to add value to products in an effort to drive higher margin sales. In 2007, William Johnson, chairman and c.e.o., developed a health and wellness task force to develop a strategy for focusing Heinz’s energy on health.

"It’s clear that more consumers are making conscious efforts to lead healthier lives and are looking to food to help them achieve that goal," Mr. Johnson said during a conference call with financial analysts on May 29. "That trend cuts across all age groups from babies to boomers and we are well positioned for this opportunity."

With Heinz’s Smart Ones and Weight Watchers lines of meals combined with its position in infant nutrition as well as tomato-based foods, beans and soups, Mr. Johnson sees the company as being well positioned to grow its position in the category.

"We are for the first time building increased global R.&D. capabilities in this category with an expanded R.&D. center of excellence in Milan," he said. "Weight management, meanwhile, is a longstanding Heinz competency that is absolutely on trend."

It is the consumer’s perspective Heinz is trying to address as it expands its healthy portfolio.

"Historically we have looked at product characteristics or what’s actually in the food," said Beth Eckenrode, vice-president and chief strategy officer for Heinz. "Our goal has been to transition from the left to the right and we’ve done that very successfully. However, our perspective has evolved, and we’re now moving from an internal focus to an external focus."

The company has prioritized its efforts into four areas within health and wellness, including lifestyle-oriented foods, infant formula, children’s nutrition and weight management.

"Weight management is one of the most potent areas for Heinz in that it’s fast-growing, it’s highly profitable, and we have a very unique portfolio of products," Ms. Eckenrode said. "As many consumers around the world are struggling with weight management, we are seeing a great deal of interest in these products, as evidenced by our 25% growth rate last year."

Mr. Johnson said the company’s portfolio of brands focused on health and wellness also may grow through acquisition.

"While our focus is clearly on leveraging our existing portfolio we have broadened our search for appropriate acquisitions and are actually seeing more opportunities in the $50 million to $150 million range than we’ve seen in a number of years," he said. "We will look for these to strengthen our presence in emerging markets and extend our health and wellness portfolio."

This article can also be found in the digital edition of Food Business News, June 24, 2008, starting on Page 57. Click here to search that archive.

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