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THE BACKGROUND

While convenience remains the driving force behind the baby-food market, it has been forced to respond to consumer pressure for healthier options and higher-quality foods, with a focus on functional products and organic ranges. A rise in the birth rate has sustained overall demand in the sector, and the market is expected to continue growing over the next five years. The toddler market has also increased in importance, with a raft of new product development such as the introduction of 'growing-up' milks.

A recent rise in the UK birth rate and the number of working young mothers has led to a growth in the demand for prepared baby food in the UK.

Convenience is just one concern for parents, however. They are also looking for nutritious products, often organic, which are closer to the meals that can be prepared at home.

Overall, the baby-food market is growing steadily, having increased by more than 6% in 2004 to a value of £320m, according to Mintel. Births increased for the first time since 1989 in 2003 - although this trend is not expected to continue.

While the government supports the World Health Organisation's programme to promote breast-feeding, and more women are doing so immediately after birth, after several weeks most do not feed solely in this way, so demand for formula milk has been sustained.

Almost half (47.7%) of sales in this market are accounted for by milks, which grew by more than 22% between 2000 and 2004 to reach a value of £152.4m. This is expected to rise again in 2005 to £157.1m.

First- and second-stage powdered milks - for babies from birth to six months - account for the majority of milk sales. Ready-to-feed (RTF) milks are becoming more popular, driven primarily by the introduction of 'growing-up' products, which contain added vitamins and are aimed at toddlers.

Manufacturers have been trying to expand the baby-food market's reach to toddlers, with some success. Overall use went up 5% last year, according to TGI, with the number of non-users falling.

In 2005 there was an increase in the amount of baby milk used. While this is partly down to more babies being born, there was also a rise in purchases of follow-on milks, for babies aged over six months, as well as growing-up milks.

Inexperienced bias

The heaviest users of baby foods tend to be inexperienced mothers such as 15- to 24-year old C2s. Brand names provide them with reassurance as to what they are feeding their babies.

While 56% of mothers make food for their babies at home, there is evidence that an increasing number are supplementing these meals with shop-bought products two or three times a week. An increasing number of older AB mothers have been attracted to the sector as more premium, organic foods have become available.

Meals account for two-thirds of the market volume and come in wet, dry and frozen formats; sales increased almost 4% between 2000 and 2004 to reach £132m.

Wet meals have performed better than dry, as they are generally seen as more convenient and natural. Traditionally, these have been split into two age categories: four months and up, and lumpier varieties for babies over the age of seven months. More recently, a third category has been introduced for babies older than 10 months.

Frozen baby-food sales have been growing fast, but remain a niche area because they are not stocked in the baby products aisles of supermarkets.

Manufacturers such as Babylicious have tried to overcome this issue by introducing their own freezer cabinets located away from the frozen-food section. Fresh Daisy, meanwhile, has taken the frozen baby-food concept into the organic sector, with a gourmet range stocked in Sainsbury's.

Organic baby food has been a phenomenal success and cuts across all product categories. While organic milk sales are limited, accounting for just 3% of total sales and 6% in the follow-on category, organic products account for almost 23% of baby-food sales; when meals and finger foods are combined, the figure rises to 44%.

The biggest producer of organic baby food is German firm Hipp, which is the fourth-biggest company in the whole sector. It operates in all categories, but is strongest in the meals section.

Hipp was responsible for creating the growing-up milk category in 2003 and is the only manufacturer still to produce a powdered variant. In October 2004, it redesigned its milk packaging to highlight its organic formula more clearly.

Last May it launched First Tastes, a range of weaning food packaged in smaller jars, designed to reduce waste when babies first start on solids and eat little. Since 2002, however, the company has lost share, as other companies have made gains, according to Mintel.

Label friendly

Organix, which is based in the UK, was founded in 1992 and alongside Hipp has been at the forefront of the organic baby-food category, specialising in clear ingredient labelling for parents.

Its Goodies snack range, which carries a 'no junk promise', was launched in 2003 and has expanded significantly. Aimed at one- to five-year-olds, its products include biscuits and savoury snacks.

Heinz also offers an organic range under the Simply Organic label. However, its principal success comes from outside this niche and it is the market leader in the baby-food sector with a 28% share, though this has dipped in recent years. Its products are sold under the Farley and Heinz brands.

