Cookies & Crackers

INDUSTRIAL CODES

NAICS: 31-1811 Retail Bakeries, 31-1821 Cookie and Cracker Manufacturing

SIC: 2052 Cookies and Crackers

NAICS-Based Product Codes: 31-18110141, 31-182121, 31-182122, 31-182123, 31-18212Y, 31-182141, 31-182142, 31-182143, 31-18214Y, and 31-1821W

PRODUCT OVERVIEW

If we combine all products made from flour, cookies and crackers represent the second largest product category based on dollar sales (17.7%), second only to the output of retail and commercial bakeries (43.6%) and edging out the third largest category, breakfast cereals (17.6%), by just a smidge. Other large groupings in order are frozen products (8.2%), flours and doughs (6.2%), and pastas and tortillas (3.2% each). Cookies and crackers are quite different products, to be sure, different as sugar is different from salt. In this case sugar beats salt in that the industry produces roughly six cookies for every four crackers.

Crackers

Cookies and crackers are both unleavened, baked, wheat products. The biscuit appears to go back to Roman times because its name is derived from the Latin word biscoctum meaning twice-cooked. We still use that word when we concoct something, thus cook things together. From biscoctum we have the Italian biscotto, its plural being biscotti, and finally the English biscuit. The same product, in German, is zwieback, meaning the same thing. These products were baked once, sliced, and baked again to remove all possible moisture. The dried goods had very long life and were used as food in war and in travel by land or sea. The old naval staple, hardtack, was a simple biscuit made of flour, water, and salt. The hard speaks for itself; tack was old English for coarse, inferior food. The value of twice-baked goods came from the high carbohydrate and protein content of wheat, the most nutritious food grain grown. It provided all necessary nutrients needed by sailors except Vitamin C, one reason why scurvy was feared by the seafarers of old. Crackers are the modern descendents of biscotti, and the fact that these products are now principally consumed as snacks tells us something about the improvement of food supplies in modern days. The soldiers during the Civil War would have been surprised by this transformation. An old song, cited on G.H. Bent's Web site—a company that baked hardtack for those soldiers in the nineteenth century—recalls the soldiers' gloomy attitude toward the product:

     There's a hungry, thirsty soldier
     Who wears his life away,
     With torn clothes, whose better days are o'er
     He is sighing now for whiskey
     And, with throat as dry as hay,
     Sings, "Hard crackers, hard crackers, Come again no more."

The American term for biscuits—crackers—originated in 1801 with Josiah Bent, the founder of G.H. Bent. Bent began baking biscuits for merchants bound on transatlantic voyages. During baking the biscuits made a crackling sound which Bent introduced as a trade name for his product, the coldwater cracker.

Cookies

By contrast with the utilitarian cracker, cookies have always represented delicacies and, in culinary usage, are classed with cakes. Wheat comes in hard and soft varieties. Hard wheats have a high gluten content and therefore high protein content: gluten is made of two amino acids, the building blocks of protein. Gluten produces a tough dough structure which acts to confine the carbon dioxide produced by yeast added to dough and thus causes the dough to rise. The best bread is made of wheat with a high gluten content. Cakes are relatively light, soft, and easy to slice. Soft wheats with low gluten content are ideal for cakes, generally, and are used in cookies as well. When the cookie crumbles, it does so because the wheat is soft. Soft wheats are grown in humid climates with high temperatures both by day and night, thus east of the Mississippi and in the Pacific Northwest. Cookies are made of flour, water, sugar, eggs, and some kind of fatty substance, usually but not necessarily butter. One kind of cookie, shortbread, got its name because short once also meant crumbly. The name is said to come from the Dutch word koekje meaning little cake. The German word keks has a sound very close to cakes—both words signaling the lineal descent of cookies from their larger predecessor. Some believe that cookies originated when cooks put in bits of cake dough to test whether or not their ovens were hot enough, and, munching the test results, discovered a new treat.

