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Gerber Products Company

Gerber Products Company

445 State Street
Fremont, Michigan 49413-0001
U.S.A.
(616) 928-2000
Fax: (616) 928-2408
Web wite: http://www.gerber.com

Wholly Owned Subsidiary of Sandoz Ltd.
Incorporated:
1901 as Fremont Canning Company
Employees: 12,871
Sales: $1.26 billion
SICs: 2032 Canned Specialties; 2361 Girl/Childrens Dresses & Blouses; 3069 Fabricated Rubber Products, Not Elsewhere Classified; 3089 Plastics Products, Not Elsewhere Classified

A longtime giant of the baby food industry, Gerber Products Company enjoys a solid reputation as the largest supplier of baby products in the world. Gerber has dominated the baby product market in the United States since its introduction of the first commercially successful baby food in 1928 despite serious and recurrent competition, such public relations crises as the glass scares of 1984 and 1986, and several failed diversification strategies. In 1994 Gerber was purchased by the Swiss pharmaceutical company Sandoz. The management of both companies planned to use the parent companys financial backing and international marketing expertise to make Gerber products as popular and profitable abroad as they are at home.

Early History as a Canning Company

Gerber traces its origins to the Fremont Canning Company, a small packager of peas, beans, and fruits in rural Michigan begun by Frank Gerber and his father in 1901. At that time, Gerber also served as a partner in his fathers tannery. When the tannery closed in 1905, Gerber focused all his efforts on building the canning company. By 1914 he had expanded his plant to permit year-round production. Three years later, with the death of his father, Gerber became president of the company and saw its sales exceed $1 million for the first time. Following a brief postwar dip in profits, Fremont Canning experienced steady growth during the 1920s.

By 1926 Frank Gerbers son Daniel had risen to assistant general manager of the company. A year later Daniels wife, Dorothy, made a suggestion: that Dan persuade his father to begin manufacturing and selling strained baby foods in order to end the tedious chore of cooking, mashing, and otherwise preparing solid foods for infants. Frank and Daniel undertook extensive preliminary research before launching the concept, thoroughly testing the products, contacting nutrition experts, distributing thousands of samples, and conducting follow-up market research interviews. The baby food line was introduced successfully in 1928, and the Gerbers careful implementation of the idea, relying on both professional and public endorsement, established the foundation upon which the present-day business rests.

The key to Gerbers successful marketing plan for baby food was an advertisement placed in Good Housekeeping, which enlisted mothers of young children to participate directly in a coupon redemption program. The introductory offersix cans of Gerbers soup and strained vegetables for $1.00 and the name of a favorite grocerstressed the nutritional and time-saving value of Gerbers foods and sought to generate enough responses that the canning company could offer proof to grocers of the new demand for stocking baby food on their shelves. The campaign was overwhelmingly successful, resulting in national distribution within six months and first-year sales of 590,000 cans, with gross revenues of $345,000. In effect, the Gerbers had created a new industry, served previously only by pharmacists, and then only under special circumstances and at a high cost to the consumer. (Pharmacies typically priced 4.5 oz. cans at 35 cents each. The Gerbers, through mass production and marketing, were able to sell their cans at just 15 cents each, which was still a premium price compared to the cost of adult foods, but was nonetheless well within the reach of the average American household.)

The companys monopoly on the market did not last long. By 1935 more than 60 other manufacturers had introduced their own vitamin-rich, pressure-cooked, sealed baby foods. However, Fremont Canning held its commanding lead because of the widely held and well-earned perception that the Gerber name was synonymous with quality and expert-backed research. In addition, no other company possessed a logo approaching the appeal of the Gerber Baby, which was already famous; or a research and education department that flooded the market with useful pamphlets on parenting, feeding, and child psychology; or such a model spokesperson as Dorothy Gerber, whose newspaper column Bringing up Baby held sway with thousands of mothers nationwide. During the difficult years of the Great Depression, the Gerbers underscored their strength and vision for the future by implementing a state-of-the-art agricultural program, expanding into the Canadian market, doubling their line of foods, and topping $1 million in annual sales.

An Industry Leader by the Mid-1900s

The 1940s marked the full maturation of the baby food producer. By 1941 the company, which was meeting a demand for a million cans of baby food each week, was renamed the Gerber Products Company. Two years later the company abandoned production of adult foods altogether and opened a second baby food plant in Oakland, California. Given the post-World War II baby boom, Gerbers timing could not have been better: by 1948 it was poised to channel all its resources toward satisfying a domestic demand that had swelled to two million cans daily. That same year, the company adopted its trademark slogan: Babies are our business our only business.

The 1950s saw the addition of three new plantsin Asheville, North Carolina; Rochester, New York; and Niagara Falls, Ontarioand an official changing of the guard that occurred with the death of Frank Gerber in 1952. Under the leadership of Dan Gerber, the company embarked on a new mission of expansion and diversification. Highlights of this era, which extended until Gerbers relinquishment of the CEO position in 1971, included the launching of the Gerber toy line in 1955, a listing on the New York Stock Exchange in 1956, the opening of a Mexican subsidiary in 1959, and the introduction of a large line of baby-related products in 1965. At the time of Daniel Gerbers death in 1974 the company could boast that it was the worlds largest baby-food manufacturer, with sales of $278 million and an enviable domestic market share of nearly 70 percent. This was all the more remarkable since Gerber Products was just concluding a five-year price war with its competitors, at the beginning of which it held only a 53 percent share.

Competition and Other Challenges: 1970s-80s

Ironically, at this high point the company had amended its slogan to read simply, Babies are our business, a reflection of the companys slow drift away from the formative philosophy of the 1940s. In 1977 the company faced down a major threat when Anderson, Clayton, and Company, a food products firm based in Houston, launched a serious takeover attempt. Fortunately, the probability of a long legal battle dissuaded Anderson from further action and preserved Gerbers independence. Within two years, Gerber began in earnest a major campaign of diversificationin part to offset expected declines in birth rateswith the acquisition of CW Transport, a freight carrier based in Wisconsin. Although furniture, toy, and other subsidiaries followed, by 1989 Gerber had divested itself of many of these fringe ventures in order to refocus on its more profitable baby food, baby care, and clothing lines.

