The U.S. Federal Trade Commission announced yesterday that it was settling a false advertising case that further illustrates why I, as a parent, rarely pay attention to advertising—particularly when it comes to health claims made about children. The proposed settlement involved print, TV and Internet advertising statements cereal giant Kellogg Co. made about its Frosted Mini-Wheats, which the company said improved children’s attentiveness by nearly 20%.

According to the FTC, Kellogg was misrepresenting a study which actually found that only about half the children who ate Frosted Mini-Wheats for breakfast showed any improvement in attentiveness, and only about one in nine improved by 20% or more. The FTC called Kellogg’s claims false and said they violated the law, but the cereal company’s only punishment (other than the bit of bad press the company received over the phony advertising statements) is that it must stop making false claims about its Frosted Mini-Wheats. The company is also barred from misrepresenting future research in any advertising.

That’s it. Unlike some other false advertising settlements, this one involves no monetary fine or penalty for Kellogg—and that has at least one nutrition industry executive perplexed. “Almost every case like this in the supplement industry ends up with the company paying whatever it has left from its sales of the product to the FTC as consumer restitution,” Marc Ullman, a partner with New York’s Ullman, Shapiro & Ullman law firm, told me via e-mail yesterday. “I guess this case indicates that it’s OK for Kellogg to keep the money it tricked parents into paying for its cereals with the bogus claims.”

The FTC’s proposed settlement—which the commission pointed out “does not constitute an admission of a law violation” on the part of Kellogg—is open for public comment through May 19. After that date, the commission will determine whether to finalize the agreement. Once it becomes final, Kellogg could be subjected to a fine of $16,000 and other penalties should the company break the terms of the agreement.

Kellogg issued a statement yesterday saying, “We stand behind the validity of our clinical study yet have adjusted our communication to incorporate FTC’s guidance.”

The Center for Science in the Public Interest (CSPI) called Kellogg’s Frosted Mini-Wheat claims “laughable on their face” and said they “never should have surfaced in an advertising campaign by a major food manufacturer.” The public watchdog organization also used the FTC settlement news to call for Kellogg to begin removing Blue 1, Blue 2, Red 40 and other synthetic food dyes from some varieties of its Mini-Wheats products. “Those dyes exacerbate some children’s hyperactivity and behavioral problems and have no place in foods aimed squarely at children,” CSPI said in a statement.

Although Kellogg said it is in full compliance with Food and Drug Administration regulations regarding its use of food dyes, the CSPI’s call dovetails with growing consumer demand for kids’ food and beverage products that are free from artificial colors and flavors.

Nutrition Business Journal’s U.S. Healthy Kids’ Market Overview issue includes discussion of this and other healthy kids’ food and beverage product trends and explains some of the steps Kellogg has taken over the last several years to improve the nutritional value of those cereals it markets to children under age 12.

Available this month, the issue also provides a detailed analysis of the recession-resilient children’s nutrition market by these product categories: natural & organic foods and beverages, functional foods and beverages, supplements, and natural & organic personal care and household products. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to www.nutritionbusinessjournal.com.

Related links:

Breakfast Foods Look to Healthy and Functional Platforms for Growth

Going With The Grain: Major Manufacturers Launch Breakfast Bars and Healthy Cereals

A study published in the March 2009 issue of the Journal of Nutrition found that 78% of Canadian children ranging from four to eight years old were not receiving adequate amounts of Omega-3 EPA and DHA in their diets. That estimate is based on the suggested daily intake of 90 mg of Omega-3 EPA/DHA, as recommended by the Institute of Medicine. The suggested daily intake from the American Dietician Association and the Dieticians of Canada is 351 mg. By that standard, 90% of children who participated in the study were deficient. The U.S. Department of Health and Human Services has estimated that the average consumption of Omega-3 EPA/DHA for children four to eight years of age in the U.S. is only 50 mg per day. Thus, American children are typically DHA-deficient as well.

The Guelph University researchers who conducted the study concluded that additional education is needed to help consumers understand the benefits of DHA. “There is an apparent need to create greater awareness of the importance of the long-chain omega-3 polyunsaturated fatty acids among both health professionals and the general public, as well as the existing gap between actual and recommended intakes from various sources,” researchers stated in their findings.