From earliest times cookie bakers added spices, seeds, berries, raisins, and crumpled nuts to the dough to give their products extra flavors. One of the great cookie favorites of all time, the chocolate chip cookie, came about, one might say almost inevitably. The creator of the category was Ruth Wakefield who, with her husband, owned and operated the Toll House Inn near Whitman, Massachusetts. While baking cookies one day, she crumpled up a bar of semi-sweet Nestlé chocolate and added it to the dough. She thought the chocolate would melt, but it did not. The delightful result pleased everyone. Later Wakefield sold her recipe to Nestlé in exchange for all the chocolate she would ever need—and the company introduced semi-sweet Toll House chocolate morsels as a product.

Industrial Origins

The industry originated with bakeries initially making other products, principally bread, with biscuits baked for the travel trade as a sideline. These origins in the retail bakery sector are still visible in the modern industrial distribution of cookie production at least. The retail bakery industry continues to make cookies; cookies represent just a little under 5 percent of that industry's output. Retail bakeries, however, account for less than 1.3 percent of all cookies and crackers produced. The first company producing biscuits principally for sailing vessels originated in 1792. This was the Pearson & Sons Bakery in Massachusetts. The company made biscuits called pilot bread. As noted above, the Josiah Bent Bakery began operations some years later, also specializing in crackers. These two companies were later merged, along with six other bakeries, to form the core of what later became the country's largest cracker and cookie producer, Nabisco.

Product Categories

In both the crackers and cookies categories, products have proliferated into many varieties. Some feel for leading types of products is provided by the U.S. Census Bureau which provides product-level breakdowns of the industry in those years for which it conducts full surveys. Figure 67 presents data from the 2002 Economic Census, showing industry category shares based on shipment values in that year.

In the crackers category the "all other" line accounts for more than half of total volume, each subcategory, however, too small for detailed treatment by the Census Bureau. Names of varieties of crackers have tended to be brand names in the past, thus even the word cracker began in that fashion. Saltines were once a Nabisco name, but the company lost its trademark when the term became a widely used generic designation. Graham crackers are named after their inventor, the Rev. Sylvester Graham. These products, made of coarse-ground wheat, have a high fiber content and were originally intended as a health food. Ritz crackers, a Nabisco brand, is another favorite similar to saltines. Matzo bread is classified as a cracker and is an ethnic specialty. Cream crackers, a thicker variety of matzo is yet another type; many different varieties compete for the market and are classified as flavored, sprayed, sponge-type, and so on. Cracker sandwiches consist of two layers with a filling, usually cheese, in the center.

Cookie sandwiches match their cracker cousins in appearance but have a sugar filling in the center. They are the largest single category and Nabisco's Oreos is also the leading cookie brand. Unlike crackers, which are typically consumed with dips or spreads and in which salt and cheese are the principal flavoring ingredients, cookies are consumed without auxiliaries but with a liquid to enhance the eating experience (milk, coffee, tea, and cocoa). More flavors and fillers are used. Sugar, cream, chocolate, and marshmallows are highlighted by the Census data, but nuts and fruits are common ingredients. Fig products, Nabisco's Fig Newtons being prominent, are included under the All Other category. For industrial purposes, ice cream cones, cups, and wafers have been added to the cookie category. These products are eaten with ice cream. The Census Bureau has also added one of the latest innovations in sweet snacking to the cookies and crackers industry, the toastie—while, somewhat inconsistently, carrying other similar snack products, like breakfast bars, under breakfast cereals.

MARKET

Measuring the market for the cookies and crackers category is best accomplished at the production level, thus looking at industrial shipments as reported by the Census Bureau. As these products move from producers into the wholesale and retail channels, the category is lost to view because its identity is hidden in aggregations with other grocery and supermarket products. Market research firms produce occasional snap shots of the industry at the retail level, usually reported by leading brands. These data are almost always partial and exclude results from Wal-Mart. Wal-Mart does not report its over-the-counter retail sales except in aggregates in its annual and quarterly reports.

