Like the hurricanes that wreaked havoc in Florida this fall, one storm after another has battered the cookie category during the last 18 months, forcing producers to navigate through what Daryl Brewster calls “choppy Cs.”

Brewster, group vice president and president of U.S. Snack Sector for Kraft Foods Inc., describes the choppy Cs as the carb craze, industry consolidation, retail consolidation, rising costs and a price-conscious consumer who has been as unpredictable as the weather.

As the trend winds blew in from all directions, some manufacturers struggled to stay alive while others fought to minimize the damage and keep their businesses going in the right direction.

In some cases, the companies just didn’t make it. Private-label producer Bake-Line was forced into bankruptcy and had close its doors. In other cases, companies simply self-destructed. Scandal-ridden Parmalat found itself drowning in a sea of debt following wave after wave of fraud, corruption and accounting irregularities crashing at its door. The Italian-based conglomerate has filed for bankruptcy reorganization and reportedly is trying to sell its North American cookie and cracker business, which includes such brands as Archway, Parmalat and Mother’s Cookies.

The harsh conditions in this market had even the biggest players like Kraft Foods wondering what could happen next.

“Are biscuits done? Are we cooked? Are we burned?” Brewster asked attendees at the Biscuit & Cracker Manufacturers’ Association technical conference in October.

THE TOP 10 BRANDS

Cookies (for 52-weeks, ending October 3, 2004) Ranked in order of retail dollar market share.
Dollar Volume % Dollar Unit Sales %
Rank Brand (in millions) Change Share (in millions) Change
1 Nabisco Oreo $184.4 +2.1% 5.1 73.9 +1.3%
2 Nabisco Chips Ahoy! $124.6 -0.2% 3.5 50.3 -1.0%
3 Nabisco Double Stuff $99.9 +18.6% 2.8 38.1 +19.0%
4 Pepperidge Farm
Distinctive Milano $78.8 +1.0% 2.2 31.2 -2.4%
5 Nabisco Chips Ahoy! Chewy $72.5 +8.5% 2.0 28.1 +7.9%
6 Private Label Chocolate Chip $65.7 -1.1% 1.8 33.1 -2.6%
7 Little Debbie Oatmeal Creme $64.0 +2.6% 1.8 55.1 +3.4%
8 Little Debbie Nutty Bars $63.4 +5.9% 1.8 45.6 +8.7%
9 Nabisco Nilla Vanilla $62.2 +5.2% 1.7 20.8 +3.7%
10 Private Label SANALOT $59.2 -20.2% 1.6 36.1 -20.6%
TOTAL* $3.598.2 -4.9% 100.0 1737.3 -5.8%
*including brands not shown
Source: Information Resources Inc. Supermarkets, Drug Stores and Mass Merchandisers, except Wal-Mart.
Notes: SANALOT is IRI’s term for private label non-chocolate sandwich cookies.

 

“We think not,” he answered. “We believe that the biscuit industry has all of the right ingredients, but we must improve our recipes as we go to market, and we have to get the top bakers in this industry cooking to drive this business as we go forward.”

 

Brewster’s optimism is based on his belief that the category, at worse, is in the midst of transition and, at best, has turned the corner. After experiencing sales declines ranging from 3% to 5% for the last three quarters, cookie sales were flat for the third quarter of 2004 and are projected to rise 2% over the final three months of the year, according to ACNielsen data for food, drug and mass merchandisers, excluding Wal-Mart, provided by Kraft Foods.

 

Although some companies continue to struggle, Kellogg Co., parent of Keebler, reports that cookie sales improved during its most recent third quarter. Overall, sales for its snacks division grew at 9% over the same quarter year ago.

 

Likewise, Pepperidge Farm reports that its Milano and other super-premium cookies continue to do well, experiencing little of the malaise that the rest of the category players are feeling. Although sales in supermarkets appear to have softened, the Norwalk, Conn.-based company reports that Pepperidge Farm cookie sales are solid in mass merchandiser and other alternate channels not tracked by Chicago-based Information Resources Inc.

