Disney is ready to enter food business

Tuesday December 07, 2004 0: AM Eastern Time

Dec. 7--The Walt Disney Co. will make its first foray into the food industry with plans to introduce frozen meals and nutritionally balanced packaged foods by early next year, company officials said Monday.

Disney will roll out "comprehensive food products" like macaroni and cheese in the United States as early as spring 2005, said Gary Foster, spokesman for the consumer products division.

In Europe, carrot sticks are already available, and the company's European division is on the brink of launching a variety of food products, Foster said. A global launch will follow in 2005, Foster said.

The plans represent a significant departure from previous deals for other companies -- including Kellogg's cereals and Blue Bunny ice cream -- to market products under the Disney name.

Foster said Disney will likely work with major grocery chains to manufacture the products.

This will drive down the costs for consumers -- a strategy Disney's consumer products division is successfully pursuing in its electronics and apparel divisions, Foster said.

Foster declined to name the grocery chain Disney is in talks with. In the United Kingdom, Foster said Disney has partnered with Tesco, a major grocery store chain.

The initiative first came about when Andy Mooney took over the company's consumer products division three years ago and reshuffled the way the company manufactures its products, Foster said.

"The retail landscape has changed dramatically," Foster said. "Consumers are becoming much more cost-conscious."

As consumers increasingly spend their dollars at discounters like Wal-Mart, Foster said Disney has focused on developing more of its products at lower prices.

Disney recently partnered with Coca-Cola to make juices, but those products didn't sell as well as the company had hoped.

Since the Coca-Cola brand already comes at a high-price point, adding the Disney royalty rate on top of that only further drives prices up, Foster said.

"As soon as we launched the products, the competition came in with lower prices," he said. "We really didn't do as well as we had hoped. We're looking at developing lower-price products."

That's exactly what the company's done with its electronics and apparel divisions in recent years. For example, Foster said, the company is working directly with Wal-Mart to manufacture its apparel goods.

"It's all part of a changing business model," Foster said. "More and more, we're developing our products in house."

Some of the food products launched in 2005 will be adopted from the European launch, and others will be developed here, Foster said.

The company already makes a number of food products, but the majority of them are through licensing agreements, like Kellogg's Honey Bees cereal.

Still, Phil Lempert of SupermarketGuru.com said Disney faces an uphill challenge.

"Being in the food world is a very different business than producing movies or theme parks," he said.

In addition, Lempert said that food products marketed with cartoon characters generally enjoy short-term success, but fail in the long run.

"The Pokemon cereal went through the roof when it first came out; then it failed," he said.

foodservice.com