Space Invaders

May 1, 2005
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Space Invaders
By Dan Malovany and Maria Pilar Clark
In the war for a share of the consumer’s stomach, upstart energy bar companies have been successfully invading the cookie aisle for years with innovative, decadent-but-healthful products that looked like a bar but tasted like a cookie.
Brimming with nuts and coated with chocolate, these indulgent snack bars also contained soy, vital vitamins and nutrients to position them as an alternative to traditional snacks.
Initially, cookie companies like Kraft Foods and Kellogg Co. rebuffed these perpetrators by developing their own line of cereal bars. And when that didn’t work, they simply bought out the pesky little competitors.
Hey, if you can’t beat them, join them.
THE TOP 10 BRANDS
Cookies
(Current 52 weeks ending Apr. 17, 2005)
Rank Brand Dollar Volume
(in millions)
% Change Dollar Share
1Nabisco Oreo$193.3+10.55.3
2Nabisco Chips Ahoy!$119.3-5.73.3
3Nabisco Oreo Double Stuf$105.7+17.62.9
4Pepperidge Farm Distinctive Milano$79.9-0.82.2
5Nabisco Chips Ahoy! Chewy$76.7+8.32.1
6Private Label Chocolate Chip$69.1+0.91.9
7Little Debbie Nutty Bar$67.2+9.91.8
8Little Debbie Oatmeal Cream Pies$66.4+5.51.8
9Nabisco Nilla Wafers$61.9+3.71.7
10Private Label Sandwich All Other$57.9-15.41.6
 TOTAL*$3,655.5-0.3100.0
*Including brands not shown
Source: Information Resources Inc., Total U.S. — Supermarkets, Drugstores and Mass Merchandisers excluding Wal-Mart.
Recently, however, a new force of “space” invaders is beginning to move into cookie aisle. Last December, The Hershey Co. launched a line of chocolate cookies that comes in varieties named after its famed confectionery powerhouse brands: Hershey’s, Reese’s, Almond Joy and York.
In April, Poore Brothers fired up its first foray into the cookie aisle when it brought a new cinnamon-roll cookie to the sweet-goods section. The cookie is produced in conjunction with a licensing agreement with Cinnabon, a subsidiary of FOCUS Brands Inc.
With salted snack, snack bar and candy producers venturing into the category, cookie producers are counter-attacking not only with more healthful products, but also with more indulgent ones that target the ever-popular on-the-go snacking occasion.
For example, Pepperidge Farm is taking these space invaders head on and raising the premium segment to an even higher level with its new Whims cookies, which are bite-sized waves and clusters designed for the national pastime of mindless munching.
Whims are designed to compete not only with cookies, but also with the broader category of sweet and savory snacks.
With Whims Crunchy Clusters, Pepperidge Farm took “the best parts of the cookie” and fused them into an easy-to-snack form, says Jay Gould, Pepperidge Farm’s president. The clusters come in Chocolate Cashew, White Chocolate Pecan and Chocolate Chocolate with milk and dark chocolate. In many ways, these clusters compete more in the poppable confectionery arena than with traditional cookie formats.
Meanwhile, Whims Crispy Waves are thin, curved snacks that resemble more of a potato chip than a cookie in form. The waves come in Chocolate Chip, Mint Chocolate Chip and Toffee Chip varieties. The products will be available in grocery stores, mass merchandisers and drug retailers nationwide starting June 1.
“It’s the biggest evolution that will happen in the cookie market over the next several years,” says Gould. “The trend is a fusion between confectionery companies and cookie companies, as they both go after this poppable snacking behavior that’s so popular with consumers today.”
Whims are packaged in a reclosable canister that looks like a popcorn container and fits into the cup holder of most vehicles.
“It’s designed to facilitate easy snacking and sharing,” Gould explains. 
The package’s wider top and narrower bottom also allows Pepperidge Farm to alternately stack them right-side up and upside down in a rectangle display, adding to the line’s “whimsical” nature.
