Michele Guinane10.01.01
Keeping Track Of Kraft
Food company playing in nutraceutical space.
By Michele Guinane
As the U.S.’s largest food company, Kraft, Northfield, IL, has recently been on the prowl for “tack-on acquisitions” within the health foods market. Interestingly, this company has maintained a watchful eye over the health foods arena, despite the fact that many of its more popular brands are processed foods and can even be defined as “junk food.” The appeal of this market is easy to understand, of course, given the 9-10% growth in the functional food and organic markets versus the mere 1-3% growth in conventional foods; however, a deeper look at Kraft’s actions in the last year and half reveal something far more intriguing than a company merely jumping on the bandwagon of a recent growth trend. It appears that Kraft may have taken a look into the crystal ball and sneaked a peek at the consumer of the future—a healthy mainstream consumer.
Mainstream consumers have changed, but Kraft has chosen to change with them. With health food superstores like Wild Oats and Whole Foods opening up across the country and store-within-a-store retail outlets popping up in local grocery stores, it is evident that health is becoming a mainstream concept. With the birth of dietary supplements decades ago has come the evolution of a marketplace that was once reserved only for those “crunchy” individuals. However, in the last few years we have seen the dawn of a new era with the introduction of energy bars, soymilk and a variety of other functional foods that have found their way onto store shelves. It has been a time for the entrepreneur to shine, creating niche brands that have, through grass roots marketing and mere word of mouth, become popular items not just for the natural products shopper, but even for this new mainstream shopper.
Rather than get left behind, Kraft has truly led the charge by large food companies to take a stake in the future of food industry. Since its first real venture into the health food marketplace in 1999 with the purchase of Balance Bar and then the acquisition of Boca Burger in 2000, Kraft has been one of the first of its size to make purchases in this area. Although Balance Bar did have sales of nearly $170 million at the time of acquisition in 1999, Boca Burger would have left much to be desired by some of the other global food companies, with sales of only $53 million in 2000. However, Kraft seems to be interested in realizing the full potential of this growth trend as a first mover, even if that means taking a chance on the consumer.
Taking advantage of the two largest growth categories in this growing health food marketplace, nutritional bars and soy, Kraft has proven that it is paying attention to what this new mainstream consumer is looking for. We estimate that the food bar category is a $2 billion segment with hundreds of players, but Kraft snagged a brand that has the potential to appeal to a mass audience. The market for soy foods was expected to top $2.5 billion last year with annual growth of 15-20% projected for the next five years. The health food products that have been most successful are those that started from natural product roots, carrying with them authenticity and integrity, not just an image of health. Kraft, realizing it did not have this to offer the health products consumer and knowing what it takes to create a lasting brand with proven consumer appeal, chose to acquire rather than build brands.
With its feet firmly planted in the health food marketplace, Kraft has made it clear to the food industry that it is still looking for “strong brands [it] can build.” Rather than be afraid of a changing marketplace, Kraft has embraced it, acquiring companies that will put it at the top of the health food marketplace and leave a good taste in the mouth of the consumers.NW