The Vitamin Shoppe’s better-than-expected initial public offering (IPO) on October 27 demonstrated that the public markets, which have been generally turned off by retail plays in recent years, see lots of opportunity in the dietary supplement and nutrition sector. The IPO was the first for a retail-based company in almost two years, and it raised about $150 million for the 434-store supplement chain. A week before The Vitamin Shoppe’s better-than-expected opening day, a group of 20 smaller nutrition-related companies convened in San Francisco for the fifth meeting of the Nutrition Capital Network (NCN). The purpose of the gathering was to network with private-equity and strategic investors and hopefully wow them with their 10-minute business pitches. Just as The Vitamin Shoppe’s successful opening day showed that the overall IPO market is beginning to thaw, the NCN meeting proved that innovation within the nutrition industry remains strong and that investors continue to see opportunities in the growing health and wellness market.

Chaired by Grant Ferrier and Thomas Aarts (who founded Nutrition Business Journal in 1996), NCN was created to help grease the financing wheels for entrepreneurs and introduce investors to the next generation of successful brands in the nutrition, natural and organic, and green product industries. More than 80 companies applied to present at NCN V. Ranging in scale from startups to a $100 million brand, the 20 chosen represented successful and growing businesses in the food and beverage, food service, supplements and nutrition, and skincare categories. “The level of sophistication in early-stage companies continues to grow, but the passion and drive of the individuals behind them has not subsided,” said Ferrier, who is NCN’s CEO and co-chairman. “We saw that in the 20 companies that presented last week but also in the 80-odd that applied during this cycle.”

Each company that presented represented an innovative technology or tapped into a growing trend within the overall nutrition industry. Below are a few highlights:

Cambridge Theranostics: Based in the United Kingdom, Cambridge Theranostics sells a lycopene-based supplement called Ateronon that is backed by a wealth of compelling research showing its ability to inhibit the oxidation of LDL (bad) cholesterol (oxidized LDL is what triggers heart attacks and other cardiac events). Ateronon is currently sold in 75% of all UK retail pharmacies, and the company is looking for capital to fund its expansion into the United States, the Middle East and China. Cambridge Theranostics is focused on educating practitioners and pharmacists on the benefits of Ateronon so that they will recommend it for their patients and customers.

Dale and Thomas Popcorn: What was interesting about this company is how successful it has been with both its retail brand (Popcorn, Indiana) and its direct-to-consumer brand (Dale and Thomas) without having made any real investment in advertising. Popcorn, Indiana is now the No. 2 popcorn behind Smart Food, and its better-for-you popcorn is selling well in alternative retail chains such as Bed Bath & Beyond and Best Buy.

Freshology: This Burbank, California-based company sells fresh, gourmet, portion-controlled meals directly to consumers, with the goal of taking on companies such as Nutrisystem and Jenny Craig. Freshology is also launching a line of frozen foods next year, and its business model taps into the growing consumer demand for healthy, customized meal solutions. With a production facility at the Burbank Airport, Freshology is able to send its fresh meals all over the country, and I see potential for the company partnering with gyms, wellness clubs and weight-loss clinics to offer fresh, portion-controlled meal solutions to their members.

Froozer: This Lake Mary, Florida-based company’s pitch was certainly the wackiest—and the best tasting. Froozer President Arnold Zweben wheeled in this machine that looked like a frozen yogurt maker. Into the machine went a bunch of frozen fruits and vegetables and out came this cold puree that looked and tasted a lot like soft serve ice cream—only it contained no added sugar, dairy or other ingredients. The machine is called a Transmogrification Unit, and it transforms frozen fruits and vegetables into a whole food frozen confection in seconds. The company said it has done a bunch of focus group research with kids, who like the product because it tastes and looks like soft serve ice cream. Froozer has developed a production system that is able to produce push up pops or other frozen confections made entirely of whole fruits and vegetables. The one I tasted was made with strawberries, bananas, turnips, tomatoes and cucumbers. It was really good and was something my two young boys would have loved.