As playful as the product is perceived to be, Whims took serious capital investment to develop. In fact, company officials say it took $10 million and more than three years to develop Whims. Pepperidge Farm will spend an additional $20 million on a marketing campaign that includes television and print advertising, in-store promotions and public-relations outreach.
Whims cookies have been a labor of love getting the product exactly right,” Gould says. “At a time when the industry’s overall sales have been flat, we’ve continued to maintain our growth by providing the very best in product quality combined with unique product innovations.”
Although many cookie producers struggled over the past year, Gould reports that the Pepperidge Farm cookie business is up almost 10% to date in their fiscal year, which ends July 31. In fact, for its Soft Baked Cookie line, Pepperidge Farm reports a sales increase of more than 40% versus year ago.
“We did some significant reformulation to ensure we had the very best product in the marketplace,” Gould says. “It involved fundamental changes in the flavor delivery. Once we got it right, we expanded the number of flavors at retail.”
Those flavors include a sugar, an oatmeal cranberry and a Snickerdoodle variety, which is a sugar cookie with cinnamon and nutmeg on top.
Strategic Diversification
Although there’s talk of a rebound, data from Information Resources, Inc., confirms that cookies sales remain soft for the 52-week period ending April 17, 2005 (See Chart on Page 19). In fact, sales have been going stale, with flat to declining results for the last three years.
Producing exclusively for the soft market over the years has taken its toll. Private-label producer Bake-Line closed its doors for good last year, and although some private-label producers say the market has rebounded, the overall non-branded segment fell 7.6%, according to IRI, indicating that the category’s losses are far from over.
On the branded side, industry consolidation continues. Both Kellogg and Interbake, a division of George Weston Foods, announced that they would close plants this year as the industry continues to deal with overcapacity. Parmalat’s North American Group, which includes Archway, Mother’s and other businesses, continues to struggle. While the good news is that Parmalat’s cookie division has been sold to a private equity firm, which is changing the company’s name to the Archway-Mother’s Cookie Co., the bad news is that it took so long to sell, that in the process, it alienated many franchisees and retailers.
With the hangover from last year’s low-carb craze, the focus on whole grains, new federal dietary guidelines and the continued promotion of the South Beach Diet by Kraft Foods, it’s not surprising that the category hasn’t bounced back. Even Sesame Street’s beloved Cookie Monster has been put on a diet. He now preaches moderation and eats other “C-foods” like carrots, cheese and cauliflower. His “C is for cookie” song has been replaced, and he now sings out: “A Cookie is a Sometimes Food.” Good thing Kellogg and Keebler don’t produce Sesame Street branded cookies anymore.
But if things are so bad for cookie producers, why are new players mustering their forces and delving into the market? Maybe the market is ripe for the picking.
Instead of offering true innovation, cookie producers have tended to play it safe and not take risks.
For the most part, despite the number of products that have been introduced, line extensions such as single-serve, super-sized, sugar-free or mini versions of best-selling products have been the norm. Talk to any of the new players and they all talk about adding a much-needed spark to the category.
For instance, by tapping into the best in its product portfolio, Hershey hopes to “bring excitement and innovation” from the candy category over to the cookie aisle. At the same time, Hershey is encouraging its core candy consumers to venture into the profitable, premium cookie segment.
Hershey’s Cookies are available in a 2-oz., single-serve package that contains four cookies and retails for 99 cents. The 7-oz. take-home size retails for about $2.99.
Certainly, Hershey’s entrance into the cookie aisle shouldn’t come as a big surprise. Richard Lenny, Hershey’s chairman, president and CEO, is the former head of Kraft’s Nabisco division. Since leaving Kraft in 2001, Lenny has recruited several former executives at Kraft and its Nabisco business, the latest being Michele Buck, who now heads the U.S. Snacks Group for Hershey.
Like Hershey, Poore Brothers is targeting the premium cookie segment instead of the mainstream line, where Kraft and Kellogg dominate. The Cinnabon line, which retail for upwards of $2.99 for a 7-oz. box, come in a cinnamon roll soft cookie with cream cheese-flavored frosting, a cinnamon sandwich cookie and a crisp cinnamon swirl variety.