 

THE TOP 10 vendors

 

Cookies (for 52-weeks, ending October 3, 2004)
Ranked in order of retail dollar market share.
Dollar Volume % Dollar Unit Sales %
Rank Brand (in millions) Change Share (in millions) Change
1 Nabisco Oreo $1,331.5 -5.2% 37.0 553.0 -5.2%
2 Keebler $420.5 -8.7% 11.6 175.4 -10.4%
3 Private Label $295.1 -10.3% 8.2 175.1 -11.3%
4 Pepperidge Farm $269.7 +1.3% 7.5 97.0 -2.4%
5 Little Debbie $205.7 +3.3% 5.7 176.1 +4.1%
6 All Other Non-Key Vendors, M-Z $198.1 +3.8% 5.5 95.6 +0.3%
7 Murray Biscuit $168.4 -7.6% 4.7 104.8 -11.9%
8 All Other Non-Key Vendors, A-L $168.0 -4.2% 4.7 111.9 +2.0%
9 Archway $115.3 -9.6% 3.2 48.1 -11.6%
10 Mother’s/Bakery Wagon $94.0 -8.4% 2.6 40.9 -12.3%
TOTAL* $3.598.2 -4.9% 100.0 1737.3 -5.8%
*including brands not shown
Source: Information Resources Inc. Supermarkets, Drug Stores and Mass Merchandisers, except Wal-Mart.
Notes: No. 6 item includes All Other Non-Key Branded Vendors, beginning with letters M-Z. No. 8 includes All Other Non-Key Branded Vendors, beginning with letters A-Z. Archway and Mother’s/Bakery Wagon are owned by Parmalat as of October 31, 2004

 

Turning the Corner

 

Brewster stressed that the cookie industry needs to react more quickly to consumer trends while it maps out a strategy that can generate sustainable growth.

 

To do that, first, cookie producers need not only to roll out innovative new products, but also to add innovation to their current product lines. This doesn’t mean just talking the talk.

 

Here, action counts. At the Food Marketing Institute show this year, for instance, Kraft introduced 70 new products across all its brands, including more than a dozen new cookies and crackers.

 

It rolled out Caramel Apple Newtons snackable dessert with real apple filling and a sweet caramel créme center wrapped in a golden cake. For consumers’ indulgent palates, it rolled out the Chips Ahoy! White Fudge Chunky.

 

Under its popular Honey Maid brand, it introduced Apple Cinnamon Sticks, oatmeal cookies and oatmeal raisin cookies. Less than six months later, these items are among the top sellers in the oatmeal cookie segment.

 

Meanwhile, Pepperidge Farm has ridden the storms by adding convenience to super-premium cookies. Specifically, the company attributed part of its success to its line of Mini Cookies, which were launched last year and are on track to overtake Goldfish Colors crackers as the most successful launch in Pepperidge Farm’s history. The minis, which replicate the full-size counterparts, come in Milano, Mint Milano, Chocolate Chunk, Brussels and Chessmen varieties. A new variety, Mini Bordeaux, was rolled out in July.

 

During the last year, Pepperidge Farm has ramped up its new product introductions. Those products introduced in the last three years now account for 20% to 25% of the company’s revenues, which total about $1 billion annually.

 

In March, for instance, it introduced two new products to its Chocolate Chunk cookie line — a Milk Chocolate Cashew in the Crispy variety, and a Dark Chocolate Brownie in the Soft Baked variety. It also upgraded the chocolate chunks and reformulated its Soft Baked line with “new melt-in-your-mouth recipes.” This fall, the company rolled out a sugar-free version of its Milano cookie. While not low in calories or fat, the sugar-free version provides a new indulgence to diabetics and those who cannot consume sugar.

 

Perhaps seeing Pepperidge’s success, Hershey Foods Corp. is rolling out a line of super-premium cookies in December. The chocolate-dipped products will be sold in single-serve packages and come in such varieties as Almond Joy, Hershey’s with Almonds, Reese’s and York Peppermint Patties. Hershey’s venture into the cookie aisle is not surprising. Its chairman and CEO, Richard Lenny, is stealing a page from his past when he was the top executive at Nabisco a few years back.

 

Yes, when it comes to cookies and sweet goods in general, consumers like to indulge. As Walt Marriott, director of marketing for D.F. Stauffer Biscuit of York, Pa., said, “If people are going to cheat, they are going to cheat on what they like. It doesn’t matter what it is.”

