Not Made in the USA: The Gerber Baby
By Scott Reeves Sep 25, 2009 7:05 am
A Swiss formula for baby food.
Just one thing: Gerber is part of Nestle (NSRGY), the Swiss conglomerate best known for chocolate.
Few shoppers jockeying for position at the supermarket checkout line care that Nestle is the world's number-one food company in terms of sales, or that the company's empire includes Perrier bottled water, Purina pet food, Nescafe coffee, Nestea, Jenny Craig weight loss products, and all those bottles of strained food with the painfully perfect baby on the Gerber label. Nor should they.
Anyone looking up from the celebrity magazines at the checkout stand and shouting, "Golly, Nestle acquired Gerber Products Co. in 2007 for $5.5 billion, immediately grabbing the largest share of the worldwide baby food market" would be a candidate for an asylum -- or Congress.
But here's something to ponder as you decide on paper or plastic bags: Globalization put Gerber in Swiss hands, a move that was good for Nestle as well as babies here and abroad.
Gerber got its start in rural Michigan as the Fremont Canning Co., a packager of peas, beans, and fruit in rural Michigan. Frank Gerber and his father launched the company in 1901. By 1914, the plant ran year-round, and sales climbed to $1 million for the first time.
Growth continued in the 1920s, and in 1927, Dorothy Gerber -- wife of Daniel Gerber, who had then taken over the company from his father -- had a brilliant idea: mass produce strained baby food. It was logical that a woman would have this insight because the task of cooking, mashing, and preparing solid food for infants typically fell to mothers at this time.
After testing and market research, Gerber sold its first baby food in 1928. The marketing was brilliant: a coupon redemption program pitched to young mothers, and advertising that stressed nutrition and convenience. The price was right, too: six for $1.
Gerber had created a new market. Previously, many pharmacies sold 4.5-ounce jars of baby food produced locally in small batches for about $0.35 each. Gerber offered a comparable product at less than half the price. Sales soared.
The downside for Gerber: Anyone could make similar products, and by the mid-1930s, about 60 competitors offered pressure-cooked, sealed baby food. But Gerber again leapfrogged the competition by distributing booklets on nutrition, parenting, and child psychology. Dorothy Gerber wrote a wildly successful newspaper column titled "Bringing Up Baby," and millions of mothers reached for the Gerber Baby label.
The company opened a second plant in Oakland, California, during World War II. Thanks to the post-war baby boom, US demand grew to about two million jars a day. Gerber's tagline: "Babies are our business…our only business."
Three more plants were added in the 1950s. The company tried unsuccessfully to diversify with a toy line in 1955. After listing on the New York Stock Exchange in 1956, the company expanded into Mexico in 1959. By the early 1970s, the company grabbed nearly 70% of the US baby-food market. Now what?
Birth rates were declining and, in an effort to plump the bottom line, the company sought to diversify by acquiring a freight carrier, a furniture manufacturer, and a toy maker. It didn't make sense, and by 1989, the company had shed many of its secondary operations.
In the early 1990s, the company expanded into Brazil, Chile, Sweden, Thailand, and Russia to boost baby-food sales. In 1992, it snapped up a Polish producer of foods and juices, a smart move because the Poles were still making babies in significant numbers, unlike much of Western Europe and America.
But that was about a far as a company that traced its roots to rural Michigan could go in global markets. At the time, some analysts said a multinational parent would give Gerber the marketing muscle to further expand in overseas markets. In 1994, Sandoz, a Swiss pharmaceutical company, bought Gerber for about $3.7 billion.
But it wasn't a match made in heaven because Sandoz was best known for its drugs and chemical products. It had little experience with food. Novartis (NVS), a drug company, was formed in 1996 by the merger of Sandoz and Ciba-Geigy. It was a smart move and created one of the world's leading pharmaceutical companies, but baby food didn't fit the company's future plans.
Nestle cracked that nut in 2007, when it bought Gerber for $5.5 billion. The result: Babies everywhere are now fed a product first cooked up in a Michigan kitchen more than 80 years ago.
Unlike babbling politicians, the infants don't care who owns the company. This makes kids' burps more intelligent than a politician's fulminations about the evils of foreign ownership.
No positions in stocks mentioned.
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