Perhaps the most serious threat to Gerber during the 1980s arose not from its broad policy of acquisition but from the public relations crises of 1984 and 1986. Gerber responded to the first of these two crisesinvolving reports alleging the presence of glass fragments in jars of baby juiceby recalling some 550,000 jars in a 15-state region. This cautionary action was viewed favorably by the public, and financial damage incurred by the company was limited to only a short-term, 4 percent drop in sales. The second glass crisiswhich, like the first, sparked investigations that ultimately exonerated Gerberinvolved some 645 complaints spread over 40 states. This time Gerber, headed by William L. McKinley, chose to remain silent and to take no action other than offer its cooperation with federal investigators. The decision proved unpopular and contributed at least in part to a drop in profits from $69 million in 1985 to $54 million in 1987; McKinley departed shortly after the resolution of the glass scare and was replaced by Leo D. Goulet.

Goulets sudden death in 1987 forced the companys board of directors to seek new management from outside the company. Their search culminated in the hiring of David W. Johnson, who was perceived by many as a much-needed antidote to the companys apparent lack of direction and vitality. Johnsons aggressive reemphasis, through advertising and product development, on Gerber as a major food company resulted in a 46 percent improvement in earnings from 1987 to 1988. However, with Gerber at the threshold of $1 billion in annual revenues, Johnson left the company to become CEO of Campbell Soup. Johnsons replacement, former Carnation senior vice-president Alfred A. Piergallini, effectively sustained the Gerber reorientation through a superbrand development and marketing strategy, most notably with the introduction of the 16-product Tropical line of baby foods in 1991 and the 23-item Gerber Graduates line in 1992. As Piergallini wrote in the companys 1991 annual report, Our ability to offer food, clothing, and care items for children from birth through three years of age under a single major brand sets us clearly apart from our competitors. We will leverage this advantage by expanding into new channels of distribution domestically and, over time, internationally, through the development of an infant and childrens category approach for our retail customers. In 1991 Gerber entered foreign markets including the USSR, Thailand, Brazil, Chile, and Sweden, and in February 1992 purchased 60 percent of Alima, S.A., a Polish producer of food and juices. Of special significance to Gerber was the fact that although 98 percent of the worlds births occur outside the United States, only 10 percent of Gerbers sales derived from this still largely untapped market.

The 1990s and Beyond

Curiously, although 1992 marked a record year of sales and earnings for Gerber, punctuated by a strong performance of its insurance subsidiary and a prudent streamlining of Gerber Children swear, the company approached 1993 with uncertainty. Since July 1992 Gerber had been attempting, unsuccessfully, to sell off Buster Brown Apparel, a once-profitable supplier of high-fashion clothing that had shown a trend toward declining sales. More importantly, Gerber was experiencing heavy competition in the form of a discounting blitz from H. J. Heinz Co. and Ralston Purina Co.s Beech-Nut unit, which was undercutting Gerbers prices by as much as 28 cents per jar. Although the price-cutting storm had shown signs of abating by the end of 1992, Gerbers stock nonetheless suffered in December due to lowered earnings and food sales volume estimates for fiscal 1993, Commentators noted that Gerber might also have difficulty recapturing its baby food market share, which had fallen in September to 67.6 percent.

Gerber redoubled its efforts to vigorously promote itself both at home and abroad. In January 1994, Gerber announced a licensing agreement with Toy Biz, Inc., a partially owned subsidiary of Marvel Entertainment Group, to develop a line of toys and electronics for infants and toddlers. Gerber also sought to raise awareness of infants nutritional needs with the help of a $15 million marketing campaign for Gerber Graduates, a line of foods for children older than fifteen months. Argued Piergallini: U.S. consumption of baby food begins at about 5-6 months of age and falls off at about 16 months. This is not good. Babies special nutritional and developmental needs are not met with adult foods and breast milk or formula alone. Although this claim was met skeptically by nutritional experts and many parents, the Graduates line generated revenues of $58 million in 1994, more than doubling its sales from the year before.

Nevertheless, analysts urged a takeover: Gerber, they reasoned, had expanded as far as it could domestically and needed the clout of a multinational parent to move effectively into international markets. Gerber agreed. After months of shopping for a suitable buyer, in May 1994 Gerber announced that it would be purchased by Sandoz Ltd., the Swiss pharmaceutical giant, for $3.7 billion. Gerber employees were relieved to see the company go to an international firm with minimal presence in the United States, rather than to RJR Nabisco or other U.S.-based firms that were rumored to be interested, as an international firm was considered less likely to effect consolidations that would result in huge job losses. Indeed, less than 100 employees were displaced by the acquisition. Some critics considered the purchase price for Gerber high at $53 a share, or 53 percent above the going price for Gerber stock, and 30 times Gerbers annual profit. These are the highest acquisition multiples seen in the industry for ten years, said Robin Campbell, a London analyst for CS First Boston. Theyre stratospheric.

Analysts also cautioned that the Sandoz/Gerber alliance was not necessarily a perfect match. Sandoz, which is primarily known for its pharmaceutical and chemical products, had limited experience in the nutritional arena. In addition, international growth could be a struggle for Gerber because parents outside the United States are frequently wary of pre-packaged baby food. While American parents consume about 49 dozen jars of baby food per birth per year, Japanese parents consume five dozen, Taiwanese parents four dozen, and Polish parents one dozen. Finally, it was noted that by moving Gerber products aggressively into Europe, Sandoz could set off a price war in a very fragmented market.

In 1995 Gerber made its first entry into the adult nutrition market in the United States, announcing the introduction of Resource, a nutritional supplement drink for adults 55 and older. The product on which Resource was based was originally marketed by Sandoz to hospitals and nursing homes. While the product would not be marketed in the United States under the Gerber name, Gerber officials speculated that future collaborations between Gerber and Sandoz could include a Gerberbranded line of childrens Pharmaceuticals.

During the next two years Gerbers sterling reputation was challenged. In 1996 the Center for Science in the Public Interest disputed some of the health claims made by Gerber advertising. Later that year, under pressure from consumers, Gerber announced that it would stop adding starch and sugar to 42 of its baby foods, with another 80 to follow. The following year the Federal Trade Commission accused Gerber of distorting the results of a survey in which, Gerber had claimed, four out of five pediatricians had recommended Gerber products. In reality, most respondents to the survey didnt recommend any specific brand; of the few who did, four out of five did recommend Gerber. The company apologized for any confusion and stated that the ads had been pulled a year earlier in favor of a new campaign. Gerbers settlement with the FTC barred the company from making unfounded claims in the future.

