MIXED DATA SCATTERS CPG ITEM SELECTIONS 2004-07-12 (2)

LUCIA MOSES

MINNEAPOLIS -- Fickle consumers are compelling grocery manufacturers to pursue several health-related product initiatives, even though the activity is exposing contradictory buying habits.

For example, U.S. dollar sales and unit sales of ready-to-eat cereal in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, declined 2.6% and 3.8%, respectively, for the 52 weeks ended June 13, according to Information Resources Inc., Chicago.

Yet Mintel International, Chicago, reported that sales of cereals considered medium and high sugar notched sales increases of 7.6% and 4.8%, respectively, from 2001 to 2003. The firm's reporting shows that sales in the low-sugar segment slipped 4.7%.

The contrary numbers haven't kept consumer packaged goods companies like General Mills, based here, from rolling out reduced-sugar versions of some of its cereals, and announcing that its cereal box icons will highlight the contents' nutritional benefits. The company is following in the footsteps of Kellogg, which rolled out less-sugary versions of some of its popular kids' brands in April.

At the same time, the numbers may help explain why General Mills' low-carb Total Protein cereal has been a disappointment; analysts speculate the company might pull the brand extension or reposition it as "health-oriented" and narrow its distribution.

The potential lesson? Low-carb and low-sugar versions may not be a panacea for the $9 billion cereal market. Busy lifestyles, more than low-carb eating, are the reason for cereal's flagging performance, said David Lockwood, editor of market research at Mintel.

Indeed, low sugar is only one of an ever-increasing number of areas where CPG companies are being asked to respond. The low-carb diet trend may have peaked, but some analysts believe the practice may merely be subsumed by the larger umbrella of health and wellness.

"Manufacturers are looking at their product lines across the board, trying to improve their nutritional content," said Michael Diegel, spokesman for Grocery Manufacturers of America, Washington. "We see an increased interest in nutritional and health foods issues, and low carb is part of that trend."

Manufacturers are putting a health stamp on all foods as they look to satisfy what they believe is a greater consumer interest in general wellness. That interest is driving significant growth in Center Store and refrigerated aisles, according to IRI, which said shopper purchases of nutritional food spending rose 6% from 2000 to 2002.

Thus Kraft announced in May it was coming out with health- and convenience-focused products, including portion-control cracker packages, refrigerated ready-to-eat meals, and trans fat-free crackers. Unilever reportedly plans to remake its Slim-Fast powders, shakes, bars and fruit smoothies with 50% less sugar and more calcium, among other benefits -- but not tout them as low carb.

Soon-to-come products from General Mills include refrigerated biscuit dough in a resealable package that lets the user bake two at a time, responding to consumers' interest in portion control and convenience.

Even if the Dr. Atkins-inspired phenomenon has waned, CPG companies cannot ignore low-carb dieting, as it continues to nibble at food sales and spawn new product launches and extensions.

General Mills blamed carb-counting for deflated bakery sales in the previous quarter. Overall, bread and pasta sales have been flat at best, and sales of doughnuts are down, according to IRI. Morgan Stanley reported that 146 low-carb products were introduced in 2003, and 127 were launched in the first quarter of this year, from baking mixes to ice cream to pasta.

Some observers noted the diet could have legs for some time. Morgan Stanley research shows low-carb adherents were less likely than dieters in general to lose interest in the regime. Remember that there's a natural falloff in dieting after winter anyway, stated a financial analyst who follows food stocks.

Mintel's Lockwood added that, while the pool of new dieters may not be expanding, sales of low-carb products still have room to grow. "It's past its peak, but it's by no means finished," he said.