Last week, Swiss-based pharmaceutical company Sandoz agreed to acquire Gerber Products Co., the No. 1 U.S. baby food marketer, for $3.7 billion.
The agreement, expected to be completed within six months, paves the way for growth of the Gerber brand into international markets. But to achieve that goal, Gerber will have to fight consumer skepticism of jar baby food.
Robert Austern, senior VP-development at Sandoz Nutrition in Bern, admitted that European mothers think making their own baby food is fresher and healthier.
"Practically every mother uses jars in the U.S. In Europe, the number is growing but varies between about 20% and 50%, and increases only slowly," Mr. Austern said.
Faced with declining births in the U.S., Gerber for several years has been trying to expand its presence abroad. Foreign sales for the Fremont, Mich.-based marketer, including those involving joint ventures, have grown 150% in five years to $216.1 million in 1993. Gerber's overall sales, including U.S. and international operations, were almost $1.3 billion in '93.
So international represented only 16.6% of Gerber's overall sales last year; hampering its efforts were expansion costs and lack of distribution. The acquisition by Sandoz will provide the funding and distribution system to accelerate the growth.
Sandoz reported 1993 sales of $10.3 billion worldwide from drugs, nutrition, chemicals and other business. The Sandoz Nutrition unit doesn't make jar baby food but does market baby formula and cereals in Spain and Switzerland under the Adaptar, Modar, Letrama, Lacto and Prematura brands. The company's total baby product sales for those countries are about $35 million to $40 million, mostly in Spain.
"It was very expensive for Gerber to build business internationally. This was one of the driving reasons why Gerber wanted to team up with a larger company," said David Adelman, an analyst for Dean Witter Reynolds, New York.
Sandoz will likely focus on expanding the Gerber name in markets where Gerber already has a presence, Mr. Adelman said. "Latin America, Poland and the Middle East might be good growth opportunities," he said, because jar baby food is a relatively new concept in those markets.
In these markets, advertising will likely be more educational than competitive, he said.
Analyst Arvind Desai of Mehta & Isaly, New York, said he expects to see expansion "especially [in] the southern European countries, where the number of babies who are being born is high, and in developing Asian countries, where Sandoz is very strong."
In Europe, Gerber's major rivals will be Nestle, H.J. Heinz Co., Hipp and BSN.
Currently, Gerber doesn't have an agency for its U.S. business. Noble & Associates, Springfield, Mo., did creative for the marketer's last campaign. Grey Advertising handles Gerber's Latin American and Canadian accounts, while ITI McCann-Erickson, Warsaw, handles Poland. Gerber annually spends an estimated $5 million on advertising abroad.
The nutritional brands most advertised by Sandoz are its Wander subsidiary's Isostar sports drink and Ovaltine line of flavored milk-drink mixes. Saatchi & Saatchi Advertising does a lot of the European work for Isostar.
In the U.K., London agency Duckworth, Finn, Grubb, Waters handles Ovaltine and Ovaltine Light, while Lowe Howard-Spink has Ovaltine's Options.