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.
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Going With The Grain: Major Manufacturers Launch Breakfast Bars and Healthy Cereals
French food and beverage company Group Danone saw its revenues decline for the first quarter of 2009, as the company’s bottled water and dairy sales slid 3.9% and 1.2% respectively. Total revenues dropped to 3.6 million Euro in Q1, a 2.3% decrease from the first quarter of 2008.
The company’s dairy division experienced positive growth in countries such as Brazil, Italy and the United Kingdom, while sales declined in Mexico and Russia. Danone’s Activia and Actimel brands remain the firm’s primary growth drivers in the dairy segment, according to a company press release. Emerging markets in Indonesia, Mexico and Argentina drove bottled water sales during the first quarter, whereas markets in France, Spain, the UK, Germany and Japan all continued to experience downward sales trends.
During the first quarter, Danone’s baby and medical nutrition divisions each turned in positive growth, which the company partially attributed to price increases implemented in 2008. Sales of baby nutrition products, including popular European brands such as Nutricia, Milupa and Dumex, were up 10.5% as Western Europe and Asia contributed to the above-average growth in the company’s Pediatric product line. Growth of 10.6% in the company’s medical nutrition division was fueled by strong performance in all regions, especially Southern and Eastern Europe.
The company expects its performance for the rest of 2009 to remain on par with first quarter results. “Our scenario for 2009 remains that current consumption patterns in our key emerging and developed markets will continue over the balance of the year, with no significant improvement or dramatic breakdown,” said Franck Riboud, Chairman and CEO of Group Danone in a prepared statement. “Our sales growth will, therefore, continue to be mainly driven by our leading brands, with a clear focus in all key markets on increasing their functional value for money to respond to the spending pattern of our consumers. As a result, we expect to gain further market share in our key geographies.”
Translation? Group Danone plans to implement a tried-and-true management strategy for a large consumer packaged goods (CPG) company operating in a down economy—play things close to the vest in terms of product development, focus on core brands and invest in markets that have a proven track record of success. The company now expects full-year sales growth to be a couple of points lower than the initially forecasted rate of 8%-10%. Still, even with forecasts being reigned in, 5%-7% growth seems somewhat optimistic for the company if the dairy division can’t improve upon its first quarter performance.
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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.
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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.
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Lifeway Foods Drinks Up Probiotic Kefir Competitor Fresh Made Dairy
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As we wrap up our research for Nutrition Business Journals’ inaugural Healthy Kids issue, it’s clear to us at NBJ that there are plenty of opportunities for innovators and entrepreneurs to enter and make a splash in the U.S. children’s nutrition market. In fact, Mark Trotter, CEO of Yo-Naturals, a California-based healthy vending company, thinks that the kid’s food market has booming potential right now. “Opportunities are endless for savvy product developers and marketers,” Trotter told NBJ. “Kids are very interested in healthy options. People think that because kids are kids they want to eat Hershey’s bars, but they don’t.”
Still, breaking into and succeeding in the children’s nutrition market remains challenging, particularly for small companies. “For a startup, it’s really expensive,” cautioned Julie Smolyansky, CEO of Lifeway Foods, which manufactures a popular children’s kefir beverage under the brand ProBugs. “The food business is really brutal, very expensive and it’s very hard to get capital. So be extremely aware of what you are getting into.”
Certainly companies are becoming more sophisticated in the way that they formulate and market children’s products, but there still appears to be a substantial gap between what manufacturers are producing and what parent’s desire. As Denise Devine sees it, much of this is due to a lack of true innovation in the children’s nutrition category. “Sometimes bigger companies confuse iteration with innovation,” said Devine, president and CEO of Froose, which makes a new kids drink that is packed with organic whole grains and fruit. “They might add a nutrient or two, but I don’t see a lot of turning product development on its head. If you look at what is happening in the food business, all the innovation comes from small companies. The companies that have the resources, I don’t see them taking the risk to do something very innovative. We are moving along a continuum and anything that’s better is great, but I don’t see that we are moving all that quickly in that direction.”
Financial hurdles will always be present for companies trying to break into the market with a better-for-you food or beverage product, but a down economy may be the best time for smaller, entrepreneurial companies to develop the new products that the larger CPG companies will one day want to buy, Devine said. “Research and development is the first thing that goes with big companies [during a recession]. They ignore new products and focus on their core brands. So when the economy returns, they are looking for new products.” Devine told NBJ that she hopes to turn her startup company into a nationally recognized brand in the next five years.
NBJ’s Healthy Kids issue will feature interviews with Trotter, Devine, Smolyansky and numerous other nutrition industry executives, as well as a complete analysis of the U.S. healthy kids’ food market in 2008. To order a copy of the issue, subscribe to NBJ or download a free 32-page sample issue, go to www.nutritionbusinessjournal.com.
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CRN: Multis Can Safely, Affordably Address Nutrient Gaps Present in Many U.S. Kids
Lifeway Foods Produces Probiotic Profits
Ian’s Swallows Healthy Handfuls
