WORKING 

 PAPERS

The Evolution of the Baby Food Industry

2000-2008

Viola Chen

WORKING PAPER NO. 297 

April 2009

___________________________________________________________________________

FTC Bureau of Economics working papers are preliminary materials circulated to stimulate discussion

and critical comment. The analyses and conclusions set forth are those of the authors and do not

necessarily reflect the views of other members of the Bureau of Economics, other Commission staff, or

the Commission itself. Upon request, single copies of the paper will be provided. References in

publications to FTC Bureau of Economics working papers by FTC economists (other than

acknowledgment by a writer that he has access to such unpublished materials) should be cleared with the

author to protect the tentative character of these papers.

______________________________________________________________________________

BUREAU OF ECONOMICS

FEDERAL TRADE COMMISSION

WASHINGTON, DC 20580
THE EVOLUTION OF THE BABY FOOD INDUSTRY 

2000 – 2008 

By Viola Chen1

Bureau of Economics 

Federal Trade Commission 

April 14, 2009 

ABSTRACT

Eight years have elapsed since the Federal Trade Commission (FTC) prevented 

the merger of the formerly number two and number three baby food manufacturers in the 

U.S. Since the abandoned merger, the landscape of the baby food industry has 

significantly evolved. All of the major brands of jarred baby food have experienced 

changes in ownership. The product market may have slightly broadened beyond jarred 

baby food. And, market concentration has increased, but prices have not. Gerber 

increased its market share from 71 – 72% to 73 – 80%. Beech-Nut’s market share 

slightly declined from 13% to 11 – 12%, while Heinz’s former brand, Nature’s Goodness, 

declined from 13% to 2%. With no substantial entry, only Gerber and Beech-Nut enjoy 

double-digit market shares. Also, while the average price of baby food has fluctuated 

over the years, prices in 2008 are the same as prices in 2000, after adjusting for inflation 

and changes in the composition of consumption. By these measures, it appears that the 

market is not much different in 2008 than in 2000. No evaluative judgment on the merger 

decision is made in this paper because the paper does not attempt to predict the 

evolution of the hypothetical alternative. 

 

1

 I would like to thank Daniel Hosken, David Schmidt, Michael Vita, and Paul Pautler for all of their 

helpful comments, suggestions, and discussions. Contact the author at vchen@ftc.gov. The author is a staff 

economist at the Federal Trade Commission. The views expressed in this paper are those of the author and 

do not necessarily represent the views of the Federal Trade Commission or any individual Commissioner. 
2

INTRODUCTION

Eight years have elapsed since the Federal Trade Commission (FTC) prevented 

the merger of the formerly number two and number three baby food manufacturers in the 

U.S. Taking a retrospective look at how the industry has changed as a result of the nonmerger is both a useful and an insightful endeavor. 

FTC v. H.J. Heinz Co. and Milnot Holding Corporation (Milnot Holding is the 

parent company of Beech-Nut) was a particularly significant antitrust case because of its 

potential, albeit an unrealized one, to set a precedent for permitting mergers due to 

efficiencies despite high market concentration. The FTC challenged the merger primarily 

based on the potential anticompetitive effects from high market concentration. According 

to the original court documents, the U.S. baby food market was an $865 million to $1 

billion industry, dominated by three firms: Gerber with 65% market share, Heinz with 

17.4%, and Beech-Nut with 15.4%.2

 Had Heinz and Beech-Nut been allowed to merge, 

the baby food industry would have become a duopoly. 

The defendants, Heinz and Beech-Nut, argued that merger-specific efficiencies 

would more than offset any possible merger-related anticompetitive effects, which they 

contended would be minimal. The defendants argued that these merger-specific 

efficiencies were extraordinary,3

 the cost savings would be passed through to 

consumers,4

 and together, they would be a more effective competitor against Gerber.5 

The efficiencies defense centered on cost savings from consolidating production 

and distribution. The defendants argued that Heinz’s modern Pittsburgh plant was 

producing under capacity, while Beech-Nut’s plant was severely outdated.6

 Under the 

merger plans, both lines would be produced at the Heinz plant,7

 they would select 

recipes from the best of both, and the Nature’s Goodness brand would be discontinued 

in favor of the Beech-Nut brand.8

 Ultimately, however, the court ruled that the 

efficiencies presented were not sufficiently “extraordinary” to allow the merger in light of 

the high concentration. 

Since the abandoned merger, the landscape of the baby food industry has 

evolved in terms of ownership, product market, market share, and prices. First, all of the 

major baby food manufacturers have experienced changes in ownership. Second, the 

relevant product market may have broadened beyond jarred baby food to include plastic 

packaging and baby yogurt. Third, market shares have changed, such that, now only two 

 

2

 These market shares are from the district court documents. Market shares presented in the abstract are 

different from those of the district court possibly because of different data sources, slightly different market 

definition, different share calculation (that is, possibly using quantities rather than sales), or any 

combination of the above. FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 192 (D.D.C. 2000), rev’d, 246 F.3d 

708 (U.S. App. D.C. 2001). 

3

 Id. at 199. 

4

 Id. at 199. 

5

 Id. at 198. 

6

 Id. at 193. 

7

 Id. at 199. 

8

 FTC Public Memorandum, Section III D 1. July 14, 2000. 

(http://www.ftc.gov/os/2000/07/heinzmemo.htm) 
3

firms enjoy double-digit market shares – Gerber at 73-80% and Beech-Nut at 11-12%.9

What was Heinz’s brand, Nature’s Goodness, fell to 2%. Lastly, even though average 

prices for baby food fluctuated over the years, the prices in 2008 are the same as those 

in 2000, after adjusting for inflation and change in the composition of consumption. 

