Healthy Eating: The Consequences for Business

Healthy Eating: The Consequences for Business

Food and beverage companies face both threats and opportunities from societal change on how we regulate what we eat and drink.

The world is keeping a closer eye than ever before on its diet. Obesity has trebled since the 1970s, diabetes and heart disease are rising, and in some high-income countries life expectancy is flattening out.

Food & beverage producers are under immense pressure to reform; both regulation and consumers are demanding healthier choices. There are four outcomes for business models which present both risk and opportunities.

1) Making food healthier

Taxation aimed at promoting better standards of nutrition has been introduced by dozens of national governments, states and individual cities – more than 20 have been introduced since 2015, when a damning World Health Organisation report was published.

Much of the focus is on sugar. In Mexico, for example, the world’s second-most obese country and where diabetes is the leading cause of death, a levy is placed on all sugary drinks except milk. In the UK, meanwhile, where a new tax on sugar levels was introduced in 2018, more than 50% of manufacturers reduced the sugar content of drinks ahead of its implementation.

Some leading companies have already made big commitments in this area. Britvic, for example, has promised to reformulate its drinks in most countries, cutting sugar content and reducing average calories per 250ml by 20%. Meanwhile, Pepsico pledges to reduce sugar, saturated fat and sodium across many of its food & beverage products as part of its 2025 goals.

2) Right-sizing the product

Where reformulation is not possible, companies are instead focusing on portion size. Drinks manufacturers like Coca Cola (which notably had to reverse plans to introduce a new sweeter Coke recipe in the 1980s) has introduced slimline cans, meaning sugar content for the consumer is reduced, with no reformulation required.

However, companies that go down this route have to exercise caution, as such a move could be damaging if it is simply viewed by consumers as protecting margins via ‘shrinkflation’ (where the product shrinks in size but remains at the same price). Confectionary giant Mondelez tried to change the shape of its iconic Toblerone brand in order to guard against rising cocoa prices, but was forced to change it back and put up prices after a public outcry.

3) Transparency for consumers

A key factor for consumers is wanting more control over the choices they make, meaning that transparency from companies over what their products contain is paramount. Making more information available on the nutritional value of products can be an important factor in retaining their licence to operate.

Voluntary ‘traffic-light’ schemes, displaying levels of calories, fat, sugar and salt have been introduced in many countries, including the UK. Some companies are preempting the changes, such as Danone which is rolling out its ‘Nutri-Score’ colour-coding system in countries across Europe, even those where there is no labelling system in place yet.

4) Product change

Finally, many businesses are making wholesale changes to their product lines to reflect the new environment. As consumers begin to view ultra-processed food in the same vein as smoking, companies are either simply cutting unhealthy products, or switching their focus to healthier alternatives.

Britvic, for example, now says 70% of its innovation pipeline is focused on developing low or no-sugar drinks (less than 5g per 100ml). Meanwhile, Kerry Foods has developed four ‘consumer nutrition pillars’ consisting of ‘free-from’ foods, diet brands, natural foods, and products tailored to particular nutritional needs (such as infants, or individuals with specific medical conditions like diabetes).

The investment view

The scale of opportunity from an investment perspective goes further than simply food & drink manufacturers. Food technology plays an increasingly important role, and the trend of health & wellness involves science-based companies like the developers of supplements (such as vitamins or flavor enhancers), and probiotics – live bacteria which can help reduce gastrointestinal problems and strengthen the body’s immune system.

The food and beverage sector is fiercely competitive and it is clear there are many companies which are sensitive to both the increasing large shifts in consumer sentiment towards healthy eating, as well as the heightened focus from politicians on nutrition and wellness. This requires us to look carefully at which companies are successfully tackling the challenge, as well as those that are not. ESG analysis in this sense is vital, providing an invaluable future view on the impacts for companies in this sector: the opportunities and the threats, and by extension, the winners and the losers.

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