Its recent launches include Mum's Ingredients, in July 2005, which can be added to foods to create a meal, and Toddler's Own, a food and drink line.

New product development in the sector is set to continue to revolve around the nutritional and functional benefits of ingredients, as well as appealing to mothers by way of quality and convenience. The market itself is expected to grow 10% in real terms between 2005 and 2010 to reach £393.4m.

BABY-FOOD AND DRINK MANUFACTURERS BY SALES AND MARKET SHARE 2005* 2004 2003 02-05 pounds m % pounds m % pounds m % % chng 1 Heinz 93.3 28.4 92.8 29.0 92.5 32.1 0.9 2= SMA 81.1 24.7 80.5 25.2 66.9 23.2 21.2 2= Cow & Gate 81.1 24.7 77.2 24.2 67.2 23.3 20.7 4 Hipp 33.6 10.2 32.9 10.3 28.1 9.8 19.6 5 Milupa 19.7 6.0 17.6 5.5 13.2 4.6 49.2 6 Organix 13.1 4.0 11.7 3.7 9.3 3.2 40.9 7 Others 6.7 2.0 6.9 2.1 11.0 3.8 -39.1 Total 328.6 100.0 319.5 100.0 288.2 100.0 14.0 Source: Mintel *estimated BABY-FOOD AND DRINK SALES BY PRODUCT TYPE (pounds m) 2005 2004 2002 2000 00-05 (est) % chng 1 Milks 157.1 152.4 130.5 124.3 26.9 2 Meals 134.3 132.0 128.1 127.2 5.6 3 Finger-foods 22.4 19.8 14.1 11.4 96.5 4 Drinks 14.8 15.3 15.5 16.0 -7.5 Total 328.6 319.5 288.2 278.9 17.8 Source: Mintel BABY-MILK SALES BY TYPE (pounds m) 2005 2004 2000 00-05 (est) % chng 1 First/second-stage powdered 83.1 80.0 63.7 30.5 2 Follow-on powdered 41.3 39.8 35.1 17.7 3 Ready-to-feed 27.3 26.0 17.4 56.9 4 Specialist* 5.4 6.6 8.1 -33.3 Total 157.1 152.4 124.3 26.4 Source: Mintel *Specialist baby milks are those which have been formulated for babies with particular dietary needs such as allergies and intolerances or problems such as reflux. BABY-MEAL SALES BY TYPE 2005* 2004 2002 2000 00-05 pounds m pounds m pounds m pounds m % chng Wet 104.8 102.9 97.9 92.0 13.9 Dry and cereals 28.9 29.1 30.2 35.2 -17.9 Total 133.7 132.0 128.1 127.2 5.1 Source: Mintel *estimated

ANALYST COMMENT - TOM VIERHILE, DIRECTOR, PRODUCTSCAN ONLINE, DATAMONITOR

Declining birth rates worldwide are turning up the heat on marketers of baby food and infant formula. Our Productscan Online database shows that launches dropped from 512 in 2004 to 485 last year.

Manufacturers cannot change the birth rate, but they can take steps to hang on to customers for longer or target groups with higher-than-average birth rates, as Gerber has in the US with its Recetas Latinas line aimed at Hispanic families.

Will five-year-olds balk at something resembling infant formula?

Simply H, which has launched a Toddler Health drink mix in the US, clearly hopes not. It is targeting children between 13 months and five years with a product featuring 'brain-enhancing' nutrients.

Delaying childbirth is another global phenomenon. In the UK, the pregnancy rate for 30-somethings has surpassed that of women in their 20s for the first time, according to the Office for National Statistics.

Older parents tend to be in better financial shape, which has fuelled the introduction of eclectic baby-food flavours reflecting the fact that they are more likely to be well travelled.

This group also appears to be paying closer attention to food safety and health issues. According to Datamonitor, more than 14% of baby-food launches in 2005 were for organic products, a higher proportion than in most other food sectors.

Food safety is another important factor. In Japan, Otsuka Foods recently expanded its Bean Stalk baby-food range with an infant formula in canisters containing a silver-ion-coated internal surface, said to have an antimicrobial effect.

Such efforts as these, as well as those aimed at preventing food allergies, should keep baby-food brands busy for years to come.