THE CASE

The Facts of the Case 

On February 28, 2000, H.J. Heinz Company agreed to acquire Milnot Holding 

Corporation (Beech-Nut) for $185 million. On July 7th of that same year, the FTC voted, 3 

to 2,10 to seek a preliminary injunction to prevent the merger from taking place. A federal 

district court denied the FTC’s request for a preliminary injunction on October 18, 2000. 

The FTC appealed and on April 27, 2001, the appellate court reversed the decision of 

the district court and granted the preliminary injunction. Subsequently, the two parties 

abandoned the merger agreement. 

The FTC’s Challenge 

The FTC challenged the proposed transaction on the grounds that the high level 

of post-merger concentration would likely result in substantial price increases. The baby 

food industry was already highly concentrated with only three major players accounting 

for well over 90% of the market, and the merger would have reduced the number of 

players from three to two. Moreover, the FTC argued that not only was the concentration 

high, but that the barriers to entry were also high. The market had not seen any 

significant entry in decades, and the parties all agreed that new entry was “difficult and 

improbable.”11 

The FTC argued that with the elimination of a competitor, there would be 

decreased competition at the wholesale level, and as a result, both wholesale and retail 

prices would increase. Grocery stores typically stocked either one or two brands.12

Because they almost always stocked Gerber, Heinz and Beech-Nut competed for the 

secondary spot; hence, they were each other’s most direct competitors, even if they 

almost never appeared together on the same shelf. The two competed for shelf space by 

offering grocery stores fixed trade spending (i.e., slotting fees) and variable trade 

spending (i.e., promotional spending).13 The FTC argued that such competition at the 

wholesale level was healthy and the absence of such competition would lead to higher 

retail prices. 

 

9

 A range of values is presented, because the exact market share depends on how the relevant product 

market is defined. Further discussion on market definition is provided in a later section. 

10 Baker, Jonathan. “Efficiencies and High Concentration: Heinz Proposes to Acquire Beech-Nut (2001).” 

The Antitrust Revolution. 2004. 11 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 196 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

12 Id. at 193. 

13 Id. at 197. 
4

In addition to its concerns about unilateral price increases, the FTC also 

considered the potential of the two remaining competitors to tacitly coordinate. Other 

things equal, theory suggests that coordination between two firms is easier than three, 

and such behavior would result in higher prices for consumers. The FTC was also 

concerned that the merger would decrease incentives to innovate and to maintain high 

quality. Lastly, in anticipation of the efficiencies defense, the FTC contended that while 

the merger might have created some efficiencies, these efficiencies were not likely to 

outweigh the merger’s anticompetitive effects, and in any event, they were not merger 

specific; that is, the efficiencies could be realized by the parties alone without merging.14

The Merging Parties’ Defense 

The merging parties’ strongest efficiency argument involved production 

efficiencies. With the merger, production of baby food would be consolidated at the 

modern Pittsburgh plant, in which Heinz had invested $120 million to update in the early 

1990s.15 The Pittsburgh plant was operating well below capacity. Not only could it handle 

the combined volume of both Heinz and Beech-Nut, but it would still have an additional 

20% capacity for future growth.16 In contrast to Heinz’s modern plant, the parties claimed 

that Beech-Nut’s production facility in Canajoharie, New York, was outdated and not 

technologically current. It was built in 1907 and had been producing baby food since 

1931.17 According to the defendants’ expert testimony, the variable cost savings of 

producing the volume of baby food that was produced by Beech-Nut at Heinz’s modern 

Pittsburgh plant was estimated to be 43%.18 The appeals court noted that this 

extraordinary figure only represented a portion of overall variable manufacturing costs. 

When total variable manufacturing costs was used as the appropriate measure, the cost 

savings estimate was 22.3%.19

In addition to production efficiencies, the parties also presented evidence of 

distribution efficiencies. With six regional distribution centers around the country, Heinz 

claimed to have a more efficient distribution network than Beech-Nut, which only had two 

distribution centers.20 Upon consolidation, Heinz planned to close Beech-Nut’s two 

centers.21 The parties estimated the variable cost savings from both production and 

distribution to be 15%, which they argued would be passed through to consumers.22

Aside from efficiencies, the two parties also argued that they did not really 

compete directly against one another. Therefore, they did not constrain each other’s 

 

14 FTC Public Memorandum. July 14, 2000. (http://www.ftc.gov/os/2000/07/heinzmemo.htm) 

15 Baker, Jonathan. “Efficiencies and High Concentration: Heinz Proposes to Acquire Beech-Nut (2001).” 

The Antitrust Revolution. 2004. 16 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 199 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

17 Id. at 193. 

18 Id. at 199. 

19 FTC v. H.J. Heinz Co. 246 F.3d 708. 721 (2001 U.S. App. D.C.). 

20 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 199 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

21 Id. at 201. 

22 Baker, Jonathan. “Efficiencies and High Concentration: Heinz Proposes to Acquire Beech-Nut (2001).” 

The Antitrust Revolution. 2004. 
5

prices and as a combined entity, they would be a greater competitive constraint on 

Gerber.23 Heinz and Beech-Nut claimed a lack of pre-merger competition, because they 

were almost never on the same store shelf and they had different regional strengths. 

