Tuesday, February 21, 2012

The Healthy Food Trend

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 Walmart (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.

Walmart 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 Walmart is often considered to be the industry standard setter.

But Walmart 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 many times 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, like Pepsi.

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.

This article was originally written for the Motley Fool Blog Network. Please check out my daily articles for the Motley Fool at http://blogs.fool.com/tdalmoe/


  1. 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.
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  2. I would like to comment aout whole food market which is the walmart of natural organic health foods. I think the company is overpriced at current levels. The stocks trsding at 80 dollars a share' and trades at a very high price to earnings ratio of 40.

  3. To tell the truth Walmart is a great store where there are lots of good stuffout there. But what concerns natural organic food, it is not natural, just name "natural". There are many additives in there. The prices on it are quite high than at the local markets.

  4. The boom in health foods can be best described by the success of a company like whole foods market.