Principal Subsidiaries

Alima-Gerber, S.A. (60%); Buster Brown Apparel, Inc.; Gerber (Canada) Inc.; Gerber Childrenswear, Inc.; Gerber Family Services, Inc.; Gerber France, S.A.R.L.; Gerber Life Insurance Company; Gerber Polska; Gerber Products Company of Puerto Rico, Inc.; Gerber Products Company Singapore (PTE.) LTD.; Productos Gerber de Centroamerica, S.A.

Further Reading

Baldo, Anthony, Gerber: The Baby Is About to Burp, Financial World, July 25, 1989, p. 16.

Berss, Marcia, Limited Horizons, Forbes, October 12, 1992, p. 66.

Brown, Paul B., Unloved but Not Unworthy, Forbes, November 19, 1984, p. 286.

Cleary, David Powers, Gerber Baby Foods, Great American Brands: The Success Formulas that Made Them Famous, New York: Fair-child Publications, 1981, pp. 112-19.

Daniel F. Gerber Is Dead at 75; Brought Baby Foods to Millions, New York Times, March 18, 1974, p. 32.

Fannin, Rebecca, High Stakes at the High Chair, Marketing & Media Decisions, October 1986, pp. 62-72.

Fifty Years of Caring: Our Golden Anniversary Year, 1928-1978, Fremont, Mich.: Gerber Products Company, 1978.

Fucini, Joseph J., and Suzy Fucini, Dan Gerber: Gerber Baby Food, Entrepreneurs: The Men and Women behind Famous Brand Names and How They Made It, Boston: G. K. Hall & Co., 1985.

Gershman, Michael, Gerber Baby Food: Strained Relations, Getting It Right the Second Time, Reading, Penn.: Addison-Wesley Publishing Company, 1990, pp. 119-23.

Gibson, Richard, Gerber Products Expects Drop in Fiscal 93 Net, Wall Street Journal, December 16, 1992, p. A5.

Hanes, Phillis, Baby Food Goes Multicultural, Christian Science Monitor, June 18, 1992, p. 14.

Hellmich, Nanci, Gerber Removes Starch, Sugar from Most of Its Baby Food, USA Today, June 27, 1996.

Lane, Amy, Gerber Eyes Expansion through New Owner, Crains Detroit Business, September 11, 1995.

McGill, Douglas C., Making Mashed Peas Pay Off, New York Times, April 9, 1989, p. F4.

Mitchell, Russell, and Judith H. Dobrzynski, Why Gerber Is Standing Its Ground, Business Week, March 17, 1986, pp. 50-51.

Mohl, Bruce, FTC: Gerber Distorted Baby Food Ad Claims; Company Settles Charges, Apologizes for Confusion, Boston Globe, March 13, 1997.

Pick, Grant, Gerbers Baby under Stress, Across the Board, July-August 1986, pp. 9-13.

Moskowitz, Milton, Robert Levering, and Michael Katz, eds., Gerber, Everybodys Business: A Field Guide to the 400 Leading Companies in America, New York: Doubleday, 1990, pp. 48-9.

Rickard, Leah, and Laurel Wentz, Sandoz Opens World for Gerber, Advertising Age, May 30, 1994.

Shapiro, Eben, Gerber Shares Drop 5% on Weakened Outlook, New York Times, October 15, 1992, p. D5.

Strnad, Patricia, Gerber Seeks Superbrand Role, Advertising Age, April 9, 1990, p. 26.

Turcsik, Richard, Gerber Sees Opportunity for Toddler Food Category, Supermarket News, August 24, 1992, p. 26.

Wellman, Elaine, Toy Biz Introduces Innovative Line of Gerber Infant and Toddler Interactive Toys and Products, PR Newswire, January 26, 1994.

Why Gerber Makes Such an Inviting Target, Business Week, June 27, 1977, pp. 26-7.

Woodruff, David, Gerber: Mush Ado , Business Week, February 5, 1990, p. 30.

, Strained Peas, Strained Profits? Business Week, June 6, 1994.

Jay P. Pederson

updated by Paula Kepos

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Gerber Products Company

Gerber Products Company

445 State St.
Fremont, Michigan 49413-0001
U.S.A.
(616) 928-2000
Fax: (616) 928-2723

Public Company
Incorporated: 1901 as Fremont Canning Company
Employees: 12,871
Sales: $1.26 billion
Stock Exchanges: New York Midwest
SICs: 2032 Canned Specialties; 2361 Girl/Childrens Dresses & Blouses; 3069 Fabricated Rubber Products Nee; 3089 Plastics Products Nee.

A longtime giant of the baby food industry, Gerber Products Company enjoys a solid reputation as the largest supplier of baby products in the world. Gerber has dominated this market since its introduction of the first commercially successful baby food in 1928, establishing a 71 percent U.S. market share despite serious and recurrent competition, such public relations crises as the glass scares of 1984 and 1986, various management transitions and takeover threats, and several failed diversification strategies. The strong, steady growth from fiscal 1988 through fiscal 1992 of Gerber and its most important subsidiaries, including Gerber Childrenswear, Inc., and the Gerber Life Insurance Company, is the result of the firms realignment with the slogan Babies are our business our only business! Under the recent direction of Alfred A. Piergallini, Gerber has promised to pursue a superbrand strategy of both domestic and international expansion within this one market that it arguably understands and can capitalize on as none of its competitors can.

Gerber traces its origins to the Fremont Canning Company, a small packager of peas, beans, and fruits in rural Michigan begun by Frank Gerber (1873-1952) and his father in 1901. At that time, Gerber also served as a partner in his fathers tannery. When the tannery closed in 1905, Gerber focused all his efforts on building the canning company. By 1914 he had expanded his plant to permit year-round production. Three years later, with the death of his father, Gerber became president of the company and saw its sales exceed $1 million for the first time. Following a brief postwar dip in profits, Fremont Canning experienced steady growth during the 1920s.