Heinz’s sales were concentrated in Northern New England, the Southeast, the Deep 

South, and the Midwest, while Beech-Nut was found mainly in the Atlantic region, Florida 

and California.24 They also provided econometric evidence that the two did not constrain 

each others’ prices.25

Lastly, the merging parties argued that a larger grocery store presence was 

necessary to justify the overhead costs of developing and marketing new products. One 

standard measure of a product’s distribution in the supermarket industry is ACV or “all 

commodities volume”; it represents the percentage of stores (weighted by revenue) that 

carry a certain product or product line. The ACV of Heinz and Beech-Nut were 40% and 

45%, respectively, meaning that they were on 40% and 45% of supermarket shelves.26

Gerber’s ACV was almost 100%, meaning that almost all food retailers stocked Gerber. 

Heinz testified that it required 70% ACV to justify the costs of innovating and marketing 

new products. With the merger, this threshold could be met,27 but without the merger, 

they could not innovate and successfully compete against Gerber. 

THE BABY FOOD INDUSTRY SINCE THE CASE

Changes in Ownership and Assets 

Since the time of the unsuccessful merger, all of the major baby food 

manufacturers have changed ownership. In 2000, Gerber was owned by Novartis, a 

pharmaceutical company based in Switzerland. In 2007, Novartis sold Gerber to Nestlé, 

a large packaged food company also based in Switzerland, for $5.5 billion. Nestlé was 

producing the Good Start infant formula in the U.S. and baby food in Europe when it 

acquired Gerber.28 

In 2000, the parent company of Beech-Nut, Milnot Holding Corporation, was 

owned by the private equity investment firm, Madison Dearborn Partners. In October of 

2005, Madison Dearborn Partners sold Milnot Holding Corporation, along with BeechNut, to Hero Group.29 Headquartered in Switzerland, Hero Group’s current core products 

include packaged fruit products (like jam), cereals, decoration products, and baby food. 

 

23 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 198 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

24 Id. at 194. 

25 Id. at 196. 

26 Id. at 194. 

27 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 200 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

28 Martin, Andrew and Andrew Ross Sorkin. “Nestlé Agrees to Buy Gerber From Novartis.” New York 

Times. April 13, 2007. 

29 “Hero to purchase Beech-Nut Nutrition: European baby food company to grow the final holding of 

Milnot.” Food Processing. November 1, 2005. 
6

Nature’s Goodness, which was owned by H.J. Heinz at the time of the proposed 

merger, experienced the most ownership turnover. Nature’s Goodness was produced at 

Heinz’s modern Pittsburgh North Side factory. Prior to the proposed merger, in 1999, 

Heinz moved the production of its core product, ketchup, as well as other condiments 

out of Pittsburgh and devoted that entire plant to baby food and soup.30 Thus, all 

subsequent acquisitions of the baby food business were tied to the soup business. 

After the unsuccessful merger, in December of 2002, H.J. Heinz sold Nature’s 

Goodness (along with Starkist tuna, Kibbles ‘n Bits dog food, 9-Lives cat food, and 

Cottage Inn soup) to Del Monte, an American company best known for its canned fruit 

and vegetable products. The $2.85 billion deal included the Pittsburgh factory and office 

complex on the north side of town.31 By the time Del Monte purchased Nature’s 

Goodness, the brand was already on the decline.32 Hoping to invigorate the ailing brand, 

Del Monte heavily invested in the baby food business by launching a new marketing 

campaign for Nature’s Goodness, putting Del Monte’s name on the label, and 

introducing new product lines.33

In the spring of 2006, Del Monte sold Nature’s Goodness to Bay Valley Foods (a 

division of the publicly traded company, Treehouse Foods). Bay Valley produces private 

label foods and food service products, including pickles, non-dairy coffee creamer, and 

sauces. The $275 million deal included the private label soup business, Nature’s 

Goodness baby food, and the Pittsburgh North Side factory. Analysts of the merger 

claimed that the private label soup business fit well with Bay Valley’s line of private label 

products, but Nature’s Goodness did not. 

“After meeting with TreeHouse management, Credit Suisse First Boston 

analysts Robert Moskow and David C. Nelson last month said Del Monte's soup 

business would, at the right price, be a good fit for the Chicago company. 

But they also noted in their report that any deal would come ‘with the 'hair' 

of a not so attractive baby food business.’ “34

Nonetheless, because the Pittsburgh North Side factory manufactured both soup 

and baby food and separating the two would be too costly, the two businesses were sold 

 

30 “Heinz to Phase Out Ketchup Production at Pittsburgh Plant.” Pittsburgh Post-Gazette (via Knight 

Ridder/Tribune Business News). May 20, 1999. 31 Lindeman, Teresa. “Del Monte Chairman visits 'Heinz plant'” Pittsburgh Post-Gazette. December 24, 

2002. 

32 Del Monte’s chairman and chief executive officer, Richard G. Wolford reportedly believed that 

 “... the trouble started two years earlier when the Federal Trade Commission managed to block 

Heinz’s $185 million plan to buy the maker of Beech-Nut foods. 

... 

After the failed deal, Heinz’s strategic direction seem to fall apart, senior management had moved 

on to other projects, and no one devoted much energy to baby food, said Wolford.” 

Lindeman, Teresa. “Del Monte Relaunches Baby Food Line with New Packaging.” Pittsburgh PostGazette (via Knight-Ridder/Tribune Business News). December 19, 2003. 33 Id. 

34 Lindeman, Teresa. “Baby food line could gum up sale of Del Monte soup business.” Pittsburgh PostGazette. December 21, 2005. 
7

together in the transaction. As of today, the Nature’s Goodness brand is owned by Bay 

Valley Foods and is manufactured in Pittsburgh. 