Herbs of Mexico: Founded in 1948, Herbs of Mexico operates one health and wellness retail store dedicated to the Hispanic community in East Los Angeles, with a second store opening soon. The company wants to open more stores for the growing Hispanic population, which tends to be heavy users of herbal products and other complementary and alternative (CAM) therapies. In fact, Martin Lopez, Herbs of Mexico’s managing owner, said 80% of Hispanics use herbal products and 60% view herbs as medicine. The company also has an e-commerce model and is focused on first expanding its retail locations throughout the Southwest, where it hopes to open 35 to 40 stores in the next five to seven years.

Heritage Foods: Heritage Foods was founded by Patrick Martins, who founded Slow Food USA (he’s sort of a celebrity in the slow foods movement). Through a successful Internet/mail-order catalog model, Heritage Foods sells ethically raised heritage meats (such as Berkshire pork and Bourbon Red turkeys). With all of the recent meat safety scares and the backlash against factory farms, Heritage Foods could represent the future of meat production in the United States—at least for the growing segment of consumers who care about where their meat comes from and how it was raised. The company doesn’t appear to be going after the organic label, but in some ways what it is doing could do more to influence consumer purchasing habits.

Related links:

The Missing Link: NCN Connects Firms, Investors in Nutrition Industry

With Sales Thriving, Vitamin Shoppe Parent Files for IPO

M&A and Investment Activity Slows for U.S. Nutrition Industry

The September 13, 2009, issue of The New York Times Magazine featured a story about Naked Pizza, the New Orleans-based “better for you” pizza chain Nutrition Business Journal wrote about last year. Along with using whole grains for its crusts and eschewing all additives, preservatives, colorants and “weird chemicals or molecules of any kind,” Naked Pizza adds probiotics and prebiotics to its pizza crust flour—which is why we included the company in our 2008 article about functional foods and beverages fortified with “healthy bugs.”

The company’s founder, Jeff Leach, is an evolutionary anthropologist who has studied the way ancestral diets have changed over time. Because our ancestors used to consume many more prebiotics and probiotics through their diets than we do today, Leach told NBJ that he doesn’t think of them as some revolutionary new concept. “All we are doing is introducing something that we basically took away,” he said. Naked Pizza uses Ganeden Biotech’s patented GanedenBC30 (Bacillus coagulans) probiotic strain, whose heartiness endears it to manufacturers of products processed with high temperatures, such as pizza.

As the New York Times noted, consumers are buying into the Naked Pizza model, and the company has big expansion plans as a result. Earlier this year, the serial entrepreneur Mark Cuban landed the territorial rights for Naked Pizza franchises in Texas. Now the company is considering another deal with a privately owned holding company to launch up to 1,000 Naked Pizza franchises throughout the United States, Leach told the New York Times. My hope is that these probiotic-packed, healthier pizza pies make their way to Boulder, Colorado, where NBJ and my pizza-loving children are based.

NBJ will provide an update on the probiotic/prebiotic functional food and beverage market in our 2010 Functional Food and Beverage issue, which publishes in February 2010. If your company offers or is planning to roll out a new functional food or beverage you want NBJ to know about, e-mail cmast@nutritionbusiness.com.

As always, to subscribe to NBJ or download a free 32-page sample issue, go to the subscriber page on the NBJ Website.

Related NBJ links:

Probiotic and Prebiotic Foods and Beverages Take Root in the U.S. Once and For All

Probi Introduces Its Proprietary Probiotics to the U.S. Market

As Digestive Problems Bloom, So Do Sales of Probiotics And Other Gut Supplements

23 U.S. Functional Food Subcategories: 1997-2017e - Chart 59

Related Functional Ingredients Magazine links:

Probiotics technology opens up FRO-YO markets for Ganeden and Danisco

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