 

In addition to product innovation, cookie producers must think out of the box when it comes to packaging. For example, Brewster suggested that companies should use their packages to eliminate portion-size confusion. Kraft, for example, has created products like its 100 Calorie Packs of Oreos and other Nabisco snacks that make it easy for consumers to keep track of what they eat.

 

Moreover, Brewster said, Kraft is putting dual labeling on its packages, especially those of which could be consumed in one sitting. In addition to federally mandated nutritional data for a single serving size, Kraft lists the same information, except for the entire package so that those channel-surfing couch potatoes know exactly how many calories they’re consuming.

 

Likewise, new packaging has helped sales rebound for Keebler cookies, according to Kellogg Co. After seeing sales fall during the last two years, the Battle Creek, Mich.-based company saw sales rise in mid-single digits in its most recent second quarter of 2004.

 

“Our new on-the-go packaging added to this growth as did our 12-count packaging,” Carlos Gutierrez, Kellogg’s chairman and CEO, told analysts recently. “We focused on our core brands and saw very good growth in Chips Deluxe and Sandies in the quarter. In fact, our new SpongeBob Animal Cookie is also off to a strong start.”

 

 

Investing in Brands

 

The second way companies can turn the tide is to enhance their brands through advertising and promotion and become an “aisle magnet” that brings back consumers for one reason or another, Brewster said.

 

Kraft’s new campaign for the Oreo brand, for instance, builds on the theme of milk and cookies. Brewster said studies show that 30% of cookies are consumed with milk while 50% of Oreos are eaten with milk. Studies also show that four out of five children don’t get enough calcium. Partnering cookies with milk is an obvious way to help solve this concern in a fun way.

 

Pepperidge, on the other hand, markets the experience of eating its indulgent cookies. Its Distinctive line is promoted as “rewarding and pleasurable” while its Old Fashioned Homestyle Cookies are positioned as comfort foods “that taste like they came right out of Grandma’s cookie jar.” Likewise, the company positions its Milano line as “exquisite” while its Chocolate Chunk variety is touted as “The Best Chocolate Chunk Cookie in the World.”

 

Kellogg’s Gutierrez reported that the company’s commitment to investing in brands is paying off. Overall, its North American snacks business is up 9% for the most recent quarter. Although good execution by its direct-store-delivery system sparked sales, cookie sales also benefited from Kellogg’s strategy to invest in brand building that is twice the rate of its sales growth.

 

Certainly, the big companies have the dollars to invest in their brands, but smaller cookie producers like Stauffer’s have sought out new channels, such as dollar stores, where its value-price cookies have flourished. In fact, sales of its top-selling Animal Crackers are up almost 10% over last year. Marriott attributes that to a number of reasons.

 

“From a dollar perspective, we’re price competitive in the marketplace. Second, there are not a lot of people out there that have a product of our nature to compete against,” he said, “Yes, there are animal crackers out there, but they’re not an authentic animal cracker.”

 

Stauffer’s authentic Animal Cracker is a layered product that doesn’t have as much sugar or fat as a cookie. It has the texture of a cracker, but has the sweetness of a cookie. Other so-called animal crackers, Marriott said, are really animal-shaped cookies. The two simply don’t compare.

 

“You’re not dealing with apples and apples here,” he noted. “You’re dealing with apples and oranges.”

 

Because its products are low in fat and sugar, they can play well in the foodservice arena, especially in school-lunch programs and in health-care facilities.

 

Another channel for growth is private label, despite the challenges facing that market. Marriott attributes some of the double-digit decline to Bake-Line’s exit from the market. Additionally, the West Coast supermarket strike earlier this year negatively impacted sales as consumers shopped at club stores and other outlets.

 

“It’s a part of our business that we’re going to start attractively pursuing again,” Marriott said. “We still want to be the branded company that we are, but it’s just part of the business that we need to look forward and develop.”

 

 

Guilty Pleasures

 

The final strategy to turning the market around involves reducing the negatives impacting the category. Specifically, they must eliminate or reduce the amount of trans fat in cookies and develop products that eliminate the guilt that consumers feel when they go down the cookie aisle.

