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MAPS : Baby Foods: October 2004

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This report covers: baby foods, baby, meals, milks, standard infant formulas, follow-on-milks, soya formulas, ready-to-drink milks, baby, drinks, finger foods, rusks, and,

Companies covered include: HJ, Heinz, Nutricia, Baby Care, SMA, Nutrition, HiPP Organic, Cow and Gate, Organix Brands, above-the-line, below-the-line, semiacarbazide,

EXECUTIVE SUMMARY

Despite the falling birth rate, the UK market for baby milks and baby foods has maintained steady growth over the past 5 years (1999 to 2003). A number of factors are responsible for this, including socio-demographic trends, such as the trend for older motherhood and the high proportion of mothers of young children in full- or part-time employment. Innovation by manufacturers has also played an important part in the development of the market, with new products emphasising convenience and health advantages. The market has also benefited from the growth of organic baby foods, which command a price premium.

Convenience has been one of the main drivers of the market for prepared baby meals, prompted particularly by the growing number of working mothers. To counter this, there has been a trend — encouraged by government advice — towards introducing solid foods at a later age. Baby food in jars represent by far the largest segment of the baby meals sector, and have increased their share during the past 5 years. However, the potential food safety issues connected to food in glass jars — which received widespread coverage in October 2003 — may affect this balance, at least in the short term.

The overall market for baby milk has grown relatively slowly over the past 5 years. The development of added-value products, such as follow-on milks (FOMs) and ready-to-drink (RTD) formats, has been balanced by continuing price promotions within the sector.

The market for baby drinks is small, and has been declining since the

mid-1990s, mainly due to controversy over sugar levels, and also because of the widespread availability of alternatives to baby drinks

The baby finger foods sector, although small, is the most dynamic within the baby foods market. Rusks used to dominate the sector, but a wide range of both sweet and savoury products is now available. The rise of the sector mirrors the growing importance of snacking within the adult market. It has also been helped by the fact that parents are becoming more

health-conscious on behalf of their babies; they are aware of the implications of feeding them adult 'junk food' and would rather give them

specially-formulated finger foods.

According to Key Note's exclusive consumer research, parents are now showing greater acceptance of prepared baby meals than they were in 2001. The coverage of baby food jars seems to have had a relatively small effect on parents' views, with only a slight drop in the number that think that the quality of meals in jars is higher than that of dry baby food. There has been a slight increase in the proportion of parents that think manufactured baby milks should be as near as possible to natural breast milk — and no change in the percentage that assert that 'organic is best' for babies.

TABLE OF CONTENTS

Executive Summary 7

1. Introduction 8

OVERVIEW 8

DEFINITION 8

Baby Meals 8

Baby Milks 8

Standard Infant Formulas 9

Follow-On Milks 9

Soya Formulas 9

Ready-to-Drink Milks 9

Baby Drinks 9

Baby Finger Foods and Rusks 9

2. Strategic Overview 10

MARKET BACKGROUND 10

Demographic and Social Factors 10

Table 1: Total Births and Birth Rate in the UK

(000 and number), 1981-2002 10

Table 2: Number of Children Aged 0-2 Years in the UK (000), 2001-2003 11

Table 3: General and Total Fertility Rates in England and Wales

(number), 1992-2002 11

Table 4: Average Age of Mother† at Birth of First Child

in England and Wales (years), 1971-2002 12

Table 5: Employment Status of Women by Age

of Youngest Dependent Child (%), Spring 2003 13

MARKET DYNAMICS AND SEGMENTATION 13

Table 6: The Total UK Baby Food and Drink Market by Sector

by Value (£m at rsp and index 1999=100), 1999-2003 14

Figure 1: The Total UK Baby Food and Drink Market by Sector

by Value (£m at rsp), 1999-2003 15

Table 7: The Total UK Baby Food and Drink Market

by Sector by Market Share (%), 1999-2003 16

The Growth of the Organic Sector 16

DISTRIBUTION 17

Table 8: The UK Baby Food and Drink Market by Market Share by Distribution Channel (%), 1999 and 2003 17

COMPETITIVE STRUCTURE 17

H.J. Heinz Company Ltd 18

Nutricia Baby Care Ltd 18

SMA Nutrition 18

HiPP Organic 18

Organix Brands 18

ADVERTISING 19

Above-the-Line 19

Table 9: Main Media Advertising Expenditure on Baby Food and Drink (£000), Years Ending September 2002 and 2003 20