By 1926 Frank Gerbers son Daniel (1898-1974) had risen to assistant general manager of the company. A year later Daniels wife, Dorothy, made a monumentally significant suggestion: that Dan persuade his father to begin manufacturing and selling strained baby foods in order to end the tedious chore of cooking, mashing, and otherwise preparing solid foods for infants. Frank and Daniel undertook extensive preliminary research before launching the concept, thoroughly testing the products, contacting nutrition experts, distributing thousands of samples, and conducting follow-up market research interviews. The baby food line was introduced successfully in 1928, and the Gerbers careful implementation of the idea, relying on both professional and public endorsement, established the foundation upon which the present-day business rests.

The key to Gerbers successful marketing plan for baby food was the advertisement placed in Good Housekeeping, which enlisted mothers of young children to participate directly in a coupon redemption program. The introductory offersix cans of Gerbers soup and strained vegetables for $1.00 and the name of a favorite grocerstressed the nutritional and time-saving value of Gerbers foods and sought to generate enough responses that the canning company could offer proof to grocers of the new demand for stocking baby food on their shelves. The campaign was overwhelmingly successful, resulting in national distribution within six months and first-year sales of 590,000 cans with gross revenues of $345,000. In effect, the Gerbers had created a new industry, served previously only by pharmacists, and then only under special circumstances and at a high cost to the consumer. (Pharmacies typically priced 4.5 oz. cans at 35 cents each; the Gerbers, through mass production and marketing, were able to sell their cans at just 15 cents each, still a premium price given the cost of adult foods but nonetheless now well within the reach of the average American household.)

The companys monopoly on the market did not last long. By 1935 more than sixty other manufacturers had introduced their own vitamin-rich, pressure-cooked, sealed baby foods. However, Fremont Canning held its commanding lead because of the widely held and well-earned perception that the Gerber name was synonymous with quality and expert-backed research. In addition, no other company possessed a logo approaching the appeal of the Gerber Baby, which was already famous; or a research and education department that flooded the market with useful pamphlets on parenting, feeding, and child psychology; or such a model spokesperson as Dorothy Gerber, whose newspaper column Bringing up Baby held sway with thousands of mothers nationwide. During the difficult years of the Great Depression, the Gerbers underscored their strength and vision for the future by implementing a state-of-the-art agricultural program, expanding into the Canadian market, doubling their line of foods, and topping $1 million in annual sales.

The 1940s marked the full maturation of the baby food producer. By 1941 the company, which was meeting a demand for a million cans of baby food each week, was renamed the Gerber Products Company. Two years later the company abandoned production of adult foods altogether and opened a second baby food plant in Oakland, California. Given the post-World War II baby boom, Gerbers timing could not have been better: by 1948 it was poised to channel all its resources toward satisfying a domestic demand that had swelled to 2 million cans daily. That same year, the company adopted its trademark slogan: Babies are our business . . . our only business.

The 1950s saw the addition of three new plantsin Asheville, North Carolina; Rochester, New York; and Niagara Falls, Ontarioand an official changing of the guard that occurred with the death of Frank in 1952. Under the leadership of Dan Gerber, the company embarked on a new mission of expansion and diversification. Highlights of this era, which extended until Gerbers relinquishment of the CEO position in 1971, included the launching of the Gerber toy line in 1955, a listing on the New York Stock Exchange in 1956, the opening of a Mexican subsidiary in 1959, and the introduction of a large line of baby-related products in 1965. At the time of Daniel Gerbers death in 1974 the company could boast that it was the worlds largest baby-food manufacturer, with sales of $278 million and an enviable domestic market share of nearly 70 percent. This was all the more remarkable since Gerber Products was just concluding a five-year price war with its competitors, at the beginning of which it held only a 53 percent share.

Ironically, at this high point the company had amended its slogan to read simply, Babies are our business, a reflection of the companys slow drift away from the formative philosophy of the 1940s. In 1977 the company faced down a major threat when Anderson, Clayton, and Company, a food products firm based in Houston, launched a serious takeover attempt. Fortunately, the probability of a long legal battle dissuaded Anderson from further action and preserved Gerbers independence. Within two years, Gerber began in earnest a major campaign of diversificationin part to offset expected declines in birth rateswith the acquisition of CW Transport, a freight carrier based in Wisconsin. Although furniture, toy, and other subsidiaries followed, by 1989 Gerber had divested itself of many of these fringe ventures in order to refocus on its more profitable baby food, baby care, and clothing lines.

Perhaps the most serious threat to Gerber during the 1980s arose not from its broad policy of acquisition but from the public relations crises of 1984 and 1986. Gerber responded to the first of these two crisesinvolving reports alleging the presence of glass fragments in jars of baby juiceby recalling some 550,000 jars in a 15-state region. This cautionary action was viewed favorably by the public, and financial damage incurred by the company was limited to only a short-term, 4 percent drop in sales. The second glass crisiswhich, like the first, sparked investigations that ultimately exonerated Gerberinvolved some 645 complaints spread over 40 states. This time Gerber, headed by William L. McKinley, chose to remain silent and to take no action other than offer its cooperation with federal investigators. The decision proved unpopular and contributed at least in part to a drop in profits from $69 million in 1985 to $54 million in 1987; McKinley departed shortly after the resolution of the glass scare and was replaced by Leo D. Goulet.

Goulets sudden death in 1987 forced the companys board of directors to seek new management from outside the company. Their search culminated in the hiring of David W. Johnson, who was perceived by many as a much-needed antidote to the companys apparent lack of direction and vitality. Johnsons aggressive reemphasis, through advertising and product development, on Gerber as a major food company resulted in a 46 percent improvement in earnings from 1987 to 1988. However, with Gerber at the threshold of $1 billion in annual revenues, Johnson left the company to become CEO of Campbell Soup. Johnsons replacement, former Carnation senior vice-president Alfred A. Piergallini, has effectively sustained the Gerber reorientation through a superbrand development and marketing strategy, most notably with the introduction of the 16-product Tropical line of baby foods in 1991 and the 23-item Gerber Graduates line in 1992. As Piergallini wrote in the companys 1991 annual report, Our ability to offer food, clothing, and care items for children from birth through three years of age under a single major brand sets us clearly apart from our competitors. We will leverage this advantage by expanding into new channels of distribution domestically and, over time, internationally, through the development of an infant and childrens category approach for our retail customers. In 1991 Gerber entered foreign markets including the USSR, Thailand, Brazil, Chile, and Sweden, and in February 1992 purchased 60 percent of Alima, S.A., a Polish producer of food and juices. Of special significance to Gerber was the fact that although 98 percent of the worlds births occur outside the United States, only 10 percent of Gerbers sales derived from this still largely untapped market.

