Food and pharma prove a rich mix

By Louise Lucas and Andrew Jack

Published: October 12 2010 20:10

Food and drug industries have little in common: one is fast-moving and prolific in its output while the other toils for years to produce a handful of blockbusters.

Both sectors are now converging on the same turf. Nestlé’s push, announced late last month, into the field of clinical nutrition or nutraceuticals – which cover foodstuffs aimed at slowing or even preventing illnesses and doctor-recommended non-prescription products – pits it firmly against the pharmaceuticals industry.

This more established market, which ballooned with the advent of energy drinks about five years ago and, shortly after, probiotic yoghurts, has also been attracting attention from food multinationals.

Last week, Pepsi said it was setting up a global nutrition unit run by Dr Mehmood Khan, its chief scientist.

Nestlé is aware what lies ahead as it pushes into a relatively new area, as Peter Brabeck, the Switzerland-based company’s chairman, acknowledges: “Our competitors are today and will increasingly be in the pharma industry. Most of the pharma companies are moving into this area from a different angle ... It will be a different business which needs the understanding of people who are not necessarily experts of FMCG [fast-moving consumer goods] companies.”

That business covers everything from highly specialised research and development of products to combat diabetes, heart problems and Alzheimer’s disease, to distribution that is more dependant on doctors’ recommendation than bagging space on supermarket shelves.

As a new market segment, size and forecasts are thin on the ground; Nestlé itself simply says it foresees sales of billions rather than millions of Swiss francs.

But there are some indicators: Nestlé derives SFr1.6bn ($1.7bn) of sales from areas such as tube feeding and foods for the sick and convalescent. Danone of France is building on its health foods such as probiotic yoghurt.

Demographic and health trends have encouraged the companies to believe demand will increase. The developed world is seeing a rise in heart disease, diabetes and obesity at the same time as life expectancy increases, while governments rein in spending on healthcare.

Nestlé believes this phenomenon will spread to emerging markets too, where governments are also seeking to clamp down on spending.

Nutraceuticals also hold out the promise of better profit margins, at about 20 to 25 per cent – reflecting the elimination of costly ad campaigns and more pricing power. Dealing with hospitals rather than aggressive retailers means less margin erosion, and the fact insurers reimburse many of these products means consumers are less worried about bloated price tags.

Food companies should be able to make inroads into clinical healthcare, in part because they understand consumers and their needs better, says Warren Ackerman, analyst at Evolution Securities.

Charles Mills of Credit Suisse agrees: “The drug industry has very strong R&D but the food companies have the marketing skills.”

He points out that the pharma industry has already tripped up on the middle ground, in the area of over-the-counter medicines. Some drugmakers began leaving the business in the 1990s, viewing it as low-growth and generating relatively low margins. “Whereas it was an extremely dependable long-term earnings stream and they probably will now rather regret it,” he says.

But the drugmakers now have good reason to move back in. Expiring patents and difficulties in finding replacement prescription drugs are pushing executives to diversify. A shift into consumer healthcare is one response, a strategy championed by companies including Abbott.

One reason behind this February’s surprise promotion of Joe Jimenez to chief executive of Novartis, the Swiss drugs group, was his years of experience in the foods sector.

Mr Jimenez, an American who spent a large part of his career at Heinz, has said one of his aims at Novartis is to improve marketing, streamline distribution and squeeze costs – all based on techniques he picked up in his consumer goods career.

While the pharmaceuticals industry learns lessons from consumer food groups, it has a distinct advantage when it comes to designing rigorous clinical trials. These can be very costly, long term and uncertain. Drug companies spend an aggregate 17 per cent of sales on R&D, according to Bernstein Research, 10 times the proportion the European food industry spends.

Pharma companies would also claim the upper hand when it comes to distribution and working through the regulatory process. GSK, for example, has 250 employees dedicated to securing regulatory approvals and almost half of its sales are made through pharmacies.

The strategy is similar too, says John Clarke, president of GSK Consumer Healthcare: “We are working off macro trends. Smoking remains the biggest preventable killer and obesity is number two,” he says.

The risk for drugmakers, which shy away from corporate marketing, is reputational: they could see their image further burnished if poor quality health studies come under attack.

Mike Dennis, analyst at MF Global, says the use of scientific analysis to support the claims used for marketing products could prove the biggest hurdle for food manufacturers as they will have to secure approvals from the European Food Safety Authority and the Food and Drug Administration.

Food companies have already come unstuck over the ability to substantiate claims in a smaller way. Some were forced pre-emptively to withdraw ads claiming health benefits on fortified foods, such as probiotic yoghurts, ahead of the EFSA’s protracted deliberations.