Industry Shipments

Shipment data for 2005 indicate that the cookies and crackers industry had sales of $11.4 billion. Sales in 1997 were $9.2 billion and in 2002 $10.1 billion. The growth rate between 1997 and 2002 was 2.0 percent per year, between 1997 and 2005 2.7 percent. Industry sales in the later period had picked up, but early indications, derived from private market research data, suggest another weakening of sales in 2006 despite a flurry of new product introductions by producers.

More detailed data, thus at the product level, were available only for 1997 and 2002. These data indicated that the cracker category was advancing at a barely visible 0.2 percent per year whereas the larger cookie category was growing at the rate of 1.5 percent per year in that earlier period. Stronger growth in the later years (2002–2005) may have been due to an upsurge in sales of the snack food industry which, as they say in political jargon, had coattails. Crackers are not included in the snack food category for purposes of industrial reporting, but the contexts in which crackers are usually consumed are the snacking context.

A broad look at our category's performance is provided in Figure 68. In this graphic shipments of all food products, snack foods, and the cookies and crackers industry are shown as an index, with the index set at 100 for the year 1997 for all three categories. Changes from that base year are then displayed for successive years. This analysis shows that over the 1997–2005 period, the All Food category outperformed cookies and crackers by a small margin, although not every year, showing a 27 index point gain over 1997 in 2005 versus a 24 point gain for cookies and crackers. During this same period, the snack food category, which is principally nuts and chips, gained 54 index points, the strongest growth taking place in the 2002–2005 period. The bottom line here, at least for this eight-year period, is that cookies and crackers have grown at about the same rate as food as a whole. The industry is strongly associated with impulse-eating but has not benefited much from the growth of the snack food industry. Put into annual growth rates, food advanced at 3.0 percent per year, cookies and crackers at 2.7 percent, and snack foods at 5.5 percent per year in this period.

Product Detail

Within the cracker category, the Census Bureau shows only details for 2002; no numbers are available for 1997 to serve for comparison. Within the cookie category, some feel for trends is provided for at least the early part of this period. Among named products in the sweet category, the ice cream cones and cups exhibited the strongest growth, advancing at the rate of 7.9 percent per year; the second product with strong growth was cookie sandwiches, growing at 6.6 percent. Ice cream consumption—along with snack food consumption—has defied a growing resistance to fattening foods; the cream itself has thus given the cookie category a lift by needing cones. Among products showing the worst performance have been the two richest categories. Crème-filled cookies declined at the rate of 0.1 percent per year and chocolate-chip cookies lost sales at a surprisingly high rate of 7.7 percent per year.

Factors Influencing Growth

The food industry as a whole has been undergoing a transformation that began in the 1980s and has yet to run its course. The essence of this crisis—as it is sometimes labeled in the industry itself—is the public's concern with health. That concern, however, is not uniformly shared by the public. The consequence is what might be viewed as at best ambiguous and at worst schizophrenic consumer behavior, at least as statistics resolve the picture. What many people, and certainly most health authorities, view as foods to be consumed with great care, if at all, are growing (e.g., butter, ice cream, cheese, and snacks) while other categories are struggling. Cookies and crackers belong in the embattled group. The specifics that bear on this transformation will be discussed more fully under Current Trends below.

KEY PRODUCERS/MANUFACTURERS

Kraft, Inc.

This company is the largest producer of cookies and crackers in the United States with some twenty-eight brands of cookies, twenty-three brands of crackers, and one brand of ice cream cone. Kraft illustrates the vast process of acquisitions and divestitures that has characterized the food industry in the twentieth century. The company began as a cheese producer in 1916 but has grown by acquisition into a diversified food company. Its role in the cookies and crackers industry is anchored to its ownership of Nabisco, itself a company that grew by the assembly of many scores of bakeries before it emerged as National Biscuit Company. Standard Brands Inc. merged with Nabisco in 1981. Philip Morris acquired Kraft in 1988. When Philip Morris acquired Standard Brands, Nabisco became part of Kraft in 2000. Philip Morris renamed itself Altria. In 2007 it spun off Kraft, Inc. Kraft became an independent corporation once again. Kraft's sales in 2006 were $34.4 billion. Of that total its Snacks and Cereals components, which is principally crackers and cookies, represented $6.4 billion of that total, including North American sales, thus the United States and Canada. Kraft's share of the cookie market was around 37 percent, its share of crackers 47 percent, making it the top producer in both categories.

