Kellogg changes its emphasis, McNeil retrenches and the American Dietetic Association recognizes "functional foods." The only thing constant is change-a very apt quote in the nutraceuticals arena. Some are ready to put a stake in the heart of nutraceuticals, while others recognize the arena as strong and growing. What is going on?
In some ways it seems amazing that firms take very big leaps and are surprised when they don't have a $100 million brand in less than a year. In food products, how long has it taken for the world's best known brands to be established? Most were not overnight successes. Yet firms now expect to launch a product, spend millions and have an "overnight" success.
Perhaps in the end, time will show that McNeil has done the correct thing by discontinuing consumer advertising behind Benecol. In case you missed the story, on December 1, Johnson & Johnson issued a release saying, "We've learned that this is a market driven by physicians," and discontinued consumer advertising in favor of focusing on the medical profession. This comes just seven months after Benecol's introduction in the U.S. IRI (as reported by the Associated Press) reports that Benecol had sold $13.7 million at retail by mid-October. That seems like slow movement. But let's look at a few facts. Benecol has a suggested retail price of $4.99 for an 8 oz. tub. How much do you pay for your margarine? But Benecol lowers cholesterol. And a 10% reduction is significant. Yet, does that 10% reduction translate to a meaningful amount to consumers? J&J studies conducted by Yankelovich Partners showed 45% of Americans are worried about cholesterol and 78% of those know what they need to do to control cholesterol, but only 13% believe a diet and exercise program has been successful for them. While on the one hand this probably reinforced J&J's belief about its products' value, perhaps it also suggested that to command such a high price the company needs to be certain the consumer knows just how this fits in their regimen. That may have led to the decision to go through the physician. As logical as all this is, didn't J&J know that a $4.99 tub of margarine might be a tough sell?
Of course, the question is, does this represent a lack of faith in Benecol by J&J or just a change in strategy? It has hurt Raisio, developer of the product, whose stock price plummeted after the J&J announcement. Raisio announced that it is quite pleased with the margarine's performance in the U.K. but recognized that the U.S. market had developed more slowly than it had hoped.
Meanwhile, Kellogg took a major shift. It pulled the Ensemble brand entirely, folded its former Functional Foods Division back into the North American unit and at the same time paid $307 million for Worthington Foods. The firm also announced it will spend heavily with a new "aggressive" advertising and promotion campaign behind the Worthington products. Of course, this is another major move by relatively new Kellogg CEO Carlos Gutierrez who's made a number of sweeping changes at the firm. Mr. Gutierrez was quoted as saying in a recent press release, "soy is a big food opportunity" Kellogg also claims it is working on a soy-based cereal.
"Ensemble," the now defunct brand that took much Kellogg energy, was another major concept that seems difficult for the consumer. It consisted of 22 products designed to assist with health maintenance. It, too, was rather high priced. I would not be surprised if it was also hard for the consumer to understand the benefit. It looked like a TV dinner. Somehow, "Healthy Choice" from Con-Agra, with its grams of fat on the front of the package, seems simple and to the point at a reasonable cost. Ensemble seemed complicated and expensive.
So is the U.S. market fickle on nutraceuticals and functional foods? I doubt it. I do think these firms have had very great expectations and very little patience. Kellogg simply found what may prove to be a better idea with the acquisition of a known group of brands. J&J is fine tuning based on consumer testing.
Meanwhile, the American Dietetic Association recognized functional foods in an eight-page report. Ever cautious, they took the position that functional foods "have a potentially beneficial effect on health when consumed as part of a varied diet on a regular basis, at effective levels." More importantly the group recognized the term, coined its own definition and took a stand.
The other major area for nutraceuticals is the supplement business. In a recent survey more than 2/3 of Canadians agreed that herbal supplements can be as effective as prescription or OTC medications. More than half say they are very likely or somewhat likely to try an herbal supplement to treat a cold, according to the recent Gallup Survey. What may be really surprising is that nearly one in five Canadians say they have been to a complementary or alternative medical practitioner such as herbalist, naturopath or practitioner of homeopathy.
Meanwhile, Swiss-based Ricola took this year's cold season as an opportunity to add a new line of herbal health supplements. Building on strong brand recognition, it has created formulations such as "Antioxidant," "Memory," "Heart," "Immune," "Mood," "Night Time," "Prostate" and "Women's." Some "word on the street" is that the herbals category is not as healthy as it has been; yet that type of talk normally comes from those who expect continuation of huge increases. In addition, there has not been a fad "flavor of the year" like St. John's Wort to push sales this season.
What does this all mean for the future? As we start the new year (some say the new millennium but calendar makers assure me that's next year) we can expect to see more news and more progress. Firms who've made the greatest gains in the food industry appear to be those who've used fortification and taken steps in directions consumers are already familiar with. Look for more consolidation in both food and supplements. There is a real question about the future of mid-sized firms. What we can expect is more change. And we'll be here to offer a perspective. Happy New Year!
NW