Below-the-Line 20

Sampling 20

THE CONSUMER 22

Table 10: Parents, Prospective Parents, and Purchasers

of Baby Products (% of respondents), October 2003 22

Table 11: Demographic Profiles of Parents of Babies

and Children Under 16 (% of respondents), October 2003 23

Table 12: Demographic Profiles of Prospective Parents

and Others who Purchase for Babies and Small Children

(% of respondents), October 2003 25

MARKET FORECASTS 26

3. Baby Meals 27

BACKGROUND 27

Table 13: Age of Baby at Introduction of Solid Foods in the UK (%), 1995 and 2000 27

MARKET SIZE AND SEGMENTATION 28

Table 14: The UK Baby Meals Market by Sector by Value

(£m at rsp and index 1999=100), 1999-2003 28

Figure 2: The UK Baby Meals Market by Sector by Value

(£m at rsp), 1999-2003 29

Table 15: The UK Wet Baby Meals Market by Sector by Value and Market Share (£m at rsp and %), 2000 and 2003 30

CONSUMER TRENDS 30

Table 16: Frequency of Usage of Baby

or Junior Foods, Cereals and Rusks

(% of housewives with children under 2 years), 2003 30

Table 17: Baby Food Packaging Type Used Most

(% of housewives with children under 2 years), 2003 31

RECENT DEVELOPMENTS 31

Semicarbazide 31

New Product Development 31

MARKETING AND ADVERTISING 32

4. Baby Milks 33

BACKGROUND 33

MARKET SIZE AND SEGMENTATION 33

Table 18: The UK Baby Milks Market by Value

(£m at rsp and index 1999=100), 1999-2003 34

Standard Infant Formulas 34

Follow-On Milks 34

Soya Formulas 35

Ready-To-Drink Milks 35

Table 19: The UK Baby Milks Market by Sector by Value

and Market Share (£m at rsp and %), 2000 and 2003 35

Figure 3: The UK Baby Milks Market by Sector by Value

and Market Share (£m at rsp), 2000 and 2003 36

CONSUMER TRENDS 36

Table 20: Prevalence of Breast Feeding at Ages Up To 9 Months in the UK (%), 1995 and 2000 37