Kellogg Company

Ranked second overall in sales in this industry and the top producer of breakfast cereals, Kellogg had sales in 2006 of $10.6 billion of which $3.3 billion were in what Kellogg labels snacks foods, principally cookies and crackers. Kellogg entered this business in 2000 with the acquisition of Keebler Foods Company. Keebler began operations in 1853 and, until both were acquired, competed as an independent company with Nabisco, both companies arising in the nineteenth century. Keebler offers sixteen brands of cookies, eleven brands of crackers, and also sells ice cream cones. Keebler's brands include Sunshine, owned by Sunshine Biscuits Company until the latter was merged with Keebler in 1996. The company's share of the U.S. cookie market is 11 percent and of the cracker market 24.2 percent. Keebler is also the leading producer of a special kind of cookie most people buy to help young girls raise money—the Girl Scout cookie. Kellogg is also the owner of another leading cookie producer, Murray Biscuit Company, which has a 5 percent share of the cookie market.

Campbell Soup Company

This company is third ranked in cookies, with 8 percent and fourth in crackers, with 9 percent of the market. Its sales in 2006 were $7.3 billion, of which the company's baking and snacking segment accounted for $1.7 billion. Campbell Soup's participation, as that of the other two leaders, is through the activities of its wholly-owned Pepperidge Farm company, best known for its bread, but Pepperidge Farm also ranks high in cookies with four major brands and in crackers with two. The company was founded in 1937 by Margaret Rudkin who created a high quality natural bread. One of her sons suffered from allergies; the new bread was originally created for the boy, but friends and neighbors loved it too. Rudkin lived on a Connecticut farm at that time. Sour gum trees, pepperidge trees, grew there. The trees obliged the budding entrepreneur by lending their name to her successful startup. Pepperidge Farm operated as an independent corporation until it was acquired by Campbell Soup in 1960.

McKee Corporation

This family-owned and privately held company, originating in the 1930s, is best known by American consumers for its Little Debbie brand of cookies. McKee, with a 6 percent market share in cookies, also makes a line of cereals and cakes. The company is based in Collegedale, Tennessee, and reports sales of around $1.1 billion.

The companies presented above accounted for more than two-thirds of all cookie sales and for 80 percent of cracker sales in 2005. This industry, however, is quite extensive, with participation by some 322 companies operating 378 establishments. In addition to such domestic participation, cookies are also imported, with Danish butter cookies in fancy round tins playing a role, however minor, in our Christmas celebrations every year.

MATERIALS & SUPPLY CHAIN LOGISTICS

Among materials consumed by the industry as measured in dollars and reported in federal statistics, the largest clearly identified category is packaging materials (aluminum foil, plastic, coated and uncoated paper, bags, paperboard, and even glass containers). Wheat flour and other wheat products are next, followed by white and brown sugar, fats and oils, and chocolate. Production is concentrated on where the population is concentrated, thus on the West Coast, a diagonal line extending roughly from Missouri to New York State, in Texas, and in Georgia and Florida, suggesting that raw materials flow to the population centers, are converted into cookies and crackers near their markets, and travel short distances to retail outlets. Illinois, Georgia, and California are the three largest producing states.

DISTRIBUTION CHANNEL

Based on reporting by such magazines as Grocer, Grocery Headquarters, and Progressive Grocer, which rely on market research reporting by such firms as ACNielsen and Information Resources Inc., roughly three quarters of all sales take place in the grocery channel, including superstores in that category. The remainder is distributed between drug stores, dollar stores, warehouse clubs, and miscellaneous outlets that include stores run by filling stations. The grocery channels rely on wholesale distribution centers. Large chains own their own distribution or operate using a mix of wholly-owned and third party wholesalers. Smaller grocers make use of independent wholesalers. In this as in other grocery product categories producers make use of routes, operated by themselves or by third parties, to keep distribution centers adequately stocked.

