Industry Watch: A Health Check for Food Giants

Consumer packaged goods boost the bottom line online

For the $2 trillion-plus consumer packaged goods industry, it's the best of times and the worst of times. The packaged foods business is among the largest consumer segments in the world -- five of the 50 largest advertisers are food marketers, not counting conglomerates PepsiCo Inc. and Proctor & Gamble.

But, as McKinsey & Company reports, after a 30-year growth spurt, the consumer packaged goods industry is seeing flat revenues and fragmented markets. Company CEOs are under pressure to grow mature segments, or else. "Since the early 1990s, the industry has not matched its earlier strides in value, quality, and convenience," observes Mark McGrath, a director in McKinsey's Chicago office. "CEOs are awakening to the notion that this may not be the growth industry that it once was."

The competitive and fragmented market offers an ideal opportunity to develop new interactive media and marketing strategies to lure new customers. According to McKinsey, online retailing generated $90 billion in revenues for u.s. retailers in 2004 versus just $8 billion in 1996. Research firm eMarketer projects that CPGs will spend $470 million online in 2006, a 17 percent spike from 2005. Still, CPG net ad spending would represent just 3 percent of total online expenditures this year versus a quarter of offline.

Under Pressure: Compelled to take consumer health issues more seriously, the industry is waking up to its new role. In particular, marketers of kids' foods and beverages were put on notice in 2004 to 2005 to change irresponsible marketing practices aimed at their core demographic. Under pressure from government watchdog groups, CPG companies were cautioned to shift advertising away from high-calorie, low-nutrient products to healthier options. The U.S. Food and Drug Administration set a Jan. 1, 2006 deadline for on-package trans fat labeling.

Kraft Foods has tried to create products and campaigns promoting healthier lifestyles and foods. Most of its campaigns have online components. Karen Anderson, media director for Kraft at Norwalk, Conn.-based Modem Media, a Digitas Inc. company, says Kraft met the FDA's deadline and is going beyond it voluntarily, reformulating hundreds of its products to reduce trans fats. Anderson says that the CPG category's increased focus on health and wellness has created a heightened demand for synergistic content online. "Health, wellness, and dieting avails in q1 were extremely tight this year as more CPG marketers increased their commitment to digital media, and these areas in particular," Anderson says.

"As part of Kraft's broader health and wellness initiatives, we're working on ways to enhance the nutritional profiles of our products," says Lance Friedmann, senior vice president, Global Health & Wellness, Kraft. One example is Kraft's new Triscuit cracker line, with newly branded "zero trans fat" packaging. "We've seen double-digit growth on Triscuit sales since its reformulation," Friedmann notes.

Skippy's Family Values: Unilever's Best Foods' Skippy Peanut Butter has been whipping up nutty blends since the 1930s. Hopping aboard the health trend, in 2005 the brand introduced several "better-for-you" products with Skippy Trail Mix Bars, Skippy Natural Peanut Butter Spread, and Skippy Squeeze Stix. Last year, the brand went online to promote its "Skippy Search for America's Nuttiest Family." The online contest offered $20,000 in prizes, playroom equipment, digital video recorders, a karaoke machine, and a year-long supply of Skippy products.

Unilever's Lipton Tea brand teamed with Discovery Networks to give away more than $80,000 in prizes online last May. Daily instant prize packages included an Ultimate Home Workout Center valued at $2,590. The partnership also featured on-air promotions on Discovery Health Channel and FitTV and in-store promotion at Discovery Channel Stores nationwide.

Tying in, Discovery also aired Lipton-sponsored vignettes about the health benefits of tea and antioxidants, featuring Discovery Health Channel personality Dr. Know.

P&G Coffee Clubs: Since its buyout of Gillette last year, P&G has done some fancy footwork to stay relevant and focused. Print and online ads show people enjoying active lifestyles: Special Olympics kids rigorously competing or women in nature settings, all accompanied by printable or cut-out coupons.

P&G's coffee division promoted a Home Café program and Club Café program with an online "wish for home café" feature that allows subscribers to submit their wish list of desired Home Café gifts and products. Their requests are e-mailed to friends and relatives of choice. The club functions like an online registry, making special-occasion and holiday shopping easier. The coffee club activity gets heavy online promotion at its own Web site,

Box-Top Letters: General Mills, the nation's No. 2 cereal maker, is also carrying its message online. Its cereals include Trix, Cocoa Puffs, Cheerios, and Lucky Charms. gm's home page shows the Charms' trademark leprechaun and features pop-ups for its key product lines. The cereal division held an online promotion called Box Tops for Education, a cereal purchase contest that ran through Dec. 31. One online component, the Box Tops Booster Club, allowed kids to raise funds for their schools and reap prizes such as kids' movie tickets. Online printable coupons were available for popular items such as cereals and body care products.

Reading the Tea Leaves: How effective is online marketing? In 2004, Microsoft's MSN attempted to quantify its impact on branding and offline purchases. The research measured online advertising's return on investment and examined multibrand CPG marketing efforts to find an optimal media mix.

MSN found two measurable sales lift success stories. After Kraft's Jell-O posted holiday-related ads around Halloween, Thanksgiving, Christmas, and New Year's, offline sales jumped 7.5 percent. And Nestlé's Coffee-mate achieved a 10 percent lift in sales after an online campaign.

However, a recent JupiterResearch study suggests that CPGs won't rush to pump dollars into online marketing this decade. Jupiter says CPGs aren't big online spenders, and their branding focus will push them to continue display advertising, dedicating 83 percent of their budgets to display ads in 2010.

CPG marketers will tend to focus more on online consumer relationship marketing rather than online media buys. In particular, Kimberly-Clark's Huggies Baby Network and Procter & Gamble's Tide Fabric Care Network have earmarked funds for the infrastructure to build and maintain Web sites, according to Lisa Phillips, eMarketer analyst. Phillips says more CPG companies are likely to increase their use of e-mail, online couponing, sweepstakes, and branded entertainment tie-ins. Online spending will continue to trail auto and financial services segments.

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