Table 21: Frequency of Usage of Baby Milks

(% of housewives with children under 2 years), 2003 37

Table 22: Attitudes Towards Baby Products and Related Issues

(% of respondents), 2003 38

RECENT DEVELOPMENTS 38

MARKETING AND ADVERTISING 39

5. Baby Drinks 40

BACKGROUND 40

MARKET SIZE AND SEGMENTATION 40

Table 23: The UK Baby Drinks Market by Value

(£m at rsp and index 1999=100), 1999-2003 40

Table 24: The UK Baby Drinks Market by Sector by Value

and Market Share (£m at rsp and %), 2000 and 2003 41

Figure 4: The UK Baby Drinks Market by Sector by Value

and Market Share (£m at rsp and %), 2000 and 2003 42

NEW PRODUCT DEVELOPMENT 42

6. Baby Finger Foods 43

BACKGROUND 43

MARKET SIZE AND SEGMENTATION 43

Table 25: The UK Baby Finger Foods Market by Value

(£m at rsp and index 1999=100), 1999-2003 43

Table 26: The UK Baby Finger Foods Market by Sector by Value

and Market Share (£m at rsp and %), 2000 and 2003 44

Figure 5: The UK Baby Finger Foods Market by Sector by Value

and Market Share (£m at rsp), 2000 and 2003 45

NEW PRODUCT DEVELOPMENT 45

CONSUMER TRENDS 46

MARKETING AND ADVERTISING 46

7. An International Perspective 47

THE EU 47

THE US 47

8. PEST Analysis 48

POLITICAL FACTORS 48

ECONOMIC FACTORS 48

SOCIAL FACTORS 49

TECHNOLOGICAL FACTORS 49

9. Consumer Dynamics 50

SUMMARY OF RESEARCH 50

Table 27: Summary of Attitudes Towards Baby Milk

and Baby Food (% of respondents), 2003 50

Table 28: Comparison of Attitudes Towards Baby Milk

and Baby Food (% of respondents), 2001 and 2003 52

BABY MILKS 53

Manufactured Baby Milks Should Be As Near As Possible To

Natural Breast Milk (S1) 53

Babies Should Be Breast Fed For At Least 6 Months If Possible (S2) 53

Table 29: Attitudes Towards Breast Feeding,

and the Formulation of Manufactured Baby Milks

(% of respondents), 2003 54

INFLUENCES 55

Parents Are Influenced Most By Midwives And/Or Health

Visitors When Deciding Which Kinds Of Baby Milk To Buy (S3) 55

Parents Are Influenced Most By Friends And/Or Family When

Deciding Which Kinds Of Baby Milk To Buy (S4) 56

Table 30: Influences on Parents' Choice of Baby Milk

(% of respondents), 2003 56

BABY MEALS 58

It Is Better For Parents To Prepare Their Own Food For a Baby Rather Than Buying Ready-Made Meals From A Supermarket (S5) 58

Prepared Baby Meals Make Life Much Easier For Busy Parents (S6) 58

Table 31: Home-Made Versus Manufactured Baby Meals

(% of respondents), 2003 59

TASTE 60

Babies Should Get Used To Eating Adult Foods As Early

As Possible (S7) 60

Many Baby Foods Taste Too Bland (S8) 61

Table 32: The Taste of Baby Foods (% of respondents), 2003 61

Baby Food Manufacturers and Organic Baby Foods 62

I Would Rather Buy Baby Food From A Manufacturer That I Had Heard Of Rather Than From An Unknown Company (S9) 62

Organic Food Is The Best Type Of Food For Babies (S10) 63

Table 33: Attitudes Towards Baby Food Manufacturers,

and Organic Baby Foods (% of respondents), 2003 63

JARS 64

I Would Prefer Not To Use Baby Food in Jars (S11) 64

Wet Baby Meals in Jars Tend To Be Better Quality Than Dried

Rehydrated Meals (S12) 64

Table 34: Attitudes Towards Baby Food in Jars

(% of respondents), 2003 65

BABY FINGER FOODS 67

Baby Finger Foods Such As Rusks And Baby Biscuits Are More Nutritious Than Adult Biscuits And Snacks (S13) 67

It Is Much Better To Give Babies Savoury Finger Foods Than Sweet Ones (S14) 67

Baby Finger Foods Such As Rusks And Baby Biscuits Contain Too Much Sugar (S15) 67

Table 35: Attitudes Towards Baby Finger Foods

(% of respondents), 2003 68

10. Company Profiles 70

H.J. HEINZ company ltd 70

Corporate Strategy 70

Profitability 70

Table 36: Financial Results for H.J. Heinz Company Ltd

(£000), Years Ending 29th April 2000, 28th April 2001

and 27th April 2002 70

Recent and Future Developments 71

HIPP ORGANIC 71

Corporate Strategy 71

Profitability 72

Recent and Future Developments 72

NUTRICIA BABY CARE LTD 72

Corporate Strategy 72

Cow & Gate 72

Milupa 73

Profitability 73

Table 37: Financial Results For Nutricia Baby Care Ltd (£000),

Years Ending 31st December 2000-2002 73

Recent and Future Developments 73

ORGANIX BRANDS 74

Corporate Strategy 74

Profitability 74

Recent and Future Developments 74

SMA NUTRITION 75

Corporate Strategy 75

Profitability 75

Recent and Future Developments 75

11. The Future 76

FACTORS AFFECTING THE MARKET 76

Demographic Trends 76

Table 38: Forecast Number of Children Aged 0-2 Years in the UK (000), 2004-2008 76

Product Development 76

Organic Food 77

Semicarbazide 77

Other Factors 77

MARKET FORECASTS 77

Table 39: The Forecast UK Baby Food and Drink Market

by Sector by Value (£m at rsp and index 2004=100), 2004-2008 78

Figure 6: The Forecast UK Baby Food and Drink Market

by Sector by Value (£m at rsp), 2004-2008 79

12. Further Sources 80

Associations 80

Publications 80

General Sources 80

Government Sources 81

Other Sources 81

Bonnier Information Sources 82

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Last updated by Amanda Porteous November 2004