“Food companies have to get the highest recognition for a human study which is extremely expensive to do and food companies just don’t have pharma companies’ operating margins or scale,” says Mr Dennis.

“So it is catch 22. It is difficult for them to go out and spend millions of dollars on a four-year trial to get an end product that’s absolutely nailed it to allow them to say ‘this product works’.”

The potential - and perils - of PepsiCo's health kick Dairy, fruit and veg

Just Food - 14.10.10
The potential - and perils - of PepsiCo's health kick Dairy, fruit and veg. On the face of it, these products seem a world away from the carbonated soft drinks and crisps that have long been core to PepsiCo's business. However, the US food and beverage giant is set to make a serious move to grow its presence in the healthier areas of the market.

Last week, the group unveiled plans to set up a business unit focusing squarely
on nutrition and targeting sectors that are relatively untouched territory for PepsiCo.
Demand for high-sugar fizzy drinks and salty snacks is waning in the West and consumers in emerging markets, particularly in the key middle-class demographic, are also showing signs
of wanting healthier variants. For instance, research from just-food shows that India and China will be drivers of the global market for healthier snacks during this decade.
By positioning PepsiCo to focus more on health and wellness, Nooyi has a better chance of securing the long-term prosperity of the company. That said, the "nutrition" element of PepsiCo's stable is already a substantial business in its own right. The company claims its nutrition operations, home to brands like Quaker and Tropicana, already generate US$10m
in annual sales. PepsiCo's ambition is to triple those revenues in ten years.

Quaker and Tropicana are likely to be key planks in PepsiCo's plan. When PepsiCo announced the creation of the "global nutrition unit" last week, the company's ambitions in dairy, fruit and veg caught the eye. However, the group also included "grains" in its plans and, in Quaker,
they have a global brand upon which to build.

In the UK, Quaker is driving PepsiCo's growth as we speak. Speaking
to the BBC last week, Richard Evans, the head of PepsiCo's operations
in the UK and Ireland, said the brand was among the fastest parts of
its business. "If you look at that business the fastest growing parts of it are
actually juice and grain and Quaker Oats," Evans said.

PepsiCo's announcement last week was just the latest
in a series the company has made in the last 12 months,
from the establishment of an R&D facility in the US to
"fundamentally improve" the nutritional profi le of its
products to the creation of new targets to lower the amount
of salt, saturated fat and added sugar worldwide.
The company's UK arm made its own announcement this
spring that fi t the group's overall strategy. "In March, we
published a health report that said the kind of business we
wanted to be by 2020, which is one primarily based around
fruit, veg and grain," Evans said. "The reason we're doing
that is because consumers want healthier choices."
Of course, any moves to develop a business is a risk -
even in what could be deemed to be a company's area of
expertise. Last month, PepsiCo UK and Ireland said it
had pulled Pepsi Raw, a product that had been billed as
a "natural" alternative to Pepsi cola. The
company blamed a poor performance in the
UK supermarket channel.

There is an inherent risk to innovation and,
as PepsiCo looks to build its nutrition business,
some products will inevitably fail. But,
as Evans told the BBC, perseverance is vital.
"It's about trying. There are loads of products
that lots of companies have brought
to market and haven't worked. The trick is
[to ask] what did you learn from that? We
learned that it wasn't differentiated enough
versus what we sell every day, so consumers
told us in unequivocal terms that that wasn't
quite what they were looking for. It's about
going back and trying again."

NESTLE SE RENFORCE DANS LA NUTRITION MEDICALE

Nestlé se renforce dans la nutrition médicale

Par Alexandre Debouté
02/08/2010 | Mise à jour : 21:47 Réagir

En 2009, la nutrition médicale de Nestlé a représenté un chiffre d'affaires de 1,24 milliard d'euros. Crédits photo : BSIP/CHAGNON

Les taux de croissance et la rentabilité de ce segment attirent les géants de l'agroalimentaire.

C'est une petite acquisition pour Nestlé, mais elle est stratégique. Le leader mondial de l'agro-alimentaire a annoncé ce lundi le rachat de Vitaflo, une entreprise britannique réalisant 29 millions d'euros de chiffre d'affaires sur le marché en plein essor de la nutrition médicale. La société conçoit des produits destinés aux enfants et adultes atteints de troubles rares du métabolisme. Elle a enregistré une croissance de son activité de 30% ces trois dernières années. «Cette acquisition est une excellente combinaison stratégique, souligne Paul Bulcke, administrateur délégué de Nestlé. Notre présence géographique étendue permettra à Vitaflo d'accéder au marché mondial.»