Curiously, although 1992 marked a record year of sales and earnings for Gerber, punctuated by a strong performance of its insurance subsidiary and a prudent streamlining of Gerber Chil-drenswear, the company approached 1993 with uncertainty. Since July 1992 Gerber had been attempting, unsuccessfully, to unload Buster Brown Apparel, a once-profitable supplier of high-fashion clothing that had shown a trend toward declining sales. More importantly, Gerber was experiencing heavy competition in the form of a discounting blitz from H. J. Heinz Co. and Ralston Purina Co.s Beech-Nut unit, which was undercutting Gerbers prices by as much as 28 cents per jar. Although the price-cutting storm had shown signs of abating by the end of 1992, Gerbers stock nonetheless suffered in December due to lowered earnings and food sales volume estimates for fiscal 1993. Commentators noted that Gerber might also have difficulty recapturing its baby food market share, which had fallen in September to 67.6 percent.

On the positive side, Gerber stood by its pledge to vigorously promote itself both at home and abroad. With its line of more than 240 food products in 58 countries, the largest research facility of its kind in the world, and the realistic expectation that birth rates would remain high rather than decline, the Gerber Products Company was expected to weather the 1990s far ahead of the competition. The billion-dollar baby care industry, of which Gerber controlled less than a 10 percent market share, was just one of several areas in which the company planned to expand its presence. Domestic and foreign acquisitions, as well as the full utilization of Alima as a European base of operations, were other likely possibilities for fueling Gerbers future growth. Gerber also showed signs of resorting to one of its earliest and most successful strategies: that of creating new perceptions of nutritional needs for infants. Piergallinis 1992 message to shareholders stated: We will employ strategies to increase consumption of baby food, build baby food market share, and expand the baby care and apparel businesses. U.S. consumption of baby food begins at about 5-6 months of age and falls off at about 16 months. This is not good. Babies special nutritional and developmental needs are not met with adult foods and breast milk or formula alone. While experts might debate this last contention, Gerber will no doubt move toward accomplishing the task it has set itself with all the verve and studious planning its founders first displayed more than sixty years ago.

Principal Subsidiaries

Alima-Gerber, S.A. (60%); Buster Brown Apparel, Inc.; Gerber (Canada) Inc.; Gerber Childrens-wear, Inc.; Gerber Family Services, Inc.; Gerber France, S.A.R.L.; Gerber Life Insurance Company; Gerber Polska; Gerber Products Company of Puerto Rico, Inc.; Gerber Products Company Singapore (PTE.) LTD.; Productos Gerber de Centroamerica, S.A.

Further Reading

Daniel F. Gerber Is Dead at 75; Brought Baby Foods to Millions, New York Times, March 18, 1974, p. 32; Why Gerber Makes Such an Inviting Target, Business Week June 27, 1977, pp. 26-7; Fifty Years of Caring: Our Golden Anniversary Year, 1928-1978, Fremont, MI: Gerber Products Company, 1978; Cleary, David Powers, Gerber Baby Foods, Great American Brands: The Success Formulas that Made Them Famous, New York: Fairchild Publications, 1981, pp. 112-19; Ingham, John N., Biographical Dictionary of American Business Leaders, Westport, Connecticut: Greenwood Press, 1983; Brown, Paul B., Unloved but Not Unworthy, Forbes, November 19, 1984, p. 286; Fucini, Joseph J., and Suzy Fucini, Dan Gerber: Gerber Baby Food, Entrepreneurs: The Men and Women behind Famous Brand Names and How They Made It, Boston: G. K. Hall & Co., 1985; Mitchell, Russell, and Judith H. Dobrzynski, Why Gerber Is Standing Its Ground, Business Week, March 17, 1986, pp. 50-51; Pick, Grant, Gerbers Baby under Stress, Across the Board, July-August 1986, pp. 9-13; Fannin, Rebecca, High Stakes at the High Chair, Marketing & Media Decisions, October 1986, pp. 62-72; McGill, Douglas C., Making Mashed Peas Pay Off, New York Times, April 9, 1989, p. F4; Baldo, Anthony, Gerber: The Baby Is About to Burp, Financial World, July 25, 1989, p. 16; Gershman, Michael, Gerber Baby Food: Strained Relations, Getting It Right the Second Time, Reading: Addi-son-Wesley Publishing Company, 1990, pp. 119-23; Moskowitz, Milton, Robert Levering, and Michael Katz, eds., Gerber, Everybodys Business: A Field Guide to the 400 Leading Companies in America, New York: Doubleday, 1990, pp. 48-9; Woodruff, David, Gerber: Mush Ado ..., Business Week, February 5, 1990, p. 30; Strnad, Patricia, Gerber Seeks Superbrand Role, Advertising Age, April 9, 1990, p. 26; Gerber Products Company Annual Reports, Fremont, MI: Gerber Products Company, 1991-92; Loewy, B. A., Food Conference Summary NotesIndustry Report, S. G. Warburg & Co., Inc., April 10, 1992; Hanes, Phillis, Baby Food Goes Multicultural, Christian Science Monitor, June 18, 1992, p. 14; Turcsik, Richard, Gerber Sees Opportunity for Toddler Food Category, Supermarket News, August 24, 1992, p. 26; Berss, Marcia, Limited Horizons, Forbes, October 12, 1992, p. 66; Shapiro, Eben, Gerber Shares Drop 5% on Weakened Outlook, The New York Times, October 15, 1992, p. D5; Gibson, Richard, Gerber Products Expects Drop in Fiscal 93 Net, Wall Street Journal, December 16, 1992, p. A5.

Jay P. Pederson

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Gerber Products Company

GERBER PRODUCTS COMPANY


When Gerber's baby food was first introduced in 1928 the company was still known as the Fremont Canning Company. Based in rural Fremont, Michigan the company was started in 1901 by Frank Gerber and his father. The original idea of manufacturing and selling strained baby foods came from Dorothy Gerber, wife of Frank's son Daniel, who reasoned that such a product would help end the tedious chore of cooking, mashing, and preparing solid foods for infants.