After H.J. Heinz sold Nature’s Goodness, it ceased production in the U.S. 

Despite having considerable sales in Canada, Europe, and other parts of the world, it 

completely exited the U.S. baby food industry.35

The merger investigation eventually focused on Gerber, Beech-Nut, and Nature’s 

Goodness because they were the major players in the baby food industry at that time. 

Two other minor players are now worth mentioning, even though their market shares are 

each in the single digits. 

As a niche market player in the baby food industry, Earth’s Best produces a line 

of premium, organic baby food. Prior to the proposed merger, Heinz had purchased 

Earth’s Best in 199636 and subsequently sold it to Hain Foods in 1999.37 Since Hain 

Foods merged with Celestial Seasonings in 2000, Earth’s Best is now owned by the 

Hain Celestial Group. 

Lastly, Stonyfield could be considered a new entrant in the baby food industry 

with its line of baby yogurt, marketed under the name, YoBaby. Stonyfield supplies a 

complete line of organic yogurt. At the time of the merger, Stonyfield was a company on 

its own. By the end of 2001, Groupe Danone, a French food supplier of dairy products 

(such as Dannon yogurt) and also bottled water (Evian), bought a 40% stake in 

Stonyfield. They subsequently increased their stake to 80% at the beginning of 2004.38 

 

35 “Note to Our American Friends.” Heinz Baby Food Website. 

(http://www.heinzbaby.com/english/american/) 

36 Tascarella, Patty. “Heinz puts on a new baby face.” Pittsburgh Business Times. June 5, 1998. 37 “Company News; Heinz Buys 19.5% Stake in Hain Food for $100 Million.” The New York Times. 

September 28, 1999. 

38 “Company News; Group Danone Increases Stake in Stonyfield Farm to 80%.” The New York Times. 

January 13, 2004. 
8

Figure 1: Changes in Ownership 

Market Definition, Shares, and Size 

At the time of the proposed merger, the relevant product market was determined 

to be jarred baby food and the relevant geographic market was the United States.39 In 

the past eight years, the marketplace has evolved such that jarred baby food may no 

longer be relevant. Jarred baby food is a smaller segment of the market than prepared

baby food. Jarred baby food consists of baby food packaged in glass jars, where as 

prepared baby food is broader. The FTC in its public memorandum supporting the 

preliminary injunction identified prepared baby food as the relevant market, specifically 

excluding home made baby food for its inability to affect prices on prepared baby food,40

but the court specified jarred baby food as the relevant market.41

Whether the market should have been jarred or prepared was not disputed at the 

time of the case. For simplicity, prepared baby food is taken to be the relevant market 

here without performing a specific market definition test. Starting from 2001, Gerber 

 

39 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 195 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 

40 FTC Public Memorandum. July 14, 2000. (http://www.ftc.gov/os/2000/07/heinzmemo.htm) 

41 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 195 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001). 
9

slowly introduced plastic packaging for their baby food. Today, Gerber offers its baby 

food in both glass jars and plastic packaging. Given that the contents are the same and 

the convenience factor is similar, it is reasonable to include baby food packaged in 

plastic as part of the relevant market. 

Another recent development in the baby food industry is baby yogurt. Although 

baby yogurt existed at the time of the proposed merger, the sales revenue was 

negligible. As of today, Stonyfield is the only producer of baby yogurt in the U.S.42, and 

through the years, the sales of its line of baby yogurt, YoBaby, have steadily increased. 

On the one hand, there is some reason to hypothesize that baby yogurt may be 

part of the relevant product market. Baby yogurt may be relevant because it is baby 

food, in the sense that it is food given to babies. Moreover, it is commercially prepared 

and available in convenient packaging. Hence, it falls into the description of prepared 

baby food. Additionally, baby yogurt is not too different from other prepared baby foods 

in terms of age appropriate feeding. According to a study published in Pediatrics, the 

official journal of the American Academy of Pediatrics (AAP), the appropriate age to 

begin baby yogurt is 6 months of age.43 In comparison, 4 to 6 months of age is when an 

infant can begin solid foods, according to the AAP website.44

Also, there is reason to believe that baby yogurt is different from regular yogurt. 

Stonyfield’s YoBaby is specially formulated for infant nutritional needs, as stated on their 

website. Their baby yogurt is made with whole milk and less sugar. Moreover, in addition 

to live cultures needed to make regular yogurt, they included probiotic cultures to aid in 

the absorption of nutrients and enhance digestion.45 Developing and marketing baby 

yogurt may require special knowledge of infant nutritional needs, which differ from those 

of older children and adults. 

On the other hand, there is reason to believe that baby yogurt may not be 

sufficiently close to be included in the relevant market. Whether or not baby yogurt 

belongs in the relevant market depends on Stonyfield’s ability to constrain a competitor 

like Gerber or Beech-Nut from increasing prices by a small, but significant and nontransitory amount. To some extent Stonyfield may have some competitive influence on 

the baby food manufacturers, but surely its ability is limited. After all, parents can only 

substitute so much baby yogurt for strained vegetables, as a response to price changes. 

Appropriate infant nutrition depends on a variety of foods and Stonyfield’s baby yogurt 

can only fulfill one part of a baby’s nutritional needs. 

