For obvious reasons, baby food manufacturers prefer it when birthrates are increasing but in North America, as in so many developed markets, the population is not obliging them. However, the increasing popularity of organic baby food has provided opportunities for growth.
Alan Osborn and Monica Dobie
By definition a stable or even declining birthrate does not provide particularly fertile conditions for growth in the baby food market, and so it is in North America. In their search for growth and increased market share, North American baby food companies have therefore been turning to organic and other premium concepts, where research and market data suggest there is growth to be found.
The US Food Institute reports that the overall US baby food and drink market is predicted to remain virtually unchanged between now and 2011 when sales will reach US$3.6bn, just US$100m higher than this year. However, health concerns are driving up organic sales in spite of prices more than two thirds higher than conventional foods.
Moreover, a survey by Mintel reports that over 60% of American mothers place a high value on ‘all natural’ food despite its higher price.
Nevertheless, organic sales still represent a tiny share of the overall market, amounting to just US$116m in 2006-7, but this represented a growth rate of 22% over the previous year, which followed a rise of 16.4% in 2005-6. Forecasts made on the basis of shelf space allocations suggest this has been carried forward well into the current year. There has also been a move away from shelf-stable jars towards fresh or frozen lines.
Most of the leading manufacturers have participated in the organic trend. Gerber, the undisputed market leader in prepared baby foods which was sold to Nestle in September, expanded and rebranded its organic range this year, replacing its Tender Harvest brand with the new line of Gerber Organics and adding products such as cereals, juice and food for toddlers to the range.
Abbott Laboratories introduced an organic version of its Similac baby formula last year. Plum Organics, maker of a line of frozen baby food, is planning new offerings this year according to the US-based Food Institute.
In the mainstream baby food market, the fastest growing sector in recent years has been hypoallergenic milk formula which saw a volume sales rise of 8% in 2006, spearheaded by the market leader Mead Johnson which increased its market share to some 41% of baby food value sales.
Mead Johnson spokeswoman Gail Wood says that “significant growth, far in excess of our forecasts” had followed the enrichment of milk formula with the acids BHA and ARA, beginning with the launch of Enfamil LIPIL in 2002. This was followed by the launch of Gentlease in 2005, which it claimed to be the first dairy-based formula with reduced lactose, with the formula combining partially broken down whey and casein milk protein. “We have strong scientific data that the addition of these fatty acids (BHA and ARA) serves to support brain and eye growth,” Wood says, adding that “innovation is driving our performance”, and the company now offers a “proliferation of specialty or powered milk formulas”.
Mead Johnson does not seem to have been affected by the increasing popularity of breast-feeding reported in recent years. This seems to have been offset by the growing number of women at work where bottle-feeding is far more convenient but Wood concedes that this remains a sensitive issue. “Consumers understand that if breast-feeding protects slightly against earache, for instance, it doesn’t mean that infant formula causes those conditions,” she says.
One recent development is a “very strong preference” for powdered infant formula as opposed to liquid formula “because they’re very flexible: mums put one or two scoops of powder into a bottle and then if they travel all they have to do is add water.”
Meanwhile, a similar trend towards specialty products has also been seen in the neighbouring Canadian baby food market, with producers of organic lines seeing steady growth over the past five years. According to Orlee Muroff, president and founder of My Organic Baby, nervous parents are fuelling the demand for organic baby food. “So many children are affected by allergies these days and with the rising numbers of illnesses such as ADHD and autism it’s likely that food is a link. Mothers want it, and the retailers know it,” Muroff says.
Muroff says the company’s baby products represent the only complete line in Canada offering the whole gamut of products from purees to all-organic formula to cereals and juices, giving the company a competitive edge. The company, which was acquired by Vancouver-based drinks group Clearly Canadian in May, believes this could also provide export opportunities.
The US might be the obvious first destination but there are differences between Canadian and American baby food regulations which would need to be addressed. Michelle Moskalyk, brand manager for My Organic Baby, believes these are not insurmountable but the company is clearly taking a cautious view towards expansion into the US. “Some of the products need to be reformulated to sell there,” Moskalyk says. “It’s not a difficult process, but we want to do it right in Canada before we embark on the American market.”
Muroff adds that the company would “have to start from scratch to sell in the US”, but that there are also possible opportunities elsewhere. “South America and Europe have much similar regulations with a lot less brands,” she points out.
Meanwhile, the growing demand for organic baby products in Canada alone provides plenty of scope for growth, particularly as the price of organic food has decreased dramatically over the past ten years. Muroff says: “Parents want to try something new and with a 20% difference in price point, mothers feel it’s worth it for the price of a coffee at Starbucks.”