KEY USERS

Being basic food products, everyone eats cookies and crackers. Under pressure to respond to growing health concerns, the industry has developed products aimed even at those who must avoid sugar or people on diets. Some people lean more toward salt than sugar, and vice versa, but the category offers products for either taste.

ADJACENT MARKETS

A somewhat artificial division has been created by the historical development of crackers and cookies on the one hand and nuts and chips on the other. The last two are assigned to the snacking category by industrial reporting services like the Census; crackers are very often purchased ahead of parties and dinners and are viewed as appetizers, cookies as desserts. Appetizers are sometimes referred to as hors d'oeuvres, a French phrase meaning outside of work, thus they are snacks or break time foods, not specifically food ahead of eating. At the same time, in commercial categorization used by virtually all of the major companies, cookies and crackers are classed as snack foods. All this by way of saying that snack foods are the most obvious adjacent markets to cookies and crackers—but, alas, in many definitions, they are snack foods.

Health-conscious people who see too much snacking as unhealthy suggest that the snacking urge be satisfied by eating fresh vegetables like carrots and radishes or fruits like apples, pears, oranges, grapefruit, or berries. Health drinks based on dairy products like yogurt are suggested as good replacements for foods too rich in processed sugar and in carbohydrates. In one sense formal diet regimes represent anti-snacking and are therefore genuine adjacent (in the sense of alternative) markets.

RESEARCH & DEVELOPMENT

Producers in this industry are putting substantial R&D dollars into making new products that taste as good as ever but have very little of the substances that actually produce pleasing taste sensations: sugar, salt, and fat. Milk whey is a byproduct of cheese-making very rich in complex chemistry. Whey is much studied to isolate from it chemicals that can enhance the taste of cookies while permitting the removal of sugar. Use of spices permits eliminating some of the salt that gives crackers their desirable tang. Saturated fats occur in dairy products, red meat, chocolate, and coconuts. The term saturated derives from the fact that such fats have high levels of hydrogen. Trans fats also have high hydrogen content, but the element is introduced artificially to raise the boiling points of vegetable oils and to retard their spoilage. Replacing fats from such sources with fats derived from olives, canola, nuts, avocadoes, corn, cottonseed, safflower, soybeans, and fish can render cookies or crackers more heart-friendly. Saturated fats build up in the arteries and result in heart disease. Sugar intake is associated with diabetes. High levels of salt consumption lead to high blood pressure, but hypertension is also associated with unbalanced levels of potassium, magnesium, and calcium in the blood. Ensuring ideal minerals content in foods is part of the industry's attempt to fight off the assault on snacks by the critics of modern food consumption.

Considerable development effort is also expended on much more mundane commercial efforts such as producing portion-packaged snacks sold on the basis of calorie content—the 100-calorie packaging movement. Products in these packages are often miniaturized. More objects, by sheer count, are in the package than heretofore, although each object is smaller than in bulk packages. This is intended to satisfy the consumer's psychological perceptions. Reduced-size packaging is priced higher than bulk packaging if product weight is used as the measure, but the consumer accepts this pricing as a service for helping him or her exercise constraint. Developing miniaturized products, their packaging, and the refining of marketing messages also falls under the same budget categories as taking out sugar, salt, or trans fats.

CURRENT TRENDS

Two contradictory trends influence the industry. One is widespread concern with the deteriorating public health, in part blamed on food content and on consumption habits. The other is the embrace of snacking as a way of eating if not a way of life. The industrial response to these self-canceling movements has been to segment the market into slices and to put out products pleasing both sides and shades of behavior in between.

The health concern centers on the increasing incidence of the milder but ultimately very destructive Type II diabetes, the type which is not treated with insulin injections. Similar concern accompanies the growing incidence of heart disease. These conditions are associated with a population getting excessively heavy. Obesity is associated with lack of exercise and consumption of too much and the wrong kinds of food.

