Milling & Baking News - April 13, 2004 - 26

industry

perspective

sources working on the right solutions. In the
first quarter we launch the first in a series of
healthier alternatives, including Newton bars

industry

perspective

with yogurt, which are low in fat and a good
source of calcium. And several extensions of
our Snackwell's sugar-free line. A number of

industry

bigger ideas will be ready in the second half
of the year and 2005. We don't expect signifiContinued on Page 30

Cookie industry 'only going to get tougher,' analyst says

imes are only going to become more difficult for the cookie industry, according to a securities analyst recently interviewed by
Milling & Baking News.
"It is only going to get tougher because there is a constant stream
of products coming out that blur the lines between cookies and other
categories like nutrition bars and candy," Christine McCracken, vicepresident, food and agribusiness, FTN Midwest Research Corp., said.
"It is possible that the cookie and cracker aisles that we have known
historically could eventually lead retailers to rethink how much
space should be dedicated to that and consider other alternatives,
which could make it very interesting."
The cookie as a dominant snack item is coming under attack from
health critics but more importantly from other items that are reducing the cookie industry's share of the snack market.
"A big part of the issue for cookies as we see it is the plethora of
other alternatives," Ms. McCracken said. "Now you have snack bars
and fruit rollups. On the margins I think some of these other products,
or at least these categories, have been a little bit more innovative.
"So there has kind of been a lack of new product activity in the
core cookie category. A lot of the products introduced this year or
maybe over the last two years have focused on line extensions.
"Innovation has been tight. Kraft has a lot of issues at the moment
in a broad scale with its portfolio. They have been dealing with a lot
of commodity businesses that have been underperforming. They
have just had a management change. They have a broad set of issues at that company that they have to contend with. Now they are
going through a structural realignment.
"Kellogg, on the other hand, has done a fairly good job, probably
one of the best jobs in the industry, at least with ready-to-eat cereal and
other areas it competes in, but cookies is still not growing for them."
No single issue has dominated the cookie industry's decline, she
said. "It was not just any one thing, it was a lack of new products
and a lot of competing snack alternatives and then the obesity debate that I would focus on," Ms. McCracken said.
Industry executives have been harping on the low-carbohydrate
diets for lost sales and market share, but Ms. McCracken does not
see the low-carbohydrate diets as being such a large part of the
industry's problems.

26 / Milling & Baking News, April 13, 2004

"A lot of focus has been put on low carb but as I see it is only part
of the answer," she said. "Because at the end of the day a lot of the
cookie consumption, at least from what I can tell, is targeted at kids
and it seems like the low-carb diet is more of an adult-driven trend.
"I think that on the margin it is probably more of the obesity debate and parents probably looking a little more closely at the nutrition content or lack thereof in cookies."
When Ms. McCracken examines the cookie industry's major companies' target audiences she sees a reason for successes and failures.
"If you look at who is consuming Pepperidge Farm cookies it is
more adults," she said. "I think it is more viewed as an indulgence
and it is portion controlled. For example, if you look at how many
cookies are in an average Pepperidge Farm bag versus an Oreo. I do
not think people feel as guilty buying one small bag of Pepperidge
Farm cookies versus a whole big bag of Oreos."
By concentrating on the adult market Pepperidge Farm has been
able to avoid some of the problems that Kellogg and Kraft have experienced, Ms. McCracken said.
"It comes down to the adult versus kid trend," she noted. "The
products that Kraft and Kellogg make are more of the kid and teen
market versus Pepperidge, whose core market is probably women
ages 30 through 45. It is a much different market.
"The Pepperidge Farm product is definitely not a kid-targeted
product. How many mothers are going to buy these products for
their kids?" Ms. McCracken pondered.
According to data from Information Resources, Inc., Pepperidge
Farm's cookies cost the most of the top cookie vendors, commanding an average of $2.85 per package.
She noted that even though there has been an increase in adults
on low-carbohydrate diets those participating in the diets are still
allowed some indulgences. And when people shop for an indulgent
high quality cookie they are more likely to reach for one of Pepperidge Farms products than a bag of Oreos, she said.
In remarking on Carlos Gutierrez's comments that Kellogg expects its cookie business to continue to see declines, Ms. McCracken
believes he was circumspect. "I think he realizes that the trends
near term are not going to change for them, which from an investor
standpoint is what you want to hear," she said. MBN

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