Relatedly, there are other reasons to doubt Stonyfiend’s role as a competitor in 

the baby food industry. Stonyfield does not offer a complete line of baby food similar to 

Gerber or Beech-Nut. Stonyfield does not produce conveniently packaged containers of 

strained vegetables, fruit, or meat; they only offer baby yogurt. YoBaby is shelved with 

the other Stonyfield yogurt products in the refrigerated section, not on the shelves next 

 

42 While there are multiple producers of children’s yogurt, Stonyfield is the only producer of baby yogurt. 

43 Greer, Frank R. and Krebs Nancy F. “Optimizing Bone Health and Calcium Intakes of Infants, Children, 

and Adolescents.” Pediatrics. 117(2) pp. 578 – 585. February 2006. 44 American Academy of Pediatrics Website. (http://www.aap.org/publiced/BR_Solids.htm) 45 Stonyfield website. (http://www.stonyfield.com/OurProducts/YoBaby.cfm) 
10

to Gerber. In fact, Gerber does not even produce baby yogurt.46 Production of baby 

yogurt versus other prepared baby food is so different that it may not be economical for 

a single supplier to produce both. 

 Since it remains debatable whether or not Stonyfield’s baby yogurt belongs in the 

relevant market, Table 1 and Table 2 present the evolution of market shares over time 

for both potential product markets. Note that in 2000 and 2001 Heinz was transitioning 

away from the “Heinz Baby Food” name, replacing it with “Heinz Nature’s Goodness 

Baby Food.”47 Both names are reflected in the table. 

 2000 2001 2002 2003 2004 2005 2006 2007 2008

Beech-Nut 13% 13% 12% 11% 11% 12% 11% 10% 11%

Earth's Best 2% 1% 1% 1% 1% 2% 3% 4% 5%

Gerber 71% 72% 74% 75% 76% 73% 73% 74% 73%

Heinz 9% 1% 0% 0% 0% 0% 0% 0% 0%

Nature's 

Goodness 4% 

} 13% 

11% 

} 12%

10% 8% 6% 6% 5% 3% 2%

Stonyfield 1% 2% 3% 4% 5% 6% 8% 8% 9%

Table 1: Market Shares of Prepared Baby Food, including Baby Yogurt48

If Stonyfield is removed from the relevant market, then the baby food industry 

becomes even more concentrated, as seen in Table 2. 

 2000 2001 2002 2003 2004 2005 2006 2007 2008

Beech-Nut 13% 13% 12% 11% 12% 13% 12% 11% 12%

Earth's Best 2% 1% 1% 1% 1% 2% 3% 4% 6%

Gerber 72% 73% 76% 78% 79% 78% 79% 81% 80%

Heinz 9% 1% 0% 0% 0% 0% 0% 0% 0%

Nature's 

Goodness 4% 

} 13% 

11% 

} 12%

10% 8% 7% 6% 5% 4% 2%

Table 2: Market Shares of Prepared Baby Food Market, excluding Baby Yogurt 

However the relevant market is defined, that is, whether baby yogurt should be 

included or not, a few commonalities emerge. Beech-Nut’s market share remains 

relatively stable, hovering between 10 and 13% throughout all the years. The share of 

Nature’s Goodness has steadily declined to 2%. Earth’s Best has steadily increased, 

surpassing Nature’s Goodness; yet, it still remains a minor player. Lastly, Gerber’s share 

has grown. The only question is a matter of magnitude. If baby yogurt is included in the 

relevant market, then Gerber’s market share has only increased slightly from 71% to 

 

46 Gerber produces a baby beverage with yogurt, but baby beverages are excluded from consideration. 

47 “New Year`s Newborns Receive Birthday Bucks From Heinz: Heinz Nature`s Goodness Kicks Off New 

Year and New Brand With `Fresh Beginnings`.” Heinz Press Release. December 11, 2000. 48 Market shares presented for 2000 are different from those of the district court possibly because of 

different data sources and slightly different market definition. 

All revenue shares and prices throughout this article are calculated based on sales revenue data from 

January 1, 2000, to November 1, 2008, provided by The Nielson Company. The 2000 data includes WalMart Supercenters in Food Stores from January to August 2000 and excludes Wal-Mart Supercenters from 

September to December 2000. Data from 2001 forward excludes Wal-Mart data. Lastly, data for 2008 

covers the time period from January of that year to November 1st

. 
11

73%. If baby yogurt is excluded, then Gerber has gained quite a bit of market share from 

72% to 80%. Regardless of how the baby food market is defined, only Gerber and 

Beech-Nut hold double-digit market shares today. 

The size of the baby food market can be measured in several ways: by sales 

revenue and by population growth. According to sales revenue data, the baby food 

market grew 1% when baby yogurt is included in the market and decreased 5% when 

baby yogurt is excluded from the market. However, according to data on the population 

of infants (defined as people under the age of one), that market for baby food should 

have increased quite a bit more. According to data from the US Census Bureau, the 

infant population grew a total of 9%. According to data from the National Center for 

Health Statistics, the infant population grew a total of 6%. 

2001 2002 2003 2004 2005 2006 2007

Total % 

Change 

Sales Including 

Baby Yogurt $625 M $620 M $620 M $619 M $613 M $618 M $632 M 1 % 

Sales Excluding 

Baby Yogurt $611 M $601 M $597 M $589 M $575 M $570 M $579 M - 5 % 

Infant 

Population by 

U.S. Census 

Bureau 4,033,748 4,033,719 4003,606 4,077,187 4,106,627 4,130,153 No Info 9 % 

Infant 

Population by 

National Center 

for Health 

Statistics 

Bridged-Race 

Estimates 4,025,926 3,985,102 4,031,134 4,090,884 4,099,610 4,178,898 4,257,020 6% 

Table 3: Size of Baby Food Market 

The disparity between the percent change in sales revenue and the infant 

population growth appears puzzling, because it seems unlikely that the average baby 

would be eating less food. One possible explanation for the disparity is Wal-Mart. 

