Food Makers See Robust Profit in Promoting Health

Nettie Carlson shops carefully these days. Since her heart attack last year, Carlson, 64, has been trying to lower her cholesterol by reducing the fat in her diet.

A few years ago, Carlson’s special dietary needs might have forced her to shop at a health food store. Today, she can find just about anything she needs at her neighborhood supermarket.

People such as Carlson have sparked a mini-revolution among food marketers. Food packagers eager to cash in on an aging and health-conscious population are cooking up extensions to their product lines and switching their marketing messages to ones based on health rather than on taste.

“Companies have discovered that health claims sell products,” says Roger W. Spencer, an analyst at PaineWebber Inc. who follows the food industry.

Indeed, oat-based cereals, being marketed as cholesterol fighters, now have a 10% share of the $6.6-billion cereal market. Keebler, one of the nation’s biggest cracker and cookie makers, has whipped up a batch of cholesterol-free products in response to changing consumer tastes. And Kraft General Foods’ low-fat mayonnaise and Miracle Whip account for an estimated 10% of the $1.1-billion mayonnaise, spread and salad-dressing market.

New Products, New Labels

Other companies are reformulating existing products or developing new ones. Giant Food Inc., the largest and most profitable grocery store chain in the Baltimore-Washington area, is even considering putting labels saying “No Cholesterol” on existing private-label products.

A parade of studies linking diet and heart trouble is feeding the pipeline of such offerings to the supermarket shelves. The results of a Northwestern University Medical School study published in the spring of 1986 touched off a flurry of public interest in oat bran, which purportedly helps lower cholesterol and, therefore, the risk of heart disease.

“The demand for healthier food has created a niche with tremendous growth potential,” says Timothy Ramey, a securities analyst at County NatWest U.S.A. Securities in New York. “We’re going to see a proliferation of these products in every major food category.”

Nowhere has the emphasis on health become more apparent than in the supermarket cereal aisle. A cereal buyer at Giant Food says more than half of the new products pitched to him these days are oat-based. The pitches have apparently been successful: Giant devotes 40% of its cereal shelf space to them. Larry Johnson, a spokesman for Safeway Stores Inc., says: “Everybody is capitalizing on the health phenomenon. In some cases the product isn’t even new, the marketing has just been changed to emphasize the oat content.”

Study of Buying Habits

Sales of Quaker Oats, for example, have jumped 25% since the company launched an advertising campaign in the fall of 1987 featuring the phrase, “It’s the right thing to do.”

The marketing message plays to an aging population increasingly concerned about the effect of diet on health. Consider the findings of Strategic Directions Group, a Minneapolis market research firm. In a study of the food-buying habits of people older than 50, Strategic Directions found that 49% of the 1,500 surveyed were people who follow recommendations to eat more fiber and to cut their intake of salt and cholesterol.

Companies such as Kraft take findings like those seriously. Miracle Whip brand manager Jane Prescott says a 1988 Gallup Poll showing a rise--from 10% to 20% between 1986 and 1988--in the proportion of consumers concerned about cholesterol was a major factor in the company’s decision to roll out new mayonnaise products and a cholesterol-free salad dressing.

“It’s become really obvious that consumers are concerned about cholesterol and fat,” Prescott says. “As marketers we have a responsibility to meet consumer needs.”

Profits Encourage Change

But the products marketed as healthful are immensely profitable--good news in an industry in which profit margins average about 5%.

Kellogg’s new premium-priced Common Sense Oat Bran is priced at $3.99 per 20.5-ounce box: That is about 20 cents per serving, contrasted with the average price of about 15 cents a serving for most other cereals. Industry analysts estimate the profit margins on oat bran-based cereals at 15% to 20%, contrasted with those of 4% to 5% for the others.

Kellogg, the No. 1 cereal maker, spent an estimated $100 million on HeartWise, the most expensive product launch in its history, in an effort to catch up with archrival General Mills, No.2 overall but the leader in the oat-based segment of the cereal market.

Existing products are also getting more expensive marketing campaigns. Quaker more than doubled its advertising budget for Quaker Oats, spending $21 million in 1987; it plans to spend more than $30 million this year.

“We’ve definitely become more aggressive,” Quaker spokesman Ron Bottrel says.

Defensive Action

Indeed, the switch to such products is often a defensive move. Keebler Co. of Evanston, Ill., for instance, is a leading manufacturer of cookies and snacks. It is now, in response to changing consumer tastes, devising cracker recipes without cholesterol.

“Of course we hope to attract new customers,” spokesman Stuart Greenblatt says, “but the real impetus is responding to our existing customer base.” He says the company receives many letters thanking it for the switch from people who are concerned about their health.

For the most part, though, companies are stopping short of making outright health claims about their products, instead adding a message that lowering cholesterol levels will help fight heart disease.

Some fear the industry may lose credibility with consumers by, for example, putting a “Cholesterol-Free” label on a product high in saturated fat, another culprit in heart disease.

“It’s a question we’re struggling with internally,” says ODonna Mathews, Giant vice president of consumer affairs. “We want to be competitive with name brands, but we don’t want to put the “no-cholesterol label” on our private-label products that contain high amounts of fat.”

FDA Standards

Many industry observers expect the controversy over the claims for products containing psyllium to force the U.S. Food and Drug Administration to set standards on health claims advertising and marketing, an action it has so far avoided.

The recent case of Benefit cereal, a new General Mills product containing psyllium, a seed that some believe will lower cholesterol in a way similar to bran, has created a flap. Procter & Gamble Co. challenged General Mills’ promotion of the breakfast food after the FDA ordered Procter & Gamble to stop claiming that its Metamucil laxative, which also contains psyllium, could reduce cholesterol.

State regulators could also interfere. Earlier this month, the Texas attorney general’s office filed a suit accusing Quaker of misleading consumers through ads that it charged exaggerated claims about the benefits of oats.

Quaker says the ad copy is backed up by scientific studies and that they were cleared by the Federal Trade Commission.