Kids' Health Food Builds Strong Business Bodies

Forget chips and sodas. By selling organic baby food and non-sugary drinks, entrepreneurs are experiencing exponential growth

Todd Woloson, co-founder of IZZE Beverage Co., which sells fizzy fruit-juice alternatives to drinks made with processed sugars, would love it if school-age kids never drank the competition's soft drinks again. In May, Woloson's wish took one giant step closer to coming true, when top soft-drink companies, Coca-Cola (KO), PepsiCo (PEP), and Cadbury Schweppes (CSG) (its products include Dr Pepper and Snapple) voluntarily agreed to stop selling most sugary beverages in schools by 2010 because of pressure from activists, the Clinton Foundation, and the American Heart Assn. (see, 5/4/06, "Big Soda's Sticky End").

The advocates pointed to a clear correlation between record-level childhood obesity and diabetes levels and the consumption of processed sugars. They also offered some staggering numbers: More than 9 million children are either overweight or obese, and the rate of childhood obesity more than doubled from 1980 to 2000, according to a report by Washington-based health advocacy group Trust for America's Health. According to the report's projections, 73% of American adults could be overweight or obese by 2008. And 1 in 3 children born in 2000 will develop diabetes in their lifetime, according to the American Diabetes Assn., a federal research and advocacy organization. The odds are greater for minority children—1 in 2 will develop diabetes in the same time frame.

Since the soft-drink makers' announcement was made, IZZE's already growing business (it has increased by triple digits each year since its 2002 founding) has exploded. In the beginning of May, Colorado-based IZZE had drinks machines in 200 individual schools in the U.S. By September, 2,000 school districts had placed orders. "We needed an arsenal of interns to answer the phones this summer," says Woloson, who has been working furiously on a new distribution system that will help IZZE keep up with demand.

At the front end of a movement to provide alternatives to soda and chips, there's a new pack of entrepreneurs who are capitalizing on the nationwide push to help kids get healthier. And they're finding an eager market for healthy products that are also innovative and convenient (see, Spring, 2006, "A Healthy Start").


  But while helping school-age children make the right food and beverage choices is important, some entrepreneurs are starting even earlier. Recent research suggests that what children as young as 2 years old eat colors their tastes for the rest of their lives. And what they're eating is shocking. By age 2, 1 in 5 babies eats candy every day, and toddlers are more likely to eat French fries than any other vegetable, according to an eight-year University of Tennessee study published in 2002. Not only are they eating it as babies, but they were more likely to prefer those foods later in life, the study suggests.

One example of a company targeting this market is New York-based Happy Baby Food. The alternative-baby-food startup sells cubes of frozen organic vegetable and organic fruit purées in ice cube tray-like packaging, challenging traditional jarred baby food makers like Gerber and Beech-Nut. It's the brainchild of Shazi Visram, a former media and marketing consultant who co-founded the company after graduating from Columbia Business School in 2004. Visram says she sensed a business opportunity when her friends kept lamenting their inability to make their baby's food fresh each day.

When Visram officially launched in May, she planned to only sell locally in New York, then expand regionally and nationally after a few successful years. But sales of the product have been so strong that Whole Foods Market (WFMI) and Wild Oats (OATS), two of the biggest players in organics, will distribute the product starting this fall, speeding up her expansion plans. Visram says her product fills an obvious hole in the market, since the existing baby food is "so processed that it loses its color, is gross-tasting, and doesn't smell good." Furthermore, the process used to create most baby food is the same as producing canned food. "Would you want to eat canned foods for the first three years of your life?" she asks.


  To compete with processed food companies like PepsiCo and Kraft Foods (KFT), creative health food companies have also been trying to stand out with innovative packaging. In the early 1990s, most vegetables were sold without packaging. "Today, the vast majority of lettuce is grown to be bagged. Carrots are the same way. Those industries increased consumption of their products by 30% through value-added [packaging and presentation]", says Tony Freytag, co-founder and national director of marketing of Crunch Pak, a company based in Cashmere, Wash., that produces prepackaged apple slices.

Crunch Pak is working to "add value" through packaging and presentation, too. It uses a process that cuts apples into 12 slices, coats them with a blend of vitamin C and calcium that seals the surface of a cut apple and allows it to stay fresh for about three weeks and not turn brown, then packages them in resealable plastic containers.

Its presliced apples have caught on so quickly that Crunch Pak has had to change facilities three times since the company launched in late 2000 to accommodate demand. And they have recently teamed up with new marketing firm Imagination Farms, which is launching a co-branded line of nutritious snacks with Disney (DIS). The packaging attempts to lure parents to buy for kids by featuring Disney's Incredibles cartoon characters, and nutrition factoids. Though Freytag won't discuss specific sales figures, he says Crunch Pak's business has grown by double digits every year and doubled in 2005. Its products are now in Kroger (KR), Wal-Mart (WMT), Albertsons, and Costco (COST) markets.


  No doubt, American consumers demand convenience. But they also demand affordability. That's one appeal of Water Sensations, a company based in Connecticut that produces a flavor enhancer for water, aimed at getting kids to drink more of it, instead of the processed sugar products that they often choose. Nina Riley, former head of innovation at Philips (PHG), along with business partner Carolyn Frzop, launched the company, whose product is clear, sugar-free, calorie-free, and carbohydrate-free, in response to their own challenge as mothers to get their children to drink more water. In a $10 billion water market where a 16-oz. bottle can cost as much as $2, Water Sensations costs $2.99 for a 12-pack that can flavor 12 glasses of water. And because of its unusual physical properties, the liquid requires no stirring.

You won't soon find Water Sensations in the drink machines at schools around the country, but you'll probably find them at basketball and field hockey practice as mothers look for inexpensive and low-calorie alternatives to Gatorade. In its first year, Water Sensations' six flavors, which are already sold at Target (TGT), The Food Emporium, and Kroger, had $1 million in sales, which Riley expects to triple by the end of the second year.

Triple-digit growth is hard to come by in most industries, but American consumers are proving eager for healthy food and drink-alternatives for their kids. Entrepreneurs in the growing space are finding their businesses certainly getting healthier (see, 9/15/06, "Inventions for Toddlers").

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