Because the Nielson data does not include Wal-Mart sales, increasing Wal-Mart shares 

may account for the disparity. Wal-Mart’s total net sales grew 80% from $191 billion in 

2001 to $344 billion in 2007.49 While these figures reflect net sales of all goods and 

services, not just baby food, it remains entirely plausible that an increasing number of 

families purchased baby food from Wal-Mart relative to other retailers. Another 

possibility is an increasing consumption of homemade baby food. Unfortunately, data on 

the consumption of homemade baby food is difficult to find, if any is even available. 

Without further data on either Wal-Mart baby food sales or homemade baby food, no 

definitive conclusions can be drawn about these hypotheses. 

 

49 The figures include all of Wal-Mart’s segments as well as all goods and services. Wal-Mart SEC filing, 

Form 10-K, Filed 04/10/2001 and Filed 03/24/2007. (http://walmartstores.com/Investors/SECFilings.aspx) 
12

Entry 

As expected, there were no significant entrants into the industry in the past eight 

years, just as there had not been in decades. To the extent that baby yogurt belongs in 

the market for prepared baby food, Stonyfield was the largest entrant into the industry. 

The only other worthwhile mention is the entrance of branded private label baby food in 

2002. However, even that fact is hardly worth mentioning, because all together, the 

private label baby food makes up only 1% of baby food sales in 2008. 

Prices 

The average prices for baby food have fluctuated somewhat over the years as 

shown in Table 4, but the average price in 2008 is the same as that in 2000, after 

adjusting for inflation and changes in the composition of consumption.

The inflation index used was the Consumer Price Index – All Urban Consumers, 

Food, Not Seasonally Adjusted. From 2000 – 2007, the annual index was used. For the 

year 2008, the November index was used to correspond to the 2008 Neilson data, which 

was only provided from January 1 to November 1. 

The price change in percentage terms from 2000 to 2008 was calculated by 

using the quantities sold from 2000 in order to account for shifts in consumer spending 

over time. Such accounting is necessary as illustrated by the following example. 

Suppose consumers shifted toward buying more organic baby food, which is more 

expensive, over time. Then the usage of a simple average price change would overstate 

the real price change, because it would capture the higher price due to the shifts in 

consumer demands for organic baby food. 

Since quantities from 2000 were used, Nature’s Goodness prices were used to 

approximate for the price of Heinz during the years, 2005 – 2008, when Heinz had 

dropped out of the market. For the sake of robustness, a couple different methods of 

calculating this price series were performed, all yielding similar results.50

 

50 In one variation, quantities from 2008 instead of 2000 were used, and price in 2000 was the same 

as that in 2008. In the case of baby yogurt’s inclusion to the market, the price in both 2000 and 2008 was 

$2.12. In the case of baby yogurt’s exclusion from the market, the price in both 2000 and 2008 was $2.13. 

 In a second variation, the simple average of Heinz’s prices during 2000 to 2004 was used to 

approximate the prices of Heinz during the years 2005 to 2008. In both cases of baby yogurt’s inclusion to 

and exclusion from the market, prices increased 1% from $2.02 in 2000 to $2.04 in 2008. 
13

 2000 2001 2002 2003 2004 2005 2006 2007 2008 

All prepared 

baby food 

including baby 

yogurt 

$2.02 $2.04 $2.10 $2.15 $2.06 $2.03 $2.06 $2.05 $2.02 

All prepared 

baby food 

excluding baby 

yogurt 

$2.02 $2.04 $2.11 $2.15 $2.06 $2.03 $2.06 $2.05 $2.02 

Table 4: Average Price of a 16 oz. Unit of Baby Food (adjusted for inflation and changes in shares)51

The average price of baby food increased from 2000 to 2003 and after that prices 

have fluctuated with no steady trend either up or down. The largest price jump (in 

percentage terms) within a single year occurred at the time of the abandoned merger; 

prices increased 3% from $2.04 in 2001 to $2.10 - $2.11 (depending on the product 

market definition) in 2002. 

Table 5 decomposes the total price change into all the major brands, thus 

revealing Earth’s Best, Gerber, and Stonyfield as the sources of the total price increase. 

The bulk of the total price increase is attributed to Gerber, because it has the largest 

market share. 

 2000 2001 2002 2003 2004 2005 2006 2007 2008 

Total % 

Change 

Beech-Nut $1.86 $1.82 $1.93 $1.84 $1.73 $1.70 $1.73 $1.70 $1.63 -12% 

Earth's Best $2.43 $2.45 $2.48 $2.40 $2.39 $2.53 $2.65 $2.64 $2.49 2% 

Gerber $2.18 $2.21 $2.27 $2.30 $2.24 $2.21 $2.25 $2.25 $2.24 3% 

Heinz $1.47 $1.50 $1.60 $1.91 $1.64 

Nature's 

Goodness $1.58 $1.46 $1.55 $1.62 $1.58 $1.52 $1.55 $1.51 $1.43 -9% 

Stonyfield $2.02 $2.01 $1.99 $1.98 $1.96 $1.97 $2.05 $2.03 $1.99 1% 

Table 5: Average Price of a 16 oz. Unit of Baby Food (adjusted for inflation)52

Of all the baby food manufacturers, Gerber increased their prices the most (in 

percentage terms), while Beech-Nut decreased their prices the most (again, in 

percentage terms). It is interesting to note that Gerber both gained market share and 

raised prices from 2000 to 2008. On the other hand, Beech-Nut lowered its prices and 

failed to gain market share. Furthermore, the price disparity between Gerber and BeechNut also increased throughout the years. The average price of Gerber in 2000 was 32 

cents higher than Beech-Nut for 16 oz. of baby food. By 2008, that difference increased 

to 61 cents. 