Before launching the product Frank and Daniel Gerber undertook an extensive marketing research campaign. They tested the product, contacted nutrition experts, distributed samples, and conducted follow-up interviews. The Gerbers' careful implementation of the "baby food" concept laid a solid foundation for the company that would dominate baby products for the rest of the century.

The company's first-year sales of the baby food were boosted by an innovative coupon redemption program. The campaign resulted in national distribution of the product within six months, and first-year sales of 590,000 cans generated revenues of $345,000. The Gerbers created a new industry that had previously been served by pharmacists, and soon there were numerous competitors. By 1935 more than 60 other manufacturers had introduced their own baby food products.

Fremont Canning was able to hold its market lead because it had established the Gerber brand's reputation for quality and expert-backed research. The product's logo, the "Gerber Baby," was already famous and the company's research and education department flooded the market with useful pamphlets on parenting, feeding, and child psychology. Dorothy Gerber became a model spokesperson through her widely read newspaper column, "Bringing Up Baby."

The baby-food producer matured in the 1940s and in 1941 the company name was changed to Gerber Products Company. With the post-World War II baby boom, Gerber went from selling one million cans of baby food a week in 1941 to two million cans a day in 1948. It was during the 1940s that Gerber began packaging baby food in jars instead of in tin cans.

During the 1950s Gerber added three production plants. Frank Gerber died in 1952, and Daniel Gerber assumed leadership of the company. Under Daniel Gerber the company began advertising on television, launched a toy line in 1955, became listed on the New York Stock Exchange in 1956, opened a Mexican subsidiary in 1959, and introduced a line of baby-related products in 1965. In the 1960s Gerber introduced "safety button caps," the first tamper-evident caps of their kind. When Daniel Gerber died in 1974 the company was the world's largest baby-food manufacturer with sales of $278 million and a domestic market share of nearly 70 percent.

In the late 1970s the company successfully defended itself against a hostile takeover. In 1979, with birth rates declining, it launched a major diversification campaign acquiring freight carrier, furniture, toy, and other subsidiaries. By 1989, however, Gerber had divested most of these fringe ventures to refocus on its core business: baby food, baby care, and baby clothing.

Perhaps the biggest threats to Gerber during the 1980s were two public relations crises in 1984 and in 1986, both involving allegations of the presence of glass fragments in jars of baby food. In the first instance Gerber regained public confidence by recalling 550,000 jars in a 15-state region as a cautionary action. In the second instance the company chose the less popular tactic of cooperating with investigators, but otherwise remaining silent. As a result, profits dropped from $69 million in 1985 to $54 million in 1987.

During this time the company's leadership changed hands several times with former Carnation senior vice president Alfred A. Piergallini eventually taking over as chief executive officer (CEO) in 1988. He sustained Gerber's reorientation through a "superbrand" marketing strategy. A new Tropical line of baby foods was introduced in 1991, and the Gerber Graduates line for children past 15 months of age was introduced in 1992. Gerber also entered international markets in the early 1990s, noting that 98 percent of the world's births took place outside the United States.

By 1994, after struggling with severe price-cutting by its competitors and unprofitable sidelines, Gerber was ready for a takeover. After seeking a suitable buyer, Gerber announced that it would be purchased by Sandoz Ltd., a Swiss pharmaceutical giant, for $3.7 billion. Gerber was sold for a high premium, with Sandoz paying more than 50 percent above the going price for the company's stock.

In 1995 Gerber entered the adult nutrition market with a nutritional supplement drink called Resource. The product had originally been marketed by Sandoz to hospitals and nursing homes. In 1996 Gerber's sterling reputation was challenged by the Center for Science in the Public Interest, which disputed some of Gerber's health claims. As a result, Gerber announced it would reformulate its recipes taking out starch and sugar. In 1997 Gerber updated its labels and introduced a new organic line of baby food. A 1998 survey commissioned by the WPP Group concluded that Gerber had the highest consumer loyalty rating in the United States. At the end of 1998 Gerber announced it was moving its corporate headquarters from Fremont to Summit, New Jersey, as part of a reorganization by its parent company, Novartis AS.


FURTHER READING

Brooks, Geraldine. "From the Mouths of Babes." Good Housekeeping, September 1997.

Cardona, Mercedes M. "WPP Brand Study Ranks Gerber 1st in U.S. Market." Advertising Age, October 5, 1998.

Gerber Products Company. Fifty Years of Caring: Our Golden Anniversary Year, 19281978. Fremont, MI: Gerber Products Company, 1978.

McDonald, Barbara. "Gerber Celebrates its 70th Anniversary." Supermarket News, August 10, 1998.

Teegardin, Carol. "Gerber Will Move Headquarters and Managers to NJ." Detroit Free Press, October 2, 1998.

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Gerber Products Company

Gerber Products Company

founded: 1901



Contact Information:

headquarters: 445 state st. fremont, mi 49413 phone: (616)928-2000 fax: (616)928-2408 toll free: (800)4-gerber url: http://www.gerber.com

OVERVIEW

Since 1928 Gerber Products Company has been a major developer, manufacturer, and marketer of baby food. In the United States, it is the leading baby food manufacturer with more than 70 percent of the market. Gerber also has a strong presence in Mexico, Costa Rico, Venezuela, and Poland.

More than 190 varieties of fruits, vegetables, juices, cereals, meats, snacks, and main meals are manufactured by the company. Gerber also sells baby care products in 80 nations.



COMPANY FINANCES

Since Gerber Products Company is a wholly owned subsidiary of Novartis, separate financial statements are not published for the company. However, the 1997 Novartis annual report states that overall sales for Gerber increased 6 percent. Outside the United States the company experienced "double-digit" growth, according to Novartis, through launches of infant formula and cereals.



ANALYSTS' OPINIONS

Environmental groups issued a report in 1997 charging that pesticide residues in baby food brands pose a possible health risk to children. Although the levels of pesticide were below government limits, the groups' report claimed the level of pesticide residues was unsafe for infants.

The Environmental Working Group and the National Campaign for Pesticide Policy Reform reported that 16 pesticides were found in 8 different baby foods from Gerber and its competitors, Heinz and Beech-Nut.

