Friday, June 23, 2000

Canadian ban adds to woes for P&G's olestra

By Cliff Peale
The Cincinnati Enquirer

Products with olestra.
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        It took Procter & Gamble Co. a quarter century and half a billion dollars to develop its olestra fat substitute, but it has taken less than two years for the product to start falling flat in the marketplace.

        With sales sinking in the United States, the official Canadian health agency has rejected olestra for use as a food additive in Canada because P&G could not prove the product's safety, officials said Thursday.

        Olestra has been dogged by years with accusations that it caused digestive problems. After it was approved by the U.S. Food and Drug Administration in 1996, P&G introduced it in 1998 and confidently predicted the product could rack up $1 billion in sales by the end of 1999.

        But since then, quarterly sales of products using olestra — marketed under the brand name Olean — have fallen by as much as two-thirds, and analysts and critics see sinking possibilities for the product.

        “Olestra has failed to live up to expectations that were perhaps a little ambitious,” said John McMillin, a food-industry analyst at Prudential Securities in New York.

        Subpar results for olestra could have a double impact in Greater Cincinnati. Not only is P&G counting on the product's growth potential, but olestra is made in P&G's sprawling Ivorydale complex.

        If olestra fails to produce for P&G, it could affect the company's earnings and stock price, and its local work force.

        The only national brands that use the fat substitute are P&G's Fat Free Pringles and Wow! chips made by Frito-Lay, a P&G spokeswoman said. Some smaller brands like Utz Quality Foods Inc. in Pennsylvania have started experimenting this summer with snacks using olestra.

        P&G acknowledged the rejection this month by Health Canada, but said it still was committed to selling olestra in America. The company has sold more than 2 billion servings of Fat Free Pringles, spokeswoman Margaret Swallow said.

        “We're disappointed, but we're going to continue to focus on the brand in the U.S.,” she said. “We think it represents an important choice for consumers.”

        Lynn LeSage, a spokeswoman at Health Canada, said P&G did not provide enough data to prove olestra was safe for consumers. The company would have to produce more data to get approval, she said.

        “Right now, as far as we're concerned, the file is closed,” Ms. LeSage said.

        The Center for Science in the Public Interest, a research group that has criticized olestra for years, called the rejection by Health Canada “another nail in the coffin of olestra.”

        “The U.S. is the only country that has approved olestra,” said Michael Jacobson, executive director of CSPI. “P&G obviously five years ago saw global dollar signs. But sales are dismal in the U.S.”

        According to numbers provided by the Snack Food Association for an April story by the trade journal Snack Food & Wholesale Bakery, total sales of snacks with olestra fell 20 percent to $254.3 million in 1999, compared to $318 million in 1998.

        And from second-quarter sales of $122.2 million in 1998 — just after olestra's introduction — the numbers have fallen by nearly two-thirds to $44.5 million in the fourth quarter of 1999, the trade journal said.

        Results for Wow! chips from Frito-Lay also have fallen. According to Information Resources Inc. in Chicago, sales of Lays Wow! Potato Chips fell 42 percent during the 52 weeks ended May 21, compared to the same period the year before. Sales of the Ruffles brand using olestra fell 34.2 percent, while sales of Doritos Wow! fell 49.7 percent.

        Overall, sales of salty snacks increased 4.4 percent during the same period, Information Resources said. Dick Detwiler, a spokesman at Frito-Lay owner Pepsico, said revenue for the Wow! lines had stabilized at more than $150 million per year after an initial burst when it was introduced.

        “We view Wow! as a profitable niche brand,” Mr. Detwiler said. “It has a lot of loyal consumers.”

        P&G would not release its most recent sales numbers for Olean. But in June 1999, company chairman Durk Jager said production at the $250 million Ivorydale plant was 30 percent to 40 percent below forecasts.

        Mr. Jacobson of the Center for Science in the Public Interest said P&G is pressuring the FDA to change the label required for olestra products, he said.

        All of the products carry labels that warn of “potential abdominal cramping and loose stools” from the fat substitute.

        Ms. Swallow said P&G regards the label as inaccurate, and that an FDA advisory panel had recommended the label be “fixed.”

        “We know that olestra is safe to consumers,” she said. “There are no adverse effects beyond what consumers get with any other snacks.”


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