The single largest price jump (in percentage terms) within a single year for 

Beech-Nut, Gerber and Nature’s Goodness occurred the year after the merger was 

abandoned. Comparing 2002 to 2001, Beech-Nut’s price increased 5.7%, Gerber 

 

51 The prices reported are in 2000 dollars. 

52 In the data on units sold, values that were less than 0.01% of a brand’s peak figures were interpreted to 

be insignificant and made zero. 
14

increased 2.6%, and Nature’s Goodness increased 6.2%. In contrast, the largest price 

jump in percentage terms for Earth’s Best occurred in 2005, up 5.9% from 2004 prices. 

Evolution of Market Concentration 

Using the Herfindahl-Hirschman Index (HHI), a measure of market concentration, 

the market concentration in the market for baby food has increased over the past eight 

years. The concentration of a hypothetical market had Heinz and Beech-Nut been 

allowed to merge in 2000 is also provided for reference, but the meaningfulness of 

comparisons between actual HHIs and a hypothetical HHI is limited. 

The HHI is calculated by summing the squares of all the firms’ shares in a 

market. The value varies from 0 to 10,000, where the value 10,000 represents the 

maximum level of market concentration (that is, a single firm serving 100% of the 

market). As a point of reference, The Horizontal Merger Guidelines specifies that any 

market with an HHI above 1800 is considered highly concentrated. 

Using the market shares from Table 1 and Table 2, the HHI evolved over time as 

shown in Table 6. With values ranging from 5400 to almost 6500, there is no doubt that 

the baby food industry is very concentrated. 

 2000 

If 

merged 

in 2000 2001 2002 2003 2004 2005 2006 2007 2008 

HHI (all 

prepared 

baby food 

including 

baby yogurt) 

5400 5719 5441 5662 5890 5901 5599 5490 5659 5483 

HHI (all 

prepared 

baby food 

excluding 

baby yogurt) 

5555 5883 5696 6021 6332 6485 6317 6380 6654 6497 

Table 6: HHI 

Without question, a merger back in 2000 would have increased market 

concentration in an already highly concentrated market. In the few years immediately 

after the abandoned merger, market concentration steadily rose until 2004. From 2004 

until 2008, the market concentration has fluctuated, going up and down with no steady 

trend. 

Innovation 

Aside from preventing monopolistic prices, another reason to promote 

competition is to preserve incentives to innovate. In this industry, despite the high market 

concentration, both Gerber and Beech-Nut innovated during the past eight years, the 

former in terms of packaging and the latter in terms of nutrition. 

Starting in 2001, Gerber introduced plastic packaging after decades of using 

glass jars. Gerber was the first baby food manufacturer to offer this new packaging 

alternative. According to an article in Food and Drug Packing, 70% of mothers favored 
15

the plastic over glass, citing convenience. 53 However, other parents have been 

skeptical of Gerber’s innovation and believe that it was merely a ploy to covertly increase 

prices. The traditional glass jars contain 4.0 oz. of food, while the plastic tubs are sold in 

two-packs with each tub containing 3.5 oz. of food.54 The difference in packaging sizes 

may possibly make it more difficult for parents to determine whether sticker price 

changes translated to per-ounce price changes. 

The plastic packaging innovation was sufficiently successful to warrant Gerber’s 

further investment of it. The production of this new packaging began at Gerber’s 

Fremont, Michigan, plant. At the end of 2003, Gerber began a $65 million investment to 

incorporate new equipment for the plastic packaging at their Fort Smith plant in 

Arkansas.55

Beech-Nut has also innovated over the years. In 2002, Beech-Nut improved the 

nutrition in its food by including DHA, an omega-3 fatty acid found naturally in breast 

milk. 56 Beech-Nut continued expanding this line in 2007 by introducing a new line of 

DHA-plus+. The “plus” indicates that the food also includes prebiotics that helps 

digestion and the absorption of calcium.57 

Efficiencies 

At the time of the case, the FTC contended that the efficiencies were not merger 

specific,58 while the parties claimed otherwise; that is, those efficiencies could not be 

achieved without merging. As it turned out eight years later, Beech-Nut may have found 

a way to achieve greater production efficiencies without the merger. 

During the case, Beech-Nut claimed that their manufacturing plant was severely 

outdated. As previously mentioned, the plant was built in 1907 and began manufacturing 

baby food in 1931. While Beech-Nut continues to manufacture baby food from that same 

plant today, they are also now building a new 635,000 sq. ft. production facility, which is 

slated to open in the fall of 2009. Beech-Nut officials were already in discussion with 

various elected government officials hoping to receive financial assistance for this 

project, when in June 2006, the outdated factory suffered massive flood damage.59 The 

new facility will cost $124 million, of which up to $106.5 million could be publicly funded 

through a number of grants and tax incentives from the state, county, and local 

 

53 Pierce, Lisa McTigue . “Gerber takes the first step to convenient plastic packaging.” Food and Drug

Packing. July 2001. (http://findarticles.com/p/articles/mi_m0UQX/is_7_65/ai_77027061) 54 Mohl, Bruce. “The Bostom Globe Consumer Beat Column.” The Boston Globe. May 25, 2003. 55 Vinas, Tonya. “Locations – Gerber Plant Steps Up To the Plate.” Industry Week. October 1, 2003. 56 On Beech-Nut’s website (http://www.beechnut.com/Our%20Company/itn_pr2.asp) 57 On Beech-Nut’s website (http://www.beechnut.com/Our%20Company/itn_pr_07_11_13.asp) 58 FTC Reply Memorandum, p. 23. July 14, 2000. (http://www.ftc.gov/os/2000/07/bfoodreply828.pdf) and 

FTC v. H.J. Heinz Co. 246 F.3d, 721-722 (2001 U.S. App. D.C.). 