In an Associated Press article, a Gerber spokesman said the company's baby foods were safe, and defended its pesticide elimination program. Gerber and its competitors also disputed the environmental groups' claim that federal pesticide standards didn't adequately protect children.

Meanwhile, a nutrition advocate with the Center for Science in the Public Interest blasted Gerber Products Company's baby food. In March 1997 Michael Jacobson accused the company of exaggerating its baby foods' nutritional quality. He charged that Gerber diluted products with starch, sugar, and water—nearly a year after the company introduced products with no added starch or sugar. A Gerber Products Company spokesman called the claims irresponsible and inaccurate.




HISTORY

In 1927 Dorothy Gerber's pediatrician recommended that she introduce her two young daughters to strained fruits and vegetables. Months after taking her doctor's advice, Gerber had grown tired of peeling, scraping, and straining food. Why, she asked husband Dan, couldn't infant foods be strained and canned at the Fre-mont Canning Company? Her father-in-law, Frank Gerber, was president of the 26-year-old cannery. Eventually, Dorothy Gerber's conversation with her husband led to talks with Frank Gerber. One year after Dorothy Gerber began the arduous task of straining her daughters' fruits and vegetables, five varieties of Gerber baby food—vegetable soup, carrots, spinach, peas, and prunes—had been created. Six months later the company's baby foods were being sold in grocery stores throughout the United States.

In 1938 Dorothy Gerber started personally answering letters received by the company. In the late 1990s more than 45,000 letters were answered annually by trained correspondence specialists. In May 1986 Gerber began its toll-free information service (1-800-4-GERBER) and in 1991 made that service available 24-hours a day, 7-days a week in the United States and Canada. This information service handles more than 803,000 calls a year about infant feeding and care.

Building on the success of its baby food business, Gerber started making baby care products in 1960. Those products numbered 350 in the late 1990s and include Gerber and NUK brand products such as bottle feeding systems, nipples, pacifiers, teethers, eating utensils, breast-feeding accessories, safety items, and toys.

In 1967 Gerber Life Insurance Company was formed as a subsidiary of Gerber Products Company. It is a direct response marketing insurance company and a producer of juvenile life insurance. Gerber Life Insurance Company has more than $9 billion of life insurance in force and insures more than 2 million people throughout the United States and Puerto Rico.

In August 1994 Gerber was acquired by Sandoz Ltd. and in the late 1990s was a part of the Novartis group of companies formed in December 1996 by the merger with Ciba-Ceigy Ltd. Novartis is a leading life science company with core businesses in health care, agriculture, and nutrition.



STRATEGY

Gerber Products Company has maintained its commitment to research and development (R&D)—perhaps the single reason for the company's dominance of the baby food market. Gerber says it has the world's largest private research facility dedicated to infant nutrition. Its baby-focused R&D staff of 80 constantly studies young consumers, whose responses help the staff refine the company's products.

FAST FACTS: About Gerber Products Company


Ownership: Gerber Products Company is a wholly owned subsidiary of Novartis AG, which is a publicly owned company traded over-the-counter.

Ticker symbol: NVTSY

Officers: Alfred A. Piergallini, VChmn., Pres., & CEO; Kurt Furger, Exec. VP & CFO; Mike Lawton, Senior VP & COO

Employees: 4,500

Principal Subsidiary Companies: Gerber Life Insurance Company was formed as a subsidiary of Gerber Products Company in 1967.

Chief Competitors: Chief competitors of Gerber Products Company are manufacturers of baby food and baby care products. They include: Beech-Nut; Heinz; and Playtex.




Gerber Products Company's redesign of its Table Teaching 3rd Foods Baby Foods line illustrates just how baby-focused its product development process is. The line of foods was originally developed for older babies. Its larger jar sizes contained thicker, chunkier food textures. Though the line eventually offered more varieties, it evolved into a product not much different from the Variety Building 2nd Foods Baby Foods line and was redesigned.



INFLUENCES

In 1994 Gerber Products Company began redesigning the Table Teaching 3rd Foods Baby Foods line. Its research showed a need for more variety, thicker and chunkier textures, and more interesting flavors than those consumed by younger babies. Identifying and combining the right tastes and textures became a crucial part of the reformulation. To accomplish it, researchers used a computerized mathematical model to find the right mixture of taste and texture in each product. Once optimal formulations were created, consumer testing commenced.

Consumer testing centered on interpreting and evaluating sensory perceptions. The company used a panel of 8,000 parents and babies to evaluate and help develop the product. In the first stage of testing, adult panelists evaluated sample formulas. Their responses to questions about the samples were incorporated into the mathematical model for analysis. Then a computer generated an equation for the optimal product that yielded the highest liking score. Next, researchers generated several prototype formulas. Finally child panelists tasted the formulas and their parents provided evaluations based on the babies' responses to the foods. Scientists also studied the young consumers' nonverbal clues. Turning away from the product, spitting it out, or pushing it off the tray indicated that something was wrong with the food.

The redesign of Table Teaching 3rd Foods Baby Foods produced foods with textures ranging from slightly coarser than pureed to small, tender pieces. The company also added five products to the line. Two years after redesigning its 3rd Foods Baby Foods, Gerber responded to adult customers' demands for baby food with no added starch or sugar by reformulating its core line of products without these two ingredients.




CURRENT TRENDS

In 1997 Gerber designed and implemented various restructuring programs to increase efficiency and profit. The company closed its plant in Asheville, North Carolina, to streamline production capacities. The company also revamped its headquarters/sales organization in Fre-mont, Michigan, in order to improve operations. The company plans to introduce a new manufacturing technology for jarred baby food designed to improve quality and taste in 1998.

A national trend of lower birth rates translated into a slightly reduced market for Gerber in 1997. However, Novartis claims in its annual report, that Gerber increased its share of this market despite the trend.




PRODUCTS

Juice, cereal, 1st Foods, 2nd Foods, 3rd Foods, and Graduates make up the six principal Gerber baby foods. The entire line of Gerber Products Company's baby foods includes: Gerber Formula, in low-iron, iron, and soy form; "Single Beginnings" 1st Foods Baby Foods, featuring dry cereals, juices, fruits, and vegetables.