12 % de croissance par an

Le montant de l'opération est gardé secret, mais les géants de l'agro-alimentaire sont prêts à mettre le prix pour se renforcer dans ce secteur prometteur. Le marché est estimé pour les seuls États-Unis à 4 milliards de dollars par an, en croissance de 12 %. Danone a déboursé en juin 52 millions d'euros pour racheter Medical Nutrition. C'est 80 fois les bénéfices annuels de cette jeune pousse américaine spécialisée dans les suppléments nutritionnels pour personnes âgées.

Nestlé comme Danone se positionnent depuis plusieurs années sur ce marché. Le géant suisse a profité en 2006 de la volonté du laboratoire pharmaceutique Novartis de se recentrer sur son cœur de métier pour lui racheter sa division nutrition au prix fort : 1,9 milliard d'euros, soit 28 fois le résultat d'exploitation. En 2009, la nutrition médicale de Nestlé a représenté un chiffre d'affaires de 1,24 milliard d'euros, soit 1,5 % de ses ventes totales.

Le poids du segment est relativement plus conséquent chez Danone où, depuis le rachat en 2007 du leader de l'alimentation infantile Numico, le pôle nutrition médicale a représenté l'an dernier 925 millions d'euros, soit 6 % des ventes du groupe. «C'est notre plus petit métier mais le plus important pour l'avenir», indiquait récemment au Figaro Franck Riboud, le PDG de Danone. Depuis cinq ans, le pôle dégage une croissance annuelle moyenne de 12,2 % pour une marge supérieure à 20 %, contre 15 % dans les autres activités.

Les deux autres principaux acteurs de la nutrition médicale sont deux groupes pharmaceutiques, l'allemand Fresenius et l'américain Abbott, avec un chiffre d'affaires de 4 milliards d'euros en 2009.

La croissance du secteur est portée par une hausse soutenue des volumes, dans les pays vieillissants d'Europe ou des États-Unis comme dans les pays émergents. L'intérêt de Nestlé ou de Danone est aussi de profiter des savoir-faire ainsi annexés pour «nourrir» la R & D de leurs pôles alimentation et proposer à titre préventif à des personnes «normales» des produits réservés aujourd'hui à un usage médical.

NESTLE REPREND L'ANGLAIS VITAFLO - CA 40 MIO CHF

Nestlé reprend l'anglais Vitaflo - Chiffre d'affaires 40 mio CHF (dév.)

Vevey VD (awp/ats) - Le groupe alimentaire vaudois Nestlé acquiert la société britannique Vitaflo, active dans la nutrition pour personnes souffrant de maladies métaboliques génétiques. Sise à Liverpool, Vitaflo réalise un chiffre d'affaires annuel de 40 millions de francs.

Ce montant affiche une croissance rapide, a indiqué lundi Nestlé en précisant que le prix de la transaction était tenu secret. Il a en effet présenté une progression moyenne de l'ordre de 30% au cours des trois derniers exercices, précise le communiqué.

Vitaflo fabrique et développe des produits pour enfants et adultes nécessitant un traitement diététique pour aider la transformation des aliments par le corps. La firme de Liverpool cherche à atténuer les difficultés quotidiennes des patients en leur procurant par exemple des produits au goût amélioré.

Les erreurs innées du métabolisme restent très rares, leur fréquence étant estimée à 1 sur 2500-50'000 naissances. Le problème affecte ensuite l'individu tout au long de son existence. Il est de plus en plus souvent détecté chez les nouveaux-nés.

L'entreprise des bords de la Mersey se verra par ailleurs offrir un accès au marché mondial en profitant de la large implantation géographique de Nestlé, a relevé Paul Bulcke, patron de la multinationale veveysanne, cité dans le communiqué. De son côté, Nestlé entre sur le marché dit des produits de nutrition clinique.

http://www.vitafloweb.com/

Romandie News 2.08.10

"CONCENTRATED DOSE" IS REDEFINING FOOD & BEVERAGES

CONCENTRATED DOSE

New Nutrition Business July 2010

The “daily dose” or “concentrated dose”

format has become one of the defining

product formats of the global nutrition

business – in Asia at least, where it is long established.

But in the West it is still an

embryonic concept and one most marketeers

continue to shy away from.

The concept of a “concentrated dose”

– meaning a high, and effective, dose of

an active ingredient in as small a package

as possible (for example a beverage in a

1.7oz-6oz or 50ml-180ml package) – has been

growing in popularity in Europe over the last

decade, and the idea is now, at last, taking off

in America, after years of resistance to the

concept from marketers.

PROVEN TRACK RECORD IN LAUNDRY

PRODUCTS

It’s a format that achieves differentiation

and premium pricing, and reassures

consumers that they are getting a guaranteed

“concentrated dose” of the effective

ingredient that provides the benefit they are

looking for.