NBJ recently spoke with Ethan Leonard, VP of Pediatric Nutrition for Martek Biosciences, who underscored the need for children to start getting the necessary dosage of DHA early in their lives. “DHA and ARA are proven to improve developmental outcomes in infants through breast milk, or substitutes. Martek recommends breast feeding first. If they cannot, or choose not to breast feed, then we want to participate in that and provide the best nutrition process possible.”

Martek Biosciences has established itself as the leading supplier of DHA and ARA to the infant nutrition market in the U.S. The company estimates that its life’sDHA and life’sARA products are used in more than 95% of infant formulas in the U.S. and are found in over 75 global markets. The company generated more than $352 million in global revenues in 2008, but still feels that there is untapped potential in the market for DHA. “American kids and North American kids don’t eat a ton of fish, whether it’s due to economic factors, or increasing problems with allergens and containments. We’re seeing in our own work that these products [fortified with ARA and DHA] are coming to market and will continue to come to market to fill in gaps,” said Martek’s Senior Public Relations Manager Cassie France-Kelly. Still, there are challenges in trying to educate consumers on the benefits of a product that does not have the name-recognition that other fortification ingredients like calcium or fiber do. “This idea that you eat to improve your intelligence or long term brain health is a sort of a new idea. When I was a kid we always heard you drink your milk for strong bones, but you didn’t hear a lot of, ‘If you eat this, you’re going to do better on your test or you’re going to have better concentration.’ The science has continued to develop and parents like the idea that you can eat something to contribute to cognitive and brain,” France-Kelly told NBJ.

So how does a company like Martek, which is predominately a supply company as opposed to a finished goods manufacturer, go about educating consumers? “We follow loosely the Intel Inside model. Although we are a business-to-business brand, we think that because our source is superior and because it’s such a complicated topic, it’s important to create a brand for consumers. That’s why we did life’sDHA a few years ago,” Martek’s Executive Director of Sales Jeff Bernfeld told NBJ. The company also has invested in print and television marketing, and has recently partnered with the March of Dimes to promote the importance of DHA.

While studies like the one conducted by Guelph University illustrate that a need for education still exists, Martek is seeing positive indicators that awareness is increasing. Based on an annual thousand-person survey conducted by the company, 78% of parents with kids less than 2 are aware of DHA, 68% of parents with kids two to six are aware of DHA and 82% of pregnant women have heard of DHA.

Read more about the Guelph University study here.

Related Links:

Martek Strengthens its Hold on Baby Formula Supply Market

Have Omega-3 Functional Foods Run out of Steam? GOED Says ‘No’

New Omega-3 Tests Highlight Industry, GOED Success

Lifeway Foods posted 24% sales growth for the first quarter as total sales increased from $11.1 million for the period ending March 31, 2008, to $13.7 million for the same period in 2009. Fresh Made Dairy contributed slightly less than $1.4 million in sales since being acquired on February 9 and is on track to exceed 2008 sales, according to a company release. Lifeway’s existing product lines grew 11% for the quarter.

Julie Smolyansky, chief executive officer of Lifeway Foods, recently told NBJ that the company was able to bounce back well from a particularly difficult fourth quarter in 2008. “In my years of working in this company–my father started the business when I was 9 years old–I’ve never seen a quarter like that. That’s not just us, it’s the whole world. Considering that, I’m very pleased with the business. We had a bounce back pretty much immediately in January.”

Edward Smolyansky, chief financial officer, talked about the company’s improved performance in a prepared statement. “We are extremely pleased with our first quarter 2009 revenue results. Given these tough economic times, the strong growth we experienced in the first quarter is a direct result of the marketing and educational initiatives we have invested in during the second half of 2008, and will serve as a strong foundation for future growth.”

Lifeway has also benefited from being in a product category that is on the rise. Natural & organic dairy sales in the U.S. increased 11% to $4.2 billion in 2008, according to NBJ estimates. Organic yogurt and kefir sales increased 9% to $937 million. Julie Smolyanksky thinks that the food industry has been able to bounce back from the recession more quickly than many others, due in part to more consumers shopping for groceries and preparing their meals as opposed to eating out. “I think food is somewhat recession proof. So maybe the recession isn’t over, maybe it’s just because we’re in a great industry. If there was any effect, I think it’s probably over for our company at least.” Lifeway Foods reported total sales of $44.5 million in 2008.

