Milling & Baking News - July 4, 2006 - 31

industry

perspective

Creek, Mich. The ready-to-eat breakfast
cereal giant has achieved considerable
success in other categories, helping the
business score standout gains in sales
and net income in the last several years.
Indicative of the attention being showered on other Kellogg categories were
two announcements this past month. On
June 23, the company announced plans
to introduce an organic product under the Keebler brand, but it was wheat
crackers rather than cookies. The same
day, the company announced plans to
move the Special K brand into diet and
nutrition aisles. Three protein-fortified
products were introduced in connection
with the move.
Still, the cookie business has not been

industry

perspective

entirely neglected at Kellogg.
In July 2005, Kellogg introduced Gripz
snacks, a small version of the company's
Chips Deluxe chocolate chip cookies and
Cheez-It baked snack crackers.
The product was introduced in portable "Rip 'n Tip" tubes aimed at on-thego snacking. In addition to offering convenience, Kellogg touted the product as
an opportunity for portion control with
130 calories in the cookie Gripz tubes.
Gripz also are available in a double
chocolate variety.
More recently, the company introduced
Granola Munch'ems and Special K snack
bites, a product that moves the granola
bar toward cookie territory. MBN
- L. Joshua Sosland

An exception: Otis Spunkmeyer enjoying steady
growth in cookie category
To whatever degree the business is shriveling on supermarket
shelves, an upbeat view of the cookie business was expressed
by Otis Spunkmeyer Holdings, Inc.
In a prospectus filed June 20 with the Securities and Exchange Commission in connection with a pending initial public offering of stock, the company detailed a history of solid
annual growth dating back several years in sales of frozen
cookie dough (for further financial details, see related story
beginning on Page 1).
The company described the frozen sweet baked goods segment as the most attractive in the baked foods industry and
suggested the company's own position in the market is a highly
favorable one.
Still, even a company as upbeat as Otis Spunkmeyer
expressed wariness over the potential effects of mounting public concern about health issues associated
with obesity.
In its macro industry analysis, Otis Spunkmeyer
estimated 2005 sales of baked foods at $73 billion, citing Euromonitor data. The sweet baked
foods segment accounts for just under half the
sales, at $36 billion.
"We believe the frozen sweet baked goods
sub-segment is the most attractive category
within this market, because of increasing demand
from both food service customers and end consumers for high-quality products that are convenient and easy to
prepare," the prospectus said. "These products have particular
appeal to food service channel customers due to more consistent product quality and other benefits such as reduced labor
costs and product waste."
The frozen cookie dough segment has enjoyed solid growth
in recent years, chalking up compounded annual growth of 5%
between 1992 and 2005, according to the prospectus, citing
the Best Report.

32 / Milling & Baking News, July 4, 2006

Within these sectors, Otis Spunkmeyer has a leading position.
Again citing the Best Report, the prospectus said, "We have held
the No. 1 market share in terms of pounds of frozen cookie dough
sold in the food service channel since 1996," the prospectus said.
"Our 40% market share in this category in 2005, which increased
from 22% in 1996, is more than double our nearest competitor."
While the woes of the packaged cookies business do not
rank as an issue of state concern for Otis Spunkmeyer, the
company does share at least one significant concern in common with the larger industry - the effects of the backlash
against rising rates of obesity. In the "Risks Relating to our
Business" section of the prospectus, Otis Spunkmeyer warned
that concerns about obesity could curb demand for its products
and lead to government action prohibiting cookie
sales in schools.
"Consumers, public health officials and government officials are becoming increasingly aware
of and concerned about the public health
consequences associated with obesity," the
company said. "These concerns may negatively influence consumer perception and acceptance of our products and marketing programs
and may cause consumers to reduce their consumption of certain of our products, which could
reduce our net sales.
"Childhood obesity has become a focus of interest
groups, policy makers and parents. Our sales to the kindergarten through twelfth grade food service segment were $50 million
in fiscal 2005, and represent 14.9% of our net sales. Although
concerns about childhood obesity address portion control and
physical activity, foods with high fat and sugar content, including
some cookie products, are likely to be a focus of attention. To the
extent that there is increased legislation or other activity aimed at
decreasing the availability of such food products in schools, our
sales may be adversely impacted." MBN

bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - July 4, 2006

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