THE TOP 10 VENDORS
Cookies
(Current 52 weeks ending Apr. 17, 2005)
Rank Vendors Dollar Volume (in millions) % Change Dollar Share
1Nabisco$1,378.0+1.637.5
2Keebler$400.7-7.911.0
3Private Label$295.3-7.68.1
4Pepperidge Farm$286.1+4.17.8
5Little Debbie$216.2+7.35.9
6Murray Biscuit Co.$167.7-2.24.6
7Archway$112.3-6.73.1
8Mothers/Bakery Wagon$90.0-6.12.5
9Voortman$59.8+5.91.6
10Frito Lay$34.8+17.31.0
 TOTAL*$3,655.5-0.3100.0
*Including brands not shown
Source: Information Resources Inc., Total U.S. — Supermarkets, Drugstores and Mass Merchandisers excluding Wal-Mart.
In the salted-snack category, smaller players like Poore Brothers have found it difficult to compete in a category dominated by Frito-Lay. For Poore Brothers, which produces potato chips and other savory snacks under the T.G.I. Friday’s and Boulder brands, the Cinnabon line is the first of many ways in which the $70 million company plans to diversify its product portfolio.
Following its successful licensing strategy with T.G.I. Fridays, the company partnered with Cinnabon, recognized nationally as the leader in the cinnamon roll bakery category, to add an indulgent snack food experience to the cookie aisle, says Thomas Freeze, Poore Brothers’ president and CEO.
Meanwhile, Lance, one of the nation’s largest producers and distributors of snacks foods in the nation has some secret launches up its sleeve, but for now things are mum, notes Todd Phillips, vice president of marketing for the Charlotte, N.C.-based company.
Consumers are making a push toward indulgence, Phillips explains, and Lance is exploring new product concepts in the decadent/indulgent spectrum. Phillips believes that the blending of cookie and confectionery could be lucrative for Lance, and the company already is making advances in that promising direction.
All of Lance’s cookie and cracker products have been trans fat-free since January. Phillips notes that the change has been met with nothing but positive responses from its consumers with the sales numbers to prove it.
“Our research indicates that our core consumer is not really aware of the effects of trans fats, but they will [be] once the government regulations become enforced in early 2006,” he says. “We wanted to be ahead of the curve.”
Bringing up the rear are the organic cookie producers — a small but strong force in the cookie category. Known as purveyors of all that is all-natural, organic and free of consumers’ latest aversions, these producers offer products free of gluten, added sugar and trans fat.
San Rafael, Calif.-based Fabe’s All Natural Bakery has introduced an organic macaroon that has no added sugar, gluten or trans fat, that also has managed not to skimp on flavor.
“We’ve never had trans fats in our products,” says Steve Fabos, co-founder and owner of Fabe’s. “We’ve never allowed any hydrogenated ingredients. It’s definitely a hot button with consumers, and we are glad to see that the scientific information on trans fats is getting to the public so they can be well-informed and purchase better.”
Fabos emphasizes that consumers find Fabe’s products to be naturally decadent, healthful and full of flavor. However, in a nod to portion control and consumers’ inherent desire to snack on-the-go, the company rolled out a mini format of its best-selling cookie. The mini cookies are sugar free, contain no trans fat, and are free of artificial flavors and colors. They come in Chocolate Chip, Double Chocolate Chip, Peanut Butter and Oatmeal varieties, suitable for those consumers truly wanting to go “au naturel.”
“When someone wants a cookie as a snack, we feel that they are going to be grabbing a cookie, not something that will be overly rich,” Fabos explains. “They want something that is easy to eat and fills their craving so they will be satisfied.”
Secret Weapons
Category leader Kraft Foods is relying on its chocolate-based cookies to drive growth in the broader snacking arena. The company also is rolling out new products that compete in the premium segment as well. At the Food Marketing Institute in Chicago, the company introduced milk chocolate-covered Oreo and mint Oreo cookies. The 7.5-oz. package is available for a limited time and retails for $2.99.