 

But, according to Heather McTavish, director of marketing in the cookie division for Canada-based Dare Foods, they must not forget what amounts to the Golden Rule of the cookie industry.

 

“First and foremost, with cookies, taste is paramount,” McTavish said. “A lot of consumers will talk about wanting to have something that’s more nutritional, but if it doesn’t taste good, they’re not going to switch to that.”

 

Earlier this year, cookie companies reacted quickly to the low-carb challenge. Kraft, for instance, rolled out the SnackWell’s CarbWell Fudge Brownie, Fudge Striped and Fudge Grahams.

 

However, even though carbs still count, the craze peaked last March. Poor taste often was cited as a reason for the demise of particular low-carb products. The latest studies show that only about 5% of consumers are following a low-carb diet.

 

Carbs were this year’s story, but trans fat will take the front page throughout next year, as federally mandated labeling approaches in 2006.

 

Already, Kraft, Pepperidge and Kellogg have taken a pro-active approach and replaced the trans fat in many, if not all of their products.

 

Kraft cut the trans fat out of its Reduced Fat Oreos and from two varieties of Golden Oreos, to name a few. Its Back to Nature cookies and crackers have no trans fat, artificial ingredients, colors or preservatives. The cookies come in four varieties, including Classic Créme Sandwich, Chocolate & Mint Créme Sandwich, Chocolate Chunk and Crispy Oatmeal flavors. The products are available nationwide in natural and organic stores.

 

Smaller players like Voortman Cookies were among the first to get rid of the trans fat with much fanfare. Most recently, the Burlington, Ont.-based company received top honors for product innovation at the 2004 SIAL International Food Exposition in Paris for its trans fat-free cookie.

 

Others are still exploring and had to replace trans fat without changing taste, compromising quality or shortening shelf life. Stauffer’s, for instance, has a unique situation because its Animal Crackers are so low in fat. On one hand, Animal Crackers can be labeled with 0 gm. of trans fat under Food & Drug Administration regulations because they contain less than 0.5% of hydrogenated oil per serving. On the other hand, consumers are being educated that hydrogenated oils are bad for you.

 

“The problem is that consumers are hearing the words ‘partially hydrogenated,’ and anything with ‘partially hydrogenated’ is going to give you a heart attack,” Marriott says. “We use a very small portion of partially hydrogenated oil in our product, basically for the baking process.”

 

The company is testing other oils, possibly soy, to resolve the issue without compromising on taste, which is the key.

 

Barbara’s Bakery, which specializes in all-natural cereals and snacks, has been touting the benefits of no trans fat since its inception, according to Jennifer Ramstad, marketing manager.

 

“We’re seeing some companies reformulating their products to take out the hydrogenated oils,” Ramstad said. “Barbara’s has never used hydrogenated oils in any of our products — we never believed in them. So we’re glad the word is getting out there that this is not a healthy ingredient. And there are so many alternatives out there without sacrificing taste.”

 

Stauffer’s isn’t the only one working on creative solutions to eliminating trans fat. In Canada, where the trans-fat quandary already has reared its ugly head in the cookie industry, companies such as Dare Foods have been investigating ways to make their cookies better.

 

“Right now, the non-trans fat oils and ingredients that we would put into our products to replace the trans fat-containing ones are more expensive, and the consumer isn’t willing to pay more,” said McTavish. “So we’re working really hard with suppliers to try and develop something, even if it’s unique to us, that doesn’t cost us more, because we’re not going to pass it on to the consumer.

 

“[We’re] also looking at other things that would enhance the nutritional profile of our cookies, like adding fruit or adding whole grains for fiber,” she added. “What can we add and how can we reformulate to make it healthier, rather than to strip things out?”

 

It is that “positive nutrition,” as McTavish calls it, that could create the innovation and freshness to keep the cookie industry on high ground. If anything, the low-carb “storm” should have taught cookie companies a thing or two about being pro-active in such a battle, rather than reactive.

 

“We used to put the business on automatic pilot and just crank and roll,” Brewster said. “Today, those changing consumers, those consolidating customers and those rising costs — we’ve got to find solutions, new answers and new ways of playing the game.” — Andy Hanacek contributed to this story.

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