Healthy foods sector attracts powerhouses seeking growth spurt

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What started as a small vegetarian hot dog business in an abandoned car wash is now a critical component of ConAgra's long-term strategy.

With ConAgra's recent acquisition of Lightlife Foods, a competitor in vegetarian and soy-based foods now 21 years out of the car wash, the global food behemoth is betting health foods are much more than just a fad, they're the future.


ConAgra joins the ranks of Kellogg Co., Kraft Foods, General Mills and others that have been buying their way into the health and wellness arena looking to capture growth they've been unable to muster from their own mature categories.

While mainstream food marketers have experienced annual revenue growth ranging from 2% to 3%, natural and organic marketers have been seeing revenue growth of 15% to 20% overall and some particularly hot segments, like soy, have even seen annual advances of 50% to 100%.

"Mainstream package-food companies are focused on getting into growing categories, which are few and far between, and natural and organic foods are growing rapidly, albeit from a small base," says Lehman Bros. analyst Andrew Lazar.

"While in most cases these acquisitions are not impacting overall growth numbers yet and won't for some time," he adds, "companies are starting to see that the category will only grow in size and importance to mainstream consumers and they want to be well positioned to take advantage of that."

The acquisition spree began last September when H.J. Heinz Co. took a 19.5% stake in natural food company Hain Food Group, since renamed Hain Celestial Group after a merger with Celestial Seasonings in June.

The trend has continued with Kellogg's purchase of meat-alternatives marketer Worthington Foods and, more recently, natural cereal marketer Kashi Co.; Kraft's purchase of Boca Burger and Balance Bar Co., and General Mills' buy of organic marketer Small Planet Foods among others.

Understandably, marketers would want a piece of this growth segment that has reached $28 billion in annual retail sales, according to Spins, a market research company that tracks natural products.

"There is tremendous consumer demand for health and wellness products, but at the same time these are products that require a tremendous amount of education," says Paddy Spence, CEO of Spins. "To effectively educate, you need credibility and the expertise and understanding of what consumers want, and that's easier to buy a lot of times than it is to make."


General Mills has seen firsthand the difficulty of developing an organic product on its own. Sales of its organic cereal, Sunrise, have been lackluster.

The marketer has bought the expertise of Small Planet Foods as part of its acquisition agreement, retaining the company's founder Gene Kahn along with most of its other employees. In the case of ConAgra's acquisition of Lightlife, the marketer will remain a separate ConAgra operating company with co-founders Michael Cohen and Chia Collins at the helm. ConAgra will bring added resources for manufacturing, distribution and marketing to the unit.

"As of two years ago, we were struggling just to manufacture what we were selling, so it was pointless to develop a huge marketing initiative," says Thomas Sherman, director of marketing at Lightlife. "Now, we have ample capacity, as a result of ConAgra's purchase of a huge manufacturing facility, and we can really start to heighten our marketing efforts."


Expanded marketing is de rigueur for the newly acquired health-food brands. Kellogg has increased spending by 50% for Morningstar Farms, the biggest brand in the Worthington Foods portfolio. The effort includes a print and outdoor campaign as well as couponing and sampling, says a Kellogg spokeswoman.

For its part, Kraft Foods has expanded a print campaign and sampling program -- dubbed the "Boca Blitz" -- for Boca Burger and just this month launched a print effort for Balance Bar.

The new campaign, which features the tagline, "Eat with your head," is intended to "communicate consumers' ultimate desire to eat smart and feel good about it," a Kraft spokeswoman notes.

That desire is what will continue to drive mainstream marketers to seek out health-food companies and their fast-selling brands.

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