Nestlé: Fattening Up On Skinnier Foods

03/07/06 It sees hefty profits in offerings that fight diabetes and slim the waistline.

Nestlé's makes the very best...health food? The world's biggest food company, best known for its chocolate and coffee, has embarked on a new push to tackle obesity and diabetes. At the company's mountainside research laboratory near Lausanne, Switzerland, scientists are working on new products that alter the body's absorption of sugar, reduce fatty acids in the bloodstream, and step up the burning of carbohydrates during digestion. The first of these offerings, a cereal bar with a fiber additive that tamps down surges in blood sugar levels after eating, was launched in Asia last year and will soon be rolled out worldwide.

For now, the cereal bar is marketed mainly to people with type 2 diabetes, which is often triggered by obesity. But Nestlé says the same additive could later find its way into mass-market brands such as Stouffer's and Lean Cuisine prepared meals. And with more than 300 million obese people worldwide, including 30% of U.S. adults, it's easy to understand Nestlé's interest in the market. "Our entire sector is starting to migrate to healthier choices," says Richard T. Laube, chief executive of Nestlé's nutrition division. As part of that trend, Nestlé announced on June 19 that it would pay $600 million for Jenny Craig Inc., a Carlsbad (Calif.) company that sells prepared diet foods and operates 600 weight-loss centers across the U.S.

The Jenny Craig deal gives Nestlé a boost in the booming diet market. But the newfangled products that Nestlé's scientists are whipping up may prove far more lucrative in the long run. Some 171 million people worldwide suffer from type 2 diabetes, and 80% of them are obese. As obesity rates continue to rise, the number of diabetics worldwide is expected to double within 25 years.

Foodmakers have long tinkered with recipes to reduce sugar and fat and have pumped in "healthy" extras, from oat bran to olive oil. The track record isn't encouraging. Obesity has soared even as low-sugar, low-fat, and low-carb foods have proliferated. But now the industry is pushing into new territory. Nestlé and other companies are patenting technologies that alter naturally occurring fats and fibers. And they're carrying out medically supervised tests on humans, in much the same way pharmaceutical companies conduct drug trials. Their goal: to develop products that change the way food is digested, thus "tricking" the body into feeling less hungry.

A shelf full of foods that fight obesity and diabetes would be a marketing dream come true. Market researcher ACNielsen says products billed as "healthy" account for 18 of the 24 fastest-growing food and beverage categories. Worldwide, sales of granola bars rose 14% last year, compared with only 4% growth for chocolate confectionery. What's more, foods that claim specific health benefits typically generate operating margins above 15%, compared with 9% to 12% for more conventional processed foods. "'Healthy food' undeniably is a key growth engine," says Arnaud Langlois, a London-based analyst with JPMorgan.

Nestlé's latest push in this direction began in 2002, when it assigned scientists to study the molecular mechanisms that lead to weight gain and diabetes. The first product to emerge is the cereal bar for diabetics, currently sold only in Asia under the brand name Nutren Balance. The bar contains beta-glucan, a fiber occurring naturally in oats and barley that slows the body's absorption of starches, reducing the risk of surges in blood sugar that are dangerous for diabetics. Nestlé developed a patented method to triple the level of beta-glucan in oats, while altering the fiber so it becomes more viscous in the stomach. That slows digestion and creates a sense of fullness.

More engineered foods are on the horizon. Nestlé is studying acetogenic fibers, something found in apples and some vegetables that may reduce high levels of fatty acids in the bloodstream, which appear to trigger diabetes. Researchers recently completed a six-week study in which people with early symptoms of diabetes drank a beverage containing acetogenic fibers, while a control group was given a placebo. The results haven't yet been published, but "if the science works, this could be our next product," says Catherine Macé, a biologist at Nestlé's.

Nestlé's rivals are scrambling to develop such foods, too. Anglo-Dutch Unilever Group has developed a process to alter the molecular structure of fat-containing emulsions, so the intestine absorbs fat more slowly, delaying hunger pangs. The new emulsions have been used in Unilever's Slim-Fast Optima diet shakes since early this year and may eventually turn up in Unilever ice creams and beverages. Paris-based Danone recently launched a yogurt called Saciactiv, which contains a modified fiber additive. The fiber prompts the stomach to release hormones that Danone says produce a feeling of fullness.