It’s a compelling idea and one with a

proven track record – “concentrated doses”

have long been established as one of the most

powerful concepts in consumer marketing.

In laundry powders and liquids for example,

products that offer a “concentrated dose”

have been redefining the market for a decade.

The reason for this development is a very simple one,

as a senior Unilever executive was quoted as saying:

“Consumers are looking for convenience

and ease of use. Convenience is the big trend

as consumers’ lives get more hectic.”

As a result of the willingness of companies

such as Unilever and Proctor & Gamble

to respond to consumers’ needs for ultraconvenient

products, in the $34 billion (€27

billion) global laundry powders and liquids

market “concentrated dose” powders and

liquids have grown to a 35% market share, a

retail sales value of $9.5 billion (€7.6 billion).

NEGLECTED OPPORTUNITY IN FOOD AND

DRINK

“Concentrated dose” is an opportunity that

has been neglected by all but a few food and

beverage companies. However, that is slowly

beginning to change.

On a conservative estimate, global sales

of concentrated dose beverages are, at retail

prices, already $8.5 billion (€6.9 billion), of

which probiotic dairy and energy shots are

the single largest segments.

This change is driven by three very

compelling factors:

1. Differentiation through

packaging: Good packaging, particularly

innovative packaging, is crucial to creating

successful health propositions in increasingly

over-crowded markets. At its best, packaging

supports the brand in asserting its difference

from the competition. It’s the best way to

catch the consumer’s eye and earn premium

prices and better-than-average profit margins.

Innovative packaging performs several

important functions:

• It signals to consumers that “this is

something very different”.

• It can be used to mask a price premium.

It is a good way of achieving high

margins since consumers have no

similar existing products to function

as a comparison. Using packaging,

companies can create new price points

and achieve much higher selling prices

for their products. In particular, selling

in single-serve packages makes it very

difficult for consumers to easily compare

prices, whereas putting your new product

in a standard 1-litre gable-top carton

makes it look like every other brand on

the shelf and enables consumers to easily

compare prices between your product

and regular products.

• When you use packaging innovation

to create a new category then you are

defining the direction in which many

of your competitors must go and you

are defining the packaging format they

must adopt. You are in effect establishing

your credentials as a market leader and

innovator.

2. I-Nutrition: We live in an era in

which there is an increasing desire for

customization to meet individual needs. It

applies across all categories of products,

and one of the best examples is the iPod

or the iTouch, which enable an individual

to carry around with them thousands of

their favourite pieces of music and listen to

them alone, through a set of headphones,

whenever and wherever they like. For our

ancestors music was a social and collective

pleasure, with people coming together with

friends, relatives or fellow villagers to enjoy

the same music together, as a group. Today,

thanks to technology, its enjoyment is more

often a solitary, individual activity.

So too with food. As a result of longer

working hours, greater social and geographic

mobility, greater social isolation (33% of

households in Amsterdam are single-person,

for example, and 25% in Australia) and the

breakdown of traditional family structures

and meal occasions, more and more people

eat alone.

At the same time, even where people live

in traditional families, their food choices are

dictated less and less by custom, tradition

and family and more and more by highly

personalised views about health and nutrition

and a desire for products that meet an

individuals’ own health needs – a result of

the huge attention given to diet and health

by the media, where you will find thousands

upon thousands of articles in magazines,

newspapers and on websites relating to

health. It sometimes seems that almost every

media source offers a “nutritionist” giving

advice.

As a result of the flood of what is often

conflicting advice, people have given up on

trusting experts and have decided to instead

form their own views about what works

for them as individuals, which means that

consumers are increasingly customising their

nutritional choices every day. The 45-year-old

mother drinking a dairy drink to boost her

bone health, for example, or her husband

consuming something to keep his cholesterol

level down, are both making individual

choices which might not be seen as relevant

by any other family members.

In short, we live in the era of I-Nutrition,

in which – when it comes to health – singleserve

packages have more appeal than family

packages.

3. Better sales, better margins,

better profits: If neither of the above

factors is persuasive enough, then the one

that should be is that the few companies

who have adopted the concentrated dose

packaging format have found that the format

delivers:

• Higher sales

• Increased profit margins

• New consumers who are loyal, with

repeat purchase rates of 80% and above,

and willing to pay premium prices even

during recession

WHAT THIS MEANS FOR INNOVATION

Customisation towards individual nutritional

preferences is not only a strategy worth

adopting by companies planning to develop

their presence in health, in many cases it is

the only strategic choice available.

Every company that’s looking to target

particular health benefits has to consider, as

part of their innovation process, whether,

and how, it can produce a product that could

deliver the maximum effective dose of a

health ingredient in a small and thus ultraconvenient package.