59 Harlin, Kevin. “Schumer pushes aid for Beech-Nut plant.” Times Union. August 1, 2006. 
16

governments.60 Beech-Nut also plans to move its corporate headquarters from St. Louis, 

Missouri, to the new facility in New York.61

Whether or not the anticipated savings from producing at the new plant will be 

roughly the same as that from the proposed merger is hard to say, but it seems 

plausible. Nevertheless, even if it’s possible to claim that the production efficiencies in 

the two situations are roughly the same, the social costs incurred are not. The 

efficiencies from the proposed merger would have resulted from utilizing the excess 

capacity of an already existing plant, rather than from a new one. Under the proposed 

merger, production of over 85% of prepared baby food in the U.S. would have been 

manufactured at the Gerber plants and the Pittsburgh plant. Instead, production of 

roughly the same amount of baby food will be spread across not only the Gerber plants 

and the Pittsburgh plant, but also the new Beech-Nut plant, which will cost $124 million 

to build. 

Moreover, the current operational efficiency of the Pittsburgh plant may have 

changed over the years as Nature’s Goodness lost market share. At the time of the 

case, the Pittsburgh plant was already under-utilized. Now, the Pittsburgh plant may 

possibly have more excess capacity than before since the demand for Nature’s 

Goodness has decreased. On the other hand, it is also possible that the Pittsburgh plant 

does not suffer from under-utilization if the necessary investments have been made to 

convert the equipment that made baby food into producing something else. 

In sum, although Beech-Nut may be able to achieve the same production 

efficiencies without the merger, this achievement required a delay of eight years and a 

substantial, additional investment. 

CONCLUSION

As the industry stands today, the marketplace for baby food does not appear to 

be very different from what it was eight years ago. The most significant change is 

increased concentration. With Heinz’s former brand, Nature’s Goodness now at 2% 

market share, only Gerber and Beech-Nut have double-digit market shares at 73 – 80% 

and 11-12%, respectively. 

The FTC challenged the merger because it was a merger to duopoly. Given 

Heinz’s plans to discontinue its own brand, in favor of Beech-Nut, consumers would 

have been limited to the brands Gerber and Beech-Nut if the merger were permitted. 

Today, there are only two firms with double-digit market shares – Gerber and BeechNut. With the Nature’s Goodness brand down to a 2% market share, consumers are 

effectively faced with choosing between Gerber and Beech-Nut. 

In looking at market shares today (when baby yogurt is excluded), the lost shares 

of Nature’s Goodness appear to have been diverted to Gerber, and not Beech-Nut. 

Beech-Nut’s market share today is still at 12%, whereas, Gerber’s share grew to 80%. If 

 

60 Andersen, Eric. “Beech-Nut plant gets under way.” Times Union. May 22, 2008. 61 “Beech-Nut Announces New Production Facility in Town of Florida and Relocation of Headquarters.” 

Beech-Nut Press Release. May 15, 2007. (http://www.beechnut.com/Our%20Company/itn_pr3.asp) 
17

the merger were permitted, the market share of the Beech-Nut brand (as owned by 

Heinz) would have been 26% in 2000. It’s difficult to speculate how that market share 

would have evolved over the years. On the one hand, the claimed efficiencies in 

production and distribution might have been realized and helped the combined parties 

gain further market share against Gerber. On the other hand, the lost sales from 

discontinuing Nature’s Goodness might have been diverted to Gerber rather than BeechNut. 

The price of baby food has remained relatively constant from 2000 to 2008. Of all 

the baby food manufacturers, Gerber’s price increase was the largest of all the baby 

food manufacturers at 3%, and Gerber’s market share also increased during that time 

frame. Beech-Nut, on the other hand, decreased their prices by 12%, the largest 

decrease of all the baby food manufacturers, and yet did not gain any market share. 

During the case, the FTC contended that the efficiencies were not merger 

specific;62 that is, the parties could achieve efficiencies without merging. With the 

construction of a new plant, Beech-Nut appears able to gain production efficiencies 

absent the merger. However, it required a delay of eight years and an investment of 

$124 million. 

Also during the case, Beech-Nut had attempted a failing firm defense,63 but it 

turned out that Beech-Nut was not a failing firm. Despite their old factory, they remained 

in business for another eight years after the case, and they found a way to sustain their 

business for the future. When the new plant opens and Beech-Nut is able to realize 

production efficiencies, it will be interesting to see what improvements might emerge in 

the baby food industry. 

 

62 FTC Reply Memorandum, p. 23. July 14, 2000. (http://www.ftc.gov/os/2000/07/bfoodreply828.pdf) and 

FTC v. H.J. Heinz Co. 246 F.3d, 721-22 (2001 U.S. App. D.C.). 

63 FTC v. H.J. Heinz Co. 116 F. Supp. 2d 190, 200 n.9 (D.D.C. 2000), rev’d, 246 F.3d 708 (U.S. App. D.C. 

2001).