From: Delroy Alexander, Chicago Tribune
Published December 31, 2004 12:00 AM

Pyramid Decision will Shape Food Industry

Dec. 31--About 80 percent of Americans recognize the food pyramid -- the triangular reminder to build a diet on whole grains, eat a lot of fruits and vegetables, have some meat and sprinkle in a few sweets -- but only about 4 percent actually use it, according to the Department of Agriculture.


Yet the fight to reshape the food guide will command the attention of the food industry and help refocus attention on better health and nutrition in the first part of 2005 when the USDA and the Department of Health and Human Services jointly unveil their latest dietary overhaul.


In the new guidelines expected in January, the pyramid could be phased out as a result of the latest review, forcing a new generation of children to learn a fresh symbol of how to eat healthy. A scientific review issued this fall made it clear that consumers should eat more whole grains, Omega 3 fatty acids, fish and other healthier foods.


The Grocery Manufacturers Association, which has lobbied hard for the status quo, hopes the pyramid remains because of its high visibility, but the group is pushing for an improved education effort.


"What we need to work on is getting them to utilize it in their everyday routine more," said Stephanie Childs, a public policy spokeswoman for the association.


Whatever shape the new guidelines may take, the new rules will undoubtedly influence food companies and their new product offerings in the coming year.


"Nutrition will continue to dominate product offerings as consumers are looking for products that help them meet their goals," Childs said.


The new guidelines will come roughly a year after consumers' appetite for low-carbohydrate diets peaked, according to Harry Balzer, a Chicago-based food industry consultant with NPD Group.


NPD's research suggests low-carb plans peaked in the last week of January 2004, when more than 9 percent of people said they were on some kind of a program. By mid-November just 3.6 percent of people said they were following a plan, Balzer said.


Many foodmakers were slow to catch on to the trend, introducing new products just as consumers were looking for something fresh.


In 2004, almost 2,000 new low-carb products flooded onto the market, four times what was launched in 2003, according to Chicago-based research firm Mintel's new-product database.


The inability to properly capitalize on the low-carb buzz has highlighted the need for better research and development planning, according to Bob Goldin, a Chicago-based food industry consultant with Technomic Inc.


Consumers have expressed a growing desire for a broader range of freshly prepared, pesticide-free, healthier foods, said Goldin, which will demand innovative leaps in the coming year if firms are to fully cash in.


While Goldin thinks plenty of nutrition-based products will hit the market, he expects food businesses to continue attempts to increase typically sluggish sales by minor restructuring.


"I think local companies like Kraft Foods Inc. and Sara Lee Corp. will continue tinkering with their portfolio, looking for ways to focus on fewer brands," Goldin said.


"They will also continue trying to respond to health and nutrition concerns and we could possibly see some consolidation, with an outfit such as Tootsie Roll being a possible buyout candidate," he said.


Like much of the restaurant trade, 2004 was a good year for McDonald's Corp., the nation's largest restaurant owner.


After such a stellar performance -- registering almost double-digit sales growth in its 13,600 U.S. restaurants -- Goldin expects the Oak Brook-based fast-food giant to struggle to maintain the momentum it has built during the past two years.


"They have had a phenomenal year, but I don't see anything in their plans to sustain that level of top-line growth," he said.


McDonald's has been successful in managing its new product innovations to maximize margins. New chicken strips, fresh salads and the popular McGriddles breakfast sandwich have been profitable additions with better margins than many of its burger staples.


But menu prices in general are expected to rise 2.9 percent to 3 percent in 2004. Next year that will slow slightly on average to 2.7 percent, according to Hudson Riehle, senior vice president of research at the National Restaurant Association.


"Menu price increases remain fairly moderate considering what has gone on with food costs," Riehle said in mid-December as he revealed the association's forecast for 2005. "The restaurant operator in some ways acts as a shock absorber."


Topping 5 percent, wholesale food price increases during the past two years have been among the highest in a quarter century, Riehle said. He expects food costs to rise about 2.3 percent in the next 12 months.


With overall inflation low, foodmakers have tried to avoid raising menu prices to cover their increasing costs. "Consumers are in general reticent to accept large menu price increases," Riehle said. "Consequently, the operator is focusing on achieving greater efficiency and productivity from their operations."


In addition to increasing wholesale costs, food companies will continue to have to manage high gas and energy prices in 2005, which can be key factors in the profitability of a family restaurant or maker of a product.


As pick-up and takeout orders, as well as drive-through services, become a more critical factor for many restaurants, the expected average price of $2.10 per gallon of gas in the coming year could have a substantial effect on how consumers shop and eat out, Riehle said.


That could hit Illinois hard considering it has more than 500,000 jobs tied to almost 30,000 eating and drinking establishments, the association said.


Balancing out such challenges are the continued increases in average disposable income, the amount of spare cash people have to spend and the relatively robust economy.


The restaurant association expects the industry's overall sales to increase 4.9 percent to $476 billion in 2005. That gain is greater than the overall economic growth projected for 2005 in the U.S., where gross domestic product is expected to increase 3.5 percent.


So large is the restaurant industry's expected gain -- more than $22 billion -- that it is greater than GDP of such countries as Panama and Bolivia.


To see more of the Chicago Tribune, or to subscribe to the newspaper, go to http://www.chicagotribune.com.© 2004, Chicago Tribune. Distributed by Knight Ridder/Tribune Business News.


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