Quaker's Impact for PepsiCo
The Chicago-based maker of oatmeal, breakfast cereals and pasta is assuming the point position in PepsiCo's drive into the health-and-wellness food category, a growing sector even if its significance and meaning is debated by some experts.
"Just based upon the issue of being a purveyor of soda and salty snacks, they have to do something from an image point of view so they don't get beat up on," said Greggory Warren, an analyst with Chicago-based Morningstar Inc.
The new role could help bring new growth to Quaker, whose biggest product remains the oatmeal it invented more than a century ago. While it provides only 5% of PepsiCo's revenue, Quaker delivers nearly 9% of its operating profit.
The company employs 2,000 people in its 17-story West Loop office tower, 800 more than when it was acquired. The building is home to what PepsiCo has dubbed the QTG Group, for Quaker, Tropicana and Gatorade. Tropicana's offices moved to Chicago from Bradenton, Fla., two years ago.
All three are working flat out to develop new products that can carry PepsiCo's "Smart Spot," said Chuck Maniscalco, president and chief executive of QTG. The Smart Spot is a bright green-and-white circle surrounding a check mark that was unveiled in 2004 and signifies that the item is healthy.
This year more than half of the products that Quaker is introducing will carry the Smart Spot logo, while the remainder offer other healthy attributes, such as no preservatives.
"We have made a commitment to improve our portfolio for health and wellness," said Maniscalco.
"It is smart from a business standpoint and a consumer standpoint," he said, noting that Quaker, Tropicana and Gatorade all are introducing new products this year targeting health and wellness market.
Quaker is rolling out four items, while Tropicana has introduced a fruit strip and an orange juice containing omega-3. Gatorade and its fitness cousin Propel each are bringing out new iterations, including Gatorade A.M., marketed as a morning workout drink, and Propel Calcium.
However, it goes well beyond targeting health and wellness, said John Compton, CEO of PepsiCo North America, who formerly held Maniscalco's job. While PepsiCo is based in Purchase, N.Y., Compton maintains his home in the Chicago area.
Every product being developed by the Quaker/Gatorade research center in Barrington must comply with PepsiCo's overall commitment to health and wellness, he said.
Compton said PepsiCo's health and wellness commitment is not limited to the QTG Group. Even its snack division, Frito-Lay, is developing products that sell in that category.
For instance, he said, a new chip to be sold under the Flat Earth label will not be found in the chip aisle of stores but rather in the produce section.
Competitors are moving aggressively too. Hoping to blunt Gatorade's dominance of the sport-drink market, Coca Cola Co. last week announced plans to acquire Energy Brands Inc., known as Glaceau, the maker of Vitaminwater.
However, there is disagreement among food consultants whether a trend toward health and wellness has developed among Americans.
Some, such as Harry Balzer, executive vice president of market research for NPD Group, suggest it is just another resurgence of fitness attitudes that have surfaced about every decade since the 1970s, while others, including Ron Paul, president of Technomic Inc., a Chicago-based food consulting company, is convinced the trend is new and real.
"There is no question that Americans are very anxious about health and wellness, but there is no trend toward health and wellness," Balzer said. "There is just anxiety."
Balzer, recognized as one of the most influential voices in the way Americans eat, cook and think about food, has data to back up his contention.
While 76% said they are eating reduced-fat products, and 21% said they are eating more organic products, similar numbers were recorded 15 years ago for other healthy food ideas, he said.
In 1992, 78% said they ate a reduced-cholesterol product, while 61% said they were choosing items that had reduced sodium or were sodium free, he said.
Currently, he said, consumers are morphing from avoiding harmful products to adding things they believe are good for them, such as dietary fiber, whole grain, antioxidants, omega-3 and the latest fad, probiotics, which contain microorganisms to aid digestion.
"Each of those now have the buzz for health," said Balzer.
"About the only thing you can count on is that Americans will gravitate to the latest health and wellness idea."
Paul, however, is convinced that the current turn at health and wellness is more than just a passing fad.
"It is real. Just look at the growth of Whole Foods," he said, referring to the Austin, Tex.-based organic grocery chain.
"It is not a huge market, but it is growing," he said, noting that firms competing in the category are reaping profit margins "well into the double digits" compared with the low single-digit margins usually associated with foods.
However, Quaker's efforts to grow faster landed it on the hot seat this year. The company had to tone down some of its cholesterol-reducing claims in advertising for its oatmeal after the Center for Science in the Public Interest threatened to sue.
Still, Warren, the Morningstar analyst, said that Quaker and the QTG Group may have found a winning concept.
From the June 4, 2007, Prepared Foods e-Flash