A Big Bet on Gluten-Free
Feb 21, 2014
The Girl Scouts recently introduced a gluten-free chocolate chip shortbread cookie to their annually anticipated line of sweet treats.
Vodka companies vie over which one of them was the “first” to introduce a gluten-free version of their products.
And Trader Joe’s recently joked in an advertising flier promoting gluten-free foods that it was selling “Gluten Free Greeting Cards 99 Cents Each! Every Day!” — even though it then went on to say the cards were not edible.
Makers of products that have always been gluten-free, including popcorn, potato chips, nuts and rice crackers, are busy hawking that quality in ads and on their packaging.
And consumers are responding with gusto. The portion of households reporting purchases of gluten-free food products to Nielsen hit 11 percent last year, rising from 5 percent in 2010.
In dollars and cents, sales of gluten-free products were expected to total $10.5 billion last year, according to Mintel, a market research company, which estimates the category will produce more than $15 billion in annual sales in 2016.
“I see this as part of the current American concern with digestive health, which is also responsible for the yogurt boom,” said Harry Balzer, vice president at the market research company NPD Group, where he has followed the food industry for some 30 years. “About 30 percent of the public says it would like to cut back on the amount of gluten it’s eating, and if you find 30 percent of the public doing anything, you’ll find a lot of marketers right there, too.”
Never mind that a Mayo Clinic survey in 2012 concluded that only 1.8 million Americans have celiac disease, an autoimmune disorder that causes the body to attack the small intestine when gluten is ingested and can lead to other debilitating medical problems if not diagnosed.
An additional 18 million people, or about 6 percent of the population, is believed to have gluten sensitivity, a less severe problem with the protein in wheat, barley and rye and their relatives that gives elasticity to dough and stability to the shape of baked goods.
“There are truly people out there who need gluten-free foods for health reasons, but they are not the majority of consumers who are driving this market,” said Virginia Morris, vice president for consumer strategy and insights at Daymon Worldwide, a private brand and consumer interactions company.
Nonetheless, Ms. Morris says she does not think people will be “over” gluten-free foods as quickly as they have dumped the cupcake craze.
“The reason I do believe this has legs is that it ties into this whole naked and ‘free from’ trend,” she said. “I think we as a country and as a globe will continue to be concerned about what’s going into our food supply.”
Rebecca Thompson, a marketing manager at General Mills, said relying on the data on levels of celiac and gluten sensitivity in the population to predict the staying power of consumer demand underestimated how many people were eating gluten-free products.
“When you think about the dynamics in a household, where there are likely to be three other people eating at the same time as one person with celiac or gluten sensitivity, it’s much easier to prepare one meal for everyone, " Ms. Thompson said.
General Mills, whose brands include Bisquick, Pillsbury and Betty Crocker, might seem like the least likely company to embrace gluten-free. But in the mid-2000s, more and more customers began seeking alternatives to its traditional products.
So in 2008, it began reformulating its Chex cereals, underscoring the first change, to Rice Chex, with a major marketing effort.
It was relatively easy to tweak Chex by switching a few minor ingredients. But the next year, Betty Crocker introduced gluten-free brownies, cookies and cakes in a far more complicated process.
“The taste, texture and overall product performance has to be equivalent to the nongluten-free version,” Ms. Thompson said. “We tested batch after batch after batch, sometimes doing a thousand different samples to get the right recipe.”
Yellow cake, for example, was a big challenge. The first versions had a persistent dense layer, requiring the Betty Crocker kitchens to adjust the oil and butter, eggs and egg whites, until they reached what Ms. Thompson calls “that great, frothy texture.”
By 2010, the company had introduced an online store and website,glutenfreely.com, that offered consumers one-stop shopping for gluten-free products from General Mills and other food companies, with recipes and other information.
“Typically, at that time, consumers needing gluten-free products were having to go to six or seven different stores to get everything they needed, and we thought that would be an easier solution for them,” Ms. Thompson said.
Last year, however, General Mills closed its online store because so many mainstream grocers had devoted whole aisles and sections to those products.
Gluten-free customers are valuable, ringing up roughly $100 in sales with their average grocery basket compared with $33 for the overall average basket, according to Catalina Marketing.
Wegmans is now the country’s largest seller of gluten-free products, having started developing such products in its private label lines in the 1990s. “Up until about two years ago, our approach pretty much was that if we could make any Wegmans brand product gluten-free, we did,” said Trish Kazacos, the grocery chain’s nutritionist, who has gluten sensitivity.
Now, its suppliers provide so many gluten-free products that it no longer needs to develop as many of its own. “Back in the day, we had maybe two shelves of gluten-free,” said Charlie Gardner, chief merchant for the Nature’s Marketplace at Wegmans. “Now some stores have up to 100 feet of linear space dedicated to gluten-free products.”
One of the biggest challenges for big grocery chains like Wegmans is that the supply of gluten-free products is largely made up of small local and regional brands. “There are few dominant national brands, and consumers are very loyal to their local brands,” said Tim Mahan, general manager for Nature’s Marketplace. “Trying to strike a balance between having a meaningful assortment but still satisfying that loyalty is a challenge.”
The fractured market has created a bonanza for smaller food companies that do not have legacy processing plants laden with traces of gluten, a challenge faced by many major food producers. In 2011, for example, Smart Balance, an investor in small food companies specializing in healthful products, paid $66.3 million for Glutino, a gluten-free bakery operation.
A year later, it spent about twice that amount for Udi’s, another gluten-free baking operation. “Udi’s claim to fame was that he provided the first gluten-free bread you could actually eat — and that’s cracking a pretty tough code,” said Stephen Hughes, the chief executive of Boulder Brands, as Smart Balance is now known.
Last August, the Food and Drug Administration, which oversees food labeling, ruled that products labeled gluten free were permitted to contain no more than 20 parts of gluten per million, which made it more difficult for large food companies to get into the business. “You really need to have a captive facility because wheat floats,” Mr. Hughes said.
Sales of Udi’s and Glutino were up 50 percent last year, and Boulder Brands is finding more demand from regional food service businesses and institutions. Udi’s hot dog buns are available now in most major baseball parks, and Dunkin’ Donuts and others are turning to the company for individually wrapped gluten-free bagels and muffins.
“Three years ago, we could have bought a Greek yogurt company, but instead, we bought Glutino,” Mr. Hughes said. “We think this is a trend with long legs because there is some insulation from the big players — it’s hard to produce gluten-free — and because so much of the category is represented by $10- and $15-million mom-and-pop businesses.”
Interest in gluten-free products also has been a boon for fruits and vegetables and other foods that are inherently gluten-free. Popcorn Indiana, for example, has labeled its ready-to-eat popcorn gluten-free since before the fad began, in part because the chief executive, Hitesh Hajarnavis, has children who have food allergies. “I had become an avid reader of labels, and so when I came over to Popcorn Indiana, I knew the value of having a clear gluten-free label for what was then a very small number of people with gluten allergies,” Mr. Hajarnavis said.
But the company has promoted popcorn’s low calories more aggressively than its gluten-free quality, teaming up with “The Biggest Loser” to market its Fit Popcorn.
“Look, the thing here, in my opinion, is that there is a small number of people who have celiac disease or are gluten intolerant,” Mr. Hajarnavis said. “But there is a growing population of people who have somehow heard that gluten-free is healthier or think of it as fashionable, and when they remove gluten from their diet, they’re inadvertently taking out a lot of processed foods and are really feeling the benefits of eating healthier foods.”