To compete against the chocolate-and-peanut butter candy category, Kraft also introduced Double Stuf Oreo peanut butter crème chocolate sandwich cookies, which come in a 17-oz. package and retail for $3.79. The Kraft Handi-Snacks Oreo Cookie Sticks ’n Creme product gives children a tasty way to play with their food. Kraft also rolled out Chips Ahoy! Sticks.
For on-the-go kids, Oreo cookies now come in portion-controlled two-packs. For continued freshness, Kraft offers Chewy Chips Ahoy! Snack ’n Seal with “peel back and reclose” packaging technology.
Despite such high-calorie offerings, Kraft’s pavilion at the FMI focused on healthy living. New SnackWell’s Black Forest and Chocolate Mint cookie cakes combine the texture of two products, contain 0.5 gm. of fat and have only 50 calories. Back to Nature cinnamon graham and honey graham sticks are the first graham sticks in the natural/organic segment. The products contain no refined sugars or trans fat and an 8-oz. package retails for $3.29-$3.59.
For consumers looking to monitor portion-control, Kraft offered 100-Calorie Packs of Honey Maid Cinnamon Thin Crisps. Under its South Beach Diet label, the company offered whole-grain oatmeal chocolate chip and peanut butter cookies that contain no trans fat and are packaged in 100-calorie packs for diet control.
Meanwhile, Kellogg rolled out Sandies Fruit Delights in lemon and white fudge raspberry flavors. Despite the chopping down of the Hollow Tree in Elmhurst, Ill., and moving the division to Kellogg’s headquarters in Battle Creek, Mich., Ernie the Elf worked his “uncommonly good” magic on the FMI floor, while keeping his distance from Tony the Tiger.
Also at FMI, several cookie companies were riding the super-premium Euro-style cookie category because of the segment’s growth potential. In fact, French cookie producer LU Biscuits notes it continues to experience double-digit growth rates in the United States. Quoting data from ACNielsen, LU reports that its U.S. sales rose 12.6% for the 52 weeks ending February 19, 2005.
Fueling sales in both the U.S. and in France, where LU is the No. 1 biscuit company, were its dark chocolate and chocolate hazelnut Créme Roulée, which are delicate, tube-shaped cookies filled with a creamy filling. In September, LU is introducing chocolate-enrobed Lemon Mousse cookies. The soft-textured orange, raspberry and chocolate mousse cookies are among the top sellers in the lucrative specialty-cookie segment.
On the value side, Canadian baker Voortman Cookies, which was the first baker in North America to go trans fat-free with its Zeer-Oh! brand, also displayed sugar-free varieties at the FMI show. Once a niche segment that primarily targeted diabetics, today the segment continues to grow as consumers strive to cut down on added sugars. In addition to Voortman, Murray Biscuit Co., a division of Kellogg, has spearheaded the sugar-free movement while Archway has been on the bandwagon for years. Last year, Pepperidge Farm also rolled out sugar-free versions of its signature Milano cookies.
“They got off to a slow start, but since January when the diet season began, business has really taken off,” Gould says.
Warding off Allergens
In Canada, the allergen issue has prompted several bakers, including Hollandia Cookies of Brydges, Ont., to declare their facilities “peanut-free.” Hollandia, which featured a line of mini-cookies in a reusable, microwaveable container, is also Kosher and trans fat-free.
“In some cases, kids are not allowed to take any peanuts to school, even in the form of peanut butter sandwiches,” notes Doug Smith, sales manager.
Other producers are catering to Latino tastes with unique products. For example, Secaucus, N.J.-based Goya Foods Inc. is importing guava, dulce de leche, strawberry and chocolate-filled wafer cookies that are co-packed in Brazil. The company also introduced coconut and cinnamon/vanilla biscuits at the FMI show.
While cookie producers have taken quantum leaps when it comes to innovation, many of the category’s leaders need to take their forces to the next level and boldly go where no man has gone before, lest they lose the highly coveted aisle space to invaders from other areas of the food industry.

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