Novartis Consumer Health and Quaker Oats Company are aiming to jointly introduce functional food products in the U.S., Canada and Mexico by the end of the year. The two companies began discussing the possibility in late August 1999.

The companies announced Feb. 10 they had entered into a joint venture to form a functional foods entity called Altus Food Company. The firm, whose name is meant to suggest the "peak" or "pinnacle" of nutrition, will be operated and financed by both companies; profits also will be equally divided. Altus will initially be located at Quaker's offices in Chicago.

The companies will attempt to bring functional foods to market as quickly as possible, with products likely appearing by late 2000 or early 2001. Altus will begin by focusing on items targeting the health concerns of women, athletes and the elderly.

Both companies have experience in the burgeoning category, which they sized at between $10 bil. and $20 bil. in the U.S. with an annual growth rate of 10%. Novartis launched its Aviva line of functional foods in the U.K. and Switzerland in November (¹ [A#05070470001]). Categorizing the launch as an attempt to test the market, Novartis said reorder rates for the products have been promising.

While it may not be considered a functional food in the strict sense of the term, Quaker's Gatorade brand of sports beverages gives the company experience in marketing products with benefits reportedly beyond basic nutrition to health-conscious consumers.

In addition, certain cereals the firm sells under its Quaker brand carry the FDA-approved health claim linking oat bran/oatmeal to a reduced risk for coronary heart disease. Labeling on boxes reads: "3 grams of soluble fiber daily from oatmeal in a diet low in saturated fat and cholesterol may reduce the risk of heart disease." Quaker said its cereals have performed more strongly since adding the revised labeling.

A functional food line developed by Altus could carry any of these brand names. Quaker said Altus would consider all its options, including coming out with new brands. Moreover, while the products will be distributed in food, drug and mass channels, Quaker said a decision has not yet been made on whether to place them next to similar traditional food items or push for a separate section on store shelves.

In announcing the agreement, Novartis and Quaker stressed that their respective strengths complement each other. Novartis said it will bring its background in nutrition science and clinical research to the firm, while Quaker will provide expertise in consumer branding, marketing, distribution and taste technology. Altus does not plan to pursue any acquisitions in its early stages, Quaker said.

While clinical research could lead to structure/function claims or health claims appearing on the products' labeling, both companies stressed that taste and brand recognition will be equally important in winning consumer acceptance in the foods arena. Novartis noted the highly promoted health benefits of soy protein would likely lead to products containing the nutrient.

Quaker VP-New Ventures Greg Shearson will take over as Altus president and general manager. The new company will be run by a management team consisting of six people evenly divided between Novartis and Quaker. While the positions have not yet been filled, Shearson will be joined by execs in charge of marketing, sales, supply chain, R&D, as well as a chief financial officer. The company eventually expects to employ 25 to 30 people full time.

Providing oversight and resource management from each of the parent companies will be a six person governance board. The board is composed of Michael Valentino, president and chief operating officer of Novartis Consumer Health; Frank Palantoni, president and CEO, Gerber Products Company; and Andre Cadieux, chief financial officer for NCH Worldwide; as well as Terrence Martin, Quaker senior VP and CFO; Mark Shapiro, Quaker senior VP-corporate strategy and development; and Susan Wellington, president, U.S. beverages.

The agreement follows close on the heels of Kraft Foods' acquisition of Balance Bar Company for $268 mil., announced Jan. 21 (² Also see "Kraft Functional Foods Presence Expands With Balance Bar Purchase" - Pink Sheet, 7 February, 2000.). H.J. Heinz Company announced Feb. 9 it is creating a global organic and nutritional foods category to be headed by Sharon Wicker, VP-strategy for Heinz North America.

Novartis, Quaker Oats Functional Food Launch Planned For Late 2000

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