CHRONOLOGY: Key Dates for Gerber Products Company


1901:

Founded as an adult food cannery

1928:

Begins canning five varieties of baby food

1931:

Adopts the Gerber Baby sketch as the company's trademark

1938:

Dorothy Gerber starts answering letters from consumers personally

1941:

Company is renamed the Gerber Products Company

1956:

Gerber is listed on the New York Stock Exchange

1960:

Gerber starts making baby care products

1967:

Gerber Life Insurance Policy is formed

1977:

The company survives a hostile takeover attempt by Anderson, Clayton, and Company

1986:

Begins toll-free information phone line: 1-800-4-GERBER


1994:

Is Acquired by Sandoz Ltd.; redesigns 3rd Foods product line

1996:

Becomes part of Novartis group of companies; begins removing starch and sugar from baby food




"Variety Building" 2nd Foods Baby Foods, feature dry cereals, juices, cereals with fruit, fruit juice with yogurt, fruits, vegetables, dinners, Simple Recipe Dinners,Veggie Recipe Dinners, meats, and desserts.

"Table Teaching" 3rd Foods Baby Foods include desserts, sauces, and bakery products such as biscuits and Zwieback toast. The Tropical Baby Foods category offers juices such as mango with mixed fruit, and tropical fruits such as papaya with tapioca.

Gerber Graduates Foods for toddlers range from instant oatmeal to meat sticks, microwavable dinners, and fruit snacks.

In October 1997 Gerber introduced a new line of baby food called Tender Harvest. The line features commercially produced organic baby food with approximately 20 products. Initially 10 products were available when the line was introduced, including Apple Mango Kiwi, Chicken & Wild Rice, and Spring Garden Vegetable.

In addition to food Gerber offers a comprehensive line of products to clothe and care for babies. Disposable and reusable nursing systems, nipples, pacifiers, teethers, sterilizers, bottle warmers, feeding dishes, cups, utensils, breast pumps, and safety items such as the bi-fold door lock, auto mirror, and drawer and cabinet latches are carried under the Nuk and Gerber brand names.

CORPORATE CITIZENSHIP

Beginning in June 1997 Gerber's cereal boxes displayed a message to adults about the dangers of allowing babies to sleep on their stomachs. The goal of the national Back to Sleep campaign is to reduce the number of infant deaths caused by SIDS, or Sudden Infant Death Syndrome. SIDS, also called crib death, kills 4,000 babies in the United States each year. Though the causes of SIDS are unclear, the American Academy of Pediatrics recommends that, to lessen the chance of SIDS, babies should be placed on their backs when they sleep.

Tipper Gore, wife of Vice President Al Gore, led the public education effort to reduce SIDS deaths. "Placing babies on their backs to sleep is one of the most important steps that caregivers can take to reduce the risk of Sudden Infant Death Syndrome, but too many people still don't know this important, simple message," Gore was quoted as saying in a U.S. Department of Health and Human Services press release.

A 70-YEAR-OLD BABY

On July 28, 1998, Gerber celebrated its 70th birthday, as well as the anniversary of when the company chose the now famous "baby face" for its symbol. Gerber was looking for a baby face for their ad campaign, and they invited leading artists to submit entries. Artist Dorothy Hope Smith sent in a charcoal sketch of her neighbor's five-month-old-baby, inquiring if she was the right age and size of the baby they were seeking. The executives at Gerber thought the sketch was perfect and accepted it as it was. The image was so popular that the company adopted it as its trademark. It is now recognized all over the world and has appeared on every Gerber advertisement and package since 1931.

Over the years the public has pondered over the identity of this famous baby. One of the most circulated rumors was that the baby was Humphrey Bogart. The rumor started because his mother was an accomplished artist and sold drawings for commercial use. However, Humphrey Bogart would have been 29 years old in 1928. There have been speculations that Elizabeth Taylor or Bob Dole were the model, yet the real model was Ann Turner Cook, who turned 72 in 1998; she was two years old when Gerber chose the sketch.

Cook had to defend her Gerber baby identity when a lawsuit was filed challenging the baby's identity. She agreed to appear in court, but that proved unnecessary once the judge saw her baby picture and automatically recognized her from the jars. Cook is not employed by Gerber and receives no royalties for her image, but she does make public appearances for the company and welcomes the semi-celebrity status. A retired English teacher and mystery novel writer, she says, "if you're going to be a symbol for something, what could be more pleasant than a symbol for baby food?"

In December 1996, Gerber unveiled its first new label in more than 40 years. Ann Turner Cook was present for the ceremony, and though the label had changed, her face still remains. "The CEO of the company has assured me they'll never change that part of the label," said Cook in the Chicago Sun-Times. She has only seen the original drawing once, but the company gave her a reproduction that hangs in her living room. The original remains locked in a vault at the company's headquarters in Fremont, Michigan, to preserve it for posterity.




Gerber displayed the message about SIDS and the Back to Sleep campaign on 3 million of its cereal boxes. The company also included the message in mailings to 2.7 million mothers of newborns over a year. A message recorded by Tipper Gore has played on the Gerber toll-free information number (1-800-4-GERBER) 7-days a week, 24-hours a day, for a year. The company estimated it would reach 80 percent of parents with infants across the country.



GLOBAL PRESENCE

Gerber Products Company's production facilities are located throughout the United States, Mexico, Costa Rica, Venezuela, and Poland. According to Gerber's parent company's annual report, Gerber launched its infant formula and cereals in eastern Europe, Latin America, and the Far East in 1997. The labels on its products are printed in 16 languages.



SOURCES OF INFORMATION

Bibliography

"clinton administration announces expanded back to sleep campaign, tipper gore to lead new effort," 19 may 1997. available at http://www.gerber.com.

gerber corporate background, 19 may 1997. available at http://www.gerber.com/corpback.html.

"gerber products company announces major move: new formulations free of starch and sugar introduced to core line of baby food," 19 may 1997. available at http://www.gerber.com/starchfree.html.

"gerber, tipper gore say babies should sleep on backs." usa today, 1 april 1997.

novartis home page, 14 may 1998. available at http://www.novartis.com/textsite/nutrition/gerber/t-corporate.html.

"pesticides common in baby food, report says." usa today, 1 april 1997.


For an annual report:

telephone: (908)522-6898


For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. gerber's primary sic is:

2032 canned specialties

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