The Healthy Food Trend
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
U.S. food and food retailing companies are rolling out aggressive healthy food initiatives to generate positive PR and to stay one step ahead of government regulations.
The world's largest retailer, Wal-Mart (NYSE: WMT), is the latest company to jump on board the healthy food bandwagon. Beginning in April, it will use “Great for You” labels on its own brands to highlight food products they deem to be healthy for consumers and meet criteria on protein, fiber, fat, sugar and sodium. The company specifically said the initiative would give mothers a simple and reliable way of identifying good food to feed to their children.
Wal-Mart is using its own internal labeling system to highlight fruit, vegetables, whole grains, lean meats, yogurt, snack bars and frozen foods that have low levels of fat, sugar and sodium. This is an important milestone for the industry as a whole since Wal-Mart is often considered to be the industry standard setter.
But Wal-Mart is far from the first company to come out with healthy food campaigns and labeling systems. Other food retailers have already gone down that path. The NuVal labeling system scores food for nutrition on a 1 to 100 scale and was launched in 2009. It is currently being tested by Kroger (NYSE: KR), the biggest U.S. supermarket company as measured by sales.
There are many other such examples of companies emphasizing healthy foods in the industry. Perhaps best known is the healthy foods retailer Whole Foods (NASDAQ: WFM), which has a “Health Starts Here” line of food products that contain no processed food, no added oils or sugars, and have a high vegetable and fruit content.
It's not just food retailers who are emphasizing healthy foods, but food companies themselves.
General Mills (NYSE: GIS) last year said its organic food business was now a “growth engine” for the company and that the success there would transform its entire product line. Its emphasis on health can also be seen in its latest ads for children's cereals, which talk about how the cereals are loaded with more healthy whole grains than ever before.
Then there is PepsiCo (NYSE: PEP) which, led by its CEO Indra Nooyi, has gone on a major health food push. Its goal is to double the revenues it receives from nutritious products by the end of the decade. Pepsi though is also turning into a case study of how not to jump into the long-term healthier food trend.
While making its push into healthier foods, Pepsi has been criticized by many as forgetting about its core business – selling carbonated beverages around the world. As its latest earnings report shows, sales of its core Pepsi brand remain flat at best globally as it continues to lose ground to rivals.
Pepsi's example highlights the possible danger lurking for investors looking to get in on the growing trend toward healthy food. The risk is that companies may overreact and place too much of an emphasis on it, as Pepsi management has done. This emphasis on health is confusing for food companies (and their research labs), which for decades have emphasized taste above all else.
Yes, there is a definite growing appetite for healthier foods among Americans. But companies should be careful about moving too far from what made them successful for so long.
So for investors looking to invest in this trend, the safer bet may be to go with the food retailers rather than the food companies themselves. And preferably one that is already identified with healthy foods such as Whole Foods.
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