BRINGING UP BABY PROFITS

LISA SAXTON

BOULDER, Colo. -- The premium baby food category can help bring profitability back to the supermarket baby aisle, as long as retailers resist the temptation to deep-discount the products.

Mike Mondello, vice president of marketing for Earth's Best baby food here, said the premium branch of the category not only helps draw mothers of young children into the store, but can also help offset some of the losses incurred by regular food, formula and diapers.

"We discourage retailers from pricing our products too low. We want them to make money on this.

"So while we are on average between 61 and 63 cents a jar on the shelf, retailers are making an average of 14% or 15% margin on our products in a category where often they're operating at either a zero or negative margin," said Mondello.

But will retailers resist the urge to engage in price wars, even on the premium products?

"The manufacturers and the retailers are smart enough to recognize that a specialty segment is virtually never going to be the dominant segment," he said. "Sure, they'll put us on sale every once in a while, but they've got to manage it like a specialty section, which is: 'We don't give them the money and they don't use their own money to turn this into a low ball.'

"We're not encouraging it with retailers; they're not going to put their own money into it. We spend overwhelmingly against the consumer. Retailers also recognize [low-balling] is sort of killing the goose that laid the golden egg."

Nevertheless, Mondello conceded, "It's something you can't ignore. The issue is a very fair issue. But, as a manufacturer, and as the lead brand in the segment, we have to make sure we don't become stupid and start price-promoting."

Mondello said the current situation with baby food, overall, is very similar to infant formula. And retailer animosity toward the categories is "very real," because supermarkets use them as loss leaders.

"So they make no money on it. And it's not just 'no money,' it's 'no money in a category that has such intense stocking needs.'

"If you think of the proliferation of stockkeeping units and how tiny the bottles are, it's a labor-intensive category that delivers no margin."

Even given that, Mondello said, baby food manufacturers would like to see retailers stack the jars on the shelves, rather than dumping the glass containers in bins.

"We much, much prefer that retailers stack them. It's far more consumer-shoppable," he said.

It's becoming apparent that more and more consumers are reaching out to the premium products. According to Schaumburg, Ill.-based Nielsen North America, for the 52-week period ended Dec. 10, 1994, Earth's Best strained baby food dollar sales jumped 24% over the previous year. Another fledgling player, Growing Healthy frozen baby food, registered impressive gains as well, while the three major manufacturers showed flat sales.

Wendy Putman, Earth's Best vice president of sales, noted premium products appeal to consumers who are looking for healthy alternatives to traditional baby foods.

"We are 100% organic," she explained. "We don't use any fillers and don't add any salt, sugar or preservatives."

"We believe the category will continue to grow," added Mondello. "Taking into account everything from organic trends to health trends to our efforts to get the story out, it's growing and it's turning up at the cash registers as well."

Like its competitors, Earth's Best has developed a line of junior foods to further enhance those cash register rings.

"The preliminary signals say that the junior foods are very successful," said Putman.

"On the margin side," said Mondello, "I think the junior foods offer a nice margin opportunity, because it's a higher unit sale. Where a consumer spends, on average, 63 cents for a jar of our strained food, a jar of our junior food would retail for an average of 83 cents.

"So, even at a constant margin, they're making it off the base almost 25% higher," he noted. However, lest retailers get too excited about the possibility of junior foods taking the category by storm, Mondello warned, "they could help extend the usage of the category by a little bit. It's not going to substantially affect the category, but it's one of those nice moves forward."