NBJ’s Healthy Kids issue will feature additional coverage of Lifeway Foods’ Pro Bugs children’s beverage, as well as complete analysis of the U.S. kids’ supplement, personal care and food markets in 2008. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, please click here.

Related Links:

Lifeway Foods Drinks Up Probiotic Kefir Competitor Fresh Made Dairy

Lifeway Foods Produces Probiotic Profits

Dean Foods Reports Strong 2008 Sales, Despite Q4 Softening

2008 was a year of bad debt and tighter access to capital and credit for nutrition industry suppliers. Firms were still dealing with the blows that rising fuel prices and currency fluctuations delivered in 2007 and the first half of 2008 which left many supply companies uncertain of how the economic downturn would affect the U.S. nutrition industry and what would be in store for 2009.

On January 14th, 2009 NBJ’s Carlotta Mast and Thomas Aarts will join me to present a strategic analysis and review of the U.S. nutritional raw material & ingredient supply industry. You are invited to register for this online seminar that will begin at 11am MT.

For $495, each registered company will be allowed up to six participant access points to the live online seminar.

During the seminar, we will present new NBJ market figures and discuss the following topics:

• Snapshot of 2008 business issues, preview of 2009

• Review of over the counter (OTC) & Supp Combo Products and their regulatory potential

• A category overview of pricing and supply trends for vitamins, minerals, herbs & botanicals and specialty ingredients including fish oil, probiotics, whey protein and COQ-10

• Major factors affecting growth in supplement and functional food supply markets

• New steps vitamin manufactures and suppliers need to undertake to maintain market credibility

• Discussion of how the economy is impacting the ingredient supply segment of the U.S. nutrition industry

I encourage you to register here. If you have any questions, please feel free to call me at 303.998.9229

Patrick D. Rea

Publisher & Editorial Director, Nutrition Business Journal

Co-Chair, The NBJ Summit

26,000 people attended Natural Products Expo East in Boston last proving the effects of the troubled economy have yet to be painfully felt in the natural products industry. Though time will tell how the nutrition industry manages through this economic downturn, some companies are still doing well. Case in point, large conventional food manufacturers are outpreforming the market with growing sales and profits. General Mills, Campbell Soup and Kraft are just a few CPG firms that have found a way to profitably manage price increases, commodity price increases and changes in consumer shopping behavior.

Servicing the needs of the food industry, the Healthy Foods Conference was held on October 14th and 15th in Boston, MA, just prior to the start of Natural Products Expo East. About 100 executives in the healthy food and ingredient supply market attended the event, which delivered on its aim to bring together though leaders in the supply and manufacture of healthy foods (natural/organic, functional and lesser evil) in the U.S.

Tuesday’s “Delicious Predictions for 2010″ session was particularly notable.

Keynote Jeremy Gutsche of TrendHunter.com laid out a compelling new way to approach innovation and product development, utilizing his experience in online media and how new products capture the attention of various audiences in today’s cluttered media landscape.

Jeremy challenged all in attendance to rethink innovation for today’s online population based on his studies and experiences as the head of TrendHunter.com, challenging the attendees in the audience to a number of “team” challenges.

Jeff Grorr defended Kellogg’s acquisition of Kashi, noting that since the acquisition, Kellogg hasn’t reformulated any of the Kashi products for health reasons. He also thought there was a future for branded ingredients, but at this time, the consumer brands hold more value than the ingredient brands and thus don’t add much incremental value in consumer marketing. Jeff also noted that “the tide” is moving towards healthy foods, in that that the greater populations IS moving towards health and as an industry we need to keep our standards high and hold each other accountable to acceptable standards so not to undermine the growing consumer healthy food opportunity.

Robin Roderick of Ocean Spray noted the special needs of the aging and growing population of baby boomers over 65, detailing the low level of healthy food education and high needs for nutritionally rich products.

Laryn Calloway of Organic Bistro explained that the average American has the equivalent of a 6th grade education when it comes to nutrition. Laryn’s original mission was to reach unhealthy consumers by making her products “cool” and make it cool to eat well. There’s no magic bullet for wellness, she said, but a whole suite of life changes.

Wednesday’s sessions were also very informative, but as a nutrition industry researcher, the “Delicious Predictions for 2010″ was excellent.

-Patrick