Kroger's New Food Scoring System Spells Trouble for Food Manufacturers

Last Updated Mar 26, 2010 1:32 PM EDT

In what might first look like economic suicide, Kroger (KR), the nation's largest supermarket chain, has decided to rate nearly all of the products it sells according to how nutritious they are. For Kroger, it's actually a smart marketing move. But for food manufacturers, this could be very bad news.

Kroger is testing the NuVal system of ranking foods in an initial 23 stores in Kentucky with the hopes that the program will be expanded to all of Kroger's 2,400 stores. NuVal, which was developed by prominent nutrition scientist David Katz at Yale, analyzes 30 food factors and ingredients and gives products a score from 1 to 100, rankings that appear prominently on Kroger shelves next to the price tag.

Food manufacturers will no doubt receive a wide range of scores for their products, but do Pepsi (PEP) and Coke (KO) really want to see a big fat 1 standing in judgment next to liters of their regular sodas, or even a dismal 15 next to the "healthier" diet versions? Coke's Minute Maid pink lemonade doesn't fare much better -- it gets a 2 (presumably the splash of lemon juice from concentrate gave it that extra point).

Other products fare much better. Post Foods' Shredded Wheat gets a 91 and Pepperidge Farm's whole grain bread gets a 46. But here's the problem for Kraft (KFT), General Mills, ConAgra (CAG), Kellogg (K), PepsiCo and all the other companies that populate the supermarket center aisles with what many have called junk food. Next to the score of 96 awarded to an apple, even the 52 for Mott's applesauce doesn't look so great. This is why food manufacturers desperately wanted to create their own, more generous system of "Smart Choices." Compared to the actual, truly healthy stuff in supermarkets -- fruits, vegetables, nuts, eggs, some dairy products, plain chicken breasts, etc. -- all the other stuff, which just happens to provide food companies with their profits, doesn't look so good. Of course, we already know that Lay's potato chips are not a health food, but there's nothing like seeing a cold hard number (in this case 17) to bring the point home.

NuVal, a company based in Braintree, Mass., gets licensing fees from supermarkets who use its rating system. It's been around since 2008, but this is first time a major supermarket chain has decided to adopt it. In today's hyper competitive grocery market, Kroger's move boils down to one word -- Walmart (WMT). By adopting NuVal as part of its new Health Matters program, which also includes free dietician-led tours of stores and a health station where shoppers can get their blood pressure, heart rate and the like checked, Kroger is hope to distinguish itself from Walmart, which has been gobbling up grocery market share in recent years.

Of course, Kroger is taking a risk. If the NuVal system is effective, shoppers might not just switch to more nutritious products -- they might actually buy less. But in an age when shoppers are more dumbfounded than ever about what's healthy, that seems like a risk worth taking.