The Centers for Disease Control and Prevention (CDC) began measuring the population's weight status in 1963. The National Health and Nutrition Examination Survey (NHANES), produced by CDC, reports the results. The second of these surveys, for the period 1976–1980, reported that 47.1 percent of the adult population was overweight or obese; those judged obese were 15 out of 100 adults. NHANES 2003–2004 showed an increase from 47.1 to 66.2 percent, with 32.9 percent being obese. The last figure certainly raised eyebrows across the nation—and looking at crowds confirmed what CDC was measuring scientifically. That survey also noted the substantial increase in children who were overweight. Of those aged 2-5 13.9 percent had too much weight, 8.9 percent higher than in the 1976–1980 period. Among those in older segments total rates and increases over the earlier period were even higher. CDC also tracks how much people exercise and concludes that less than half (48%) of the public pursues sports or other energetic activities at levels recommended by health authorities.

People are also simply eating too much. The U.S. Department of Agriculture (USDA) tracks food consumption through its Center for Nutrition Policy and Promotion. Data from the Center indicate that food intake between 1970 and 2004 increased substantially, from 3,200 to 3,900 kilocalories per capitum, up 22 percent. Consumption of carbohydrates increased by 26 percent, protein intake least, by 23, and fat consumption most, by 30 percent. A high proportion of the carbohydrate consumption in the U.S. diet comes from sugar.

Underlying some of these changes have been shifts in lifestyle—the new perpetual busyness. The Families and Work Institute (FWI) reported in 2002 that dual-earner couples worked 91 hours, up from 81 in 1977. In the same period households headed by a single parent increased from 9 to 17.6 million. All households increased 47 percent between 1977 and 2002, single parent households by 100 percent. According to USDA's Economic Research Service 36 percent of household food budgets were spent on eating out in 1975, 48 percent in 2005. Parents have less time to prepare meals. Meals are being replaced by snacking or eating out.

Public reactions to the consequences are creating the pressures on the food industry to modify foods. People snack more, exercise less, and reach for ready-to-eat bars or bags of food to cope with social stress. The food industry, the aim of which is to maximize profits, targets its products to each market and every niche within it.

TARGET MARKETS & SEGMENTATION

The foregoing discussion of trends points at basic marketing and targeting practices in this industry. Products are aimed to attract those concerned with health but still wishing to indulge, those aiming to diet, but not too fiercely, and those who do not care. Producers for this market formulate products that have low- or no-salt in the cracker categories, products that avoid saturated fats, cookies with low- or no-sugar content, and portion-packaged products aimed at those wishing to control their snacking urges while still at the check-out counter. At the same time, items rich in taste continue to be offered in traditional bulk packaging. The ultimate choice is in the consumer's hands.

RELATED ASSOCIATIONS & ORGANIZATIONS

American Bakers Association, http://www.americanbakers.org

American Institute of Baking, https://www.aibonline.org

Independent Bakers Association, http://www.mindspring.com/∼independentbaker

International Dairy-Deli-Bakery Association, http://www.iddba.org/default.htm.

Retail Bakers of America, http://www.rbanet.com

Salt Institute, http://www.saltinstitute.org/4.html

Snack Food Association, http://www.sfa.org

BIBLIOGRAPHY

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The National Study of the Changing Workforce. Families and Work Institute. 2002.

Peters, Jeremy W. "Fewer Bites. Fewer Calories. Lot More Profit." The New York Times. 7 July 2007.

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"Product Summary: 2002." U.S. Department of Commerce. Bureau of the Census. March 2006.

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"Toll House® Cookies." The Great Idea Finder. Available from 〈http://www.ideafinder.com/history/inventions/tollhouse.htm〉.

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"Whole Grains: High in Nutrition and fiber yet low in fat." MayoClininc.com. Available from 〈http://www.mayoclinic.com/health/whole-grains/NU00204〉.

see also Bakery Products, Snack Foods