*

Demand for Lunchables in school lunch program fell short

of

expectations

*

Consumer Reports raised concerns about high sodium levels

in

Lunchables

*

Kraft Heinz ( KHC ) CEO cites negative publicity and supplier

issues

affecting sales

(Adds background on lunch program, consumer group's report,

comments by CEO, paragraphs 3-11)

By Jessica DiNapoli

NEW YORK, Nov 12 (Reuters) - Kraft Heinz ( KHC ) is no

longer making its packaged lunch brand Lunchables for low-income

students receiving free and reduced-priced meals from a federal

program due to weak demand, according to a company statement,

the latest blow to one of its best-known products.

Chicago-based Kraft Heinz ( KHC ) announced plans to sell to the school

lunch program early last year at an industry conference, saying

it would target the $25-billion educational market.

But demand fell short of the packaged food manufacturer's

expectations, the company said, as it looks to revive its

well-worn brands such as Lunchables, Jell-O and Crystal Light,

and grow sales volumes, which have faltered after multiple price

hikes.

A 3.2-ounce (90-gram) ham and American cheese Lunchables sells

for $1.87 on Walmart.com.

"While many school administrators were excited to have these

options, the demand did not meet our targets," Kraft Heinz ( KHC ) said

in a statement. "This happens occasionally across our broad

portfolio, especially as we explore new sales channels.

Lunchables products are not available in schools this year and

we hope to revisit at a future date."

The U.S. Department of Agriculture's school lunch program

provides free and low-cost lunches to about 30 million children

who are from low-income families or meet other federal

requirements.

Kraft Heinz ( KHC ) hoped the move would expand its distribution and

sales, and help the food company reach new consumers. Schools

were eager to serve pre-made lunches that do not require

additional labor to prepare. But the launch fell flat after

U.S. consumer-watchdog group Consumer Reports said in April that

Lunchables for the school lunch program had high sodium levels,

raising questions about whether the cracker-and-bread-based meal

kits should be served to kids in kindergarten through high

school.

The company said in a statement on Tuesday that "all

Lunchables products are safe and made with quality ingredients

that meet our own high standards as well as strict safety

standards set by government agencies."

"Nothing is more important to us than the quality and safety

of our food," the company said, adding that the reason for

pulling the product from the school lunch program was unrelated

to Consumer Reports' findings.

Lunchables, created in the 1980s for time-strapped working moms,

dragged on Kraft Heinz's ( KHC ) overall sales in its quarter ended

Sept. 28. Sales directly to shoppers were down 15%, Kraft Heinz ( KHC )

CEO Carlos Abrams-Rivera said on a call with investors on Oct.

30.

"The negative publicity that we received from that

misleading interest group appears to be lingering longer,"

Abrams-Rivera said. "And remember, this is a brand that is

focused on families and kids, so rebuilding that trust just

takes some time."

One of the company's suppliers was unable to continue to

provide an important ingredient for one high-selling variety of

Lunchables, Abrams-Rivera said.

He said on the conference call that the company was continuing

to work on overhauling the Lunchables brand by expanding

flavors, such as spicy nacho.

Kraft Heinz ( KHC ) has tried reinventing the lunch-box staple over the

years, including a "Brunchables" in 2019. Last year, the company

added fresh apples, grapes, pineapples and clementines to the

meal kit.

Adding to its woes, Lunchables faces new competitors. YouTube

personality Mr. Beast introduced a competing product called

Lunchly in recent months. The new brand, however, has been

plagued by reports of mold on social media.