Winnie-the-Pooh: [tries to climb out the front door but is stuck] Oh, oh, help and bother! I’m stuck.
Rabbit: Oh, dear. Oh, gracious. Oh. Well, it all comes from eating too much.
– Winnie the Pooh and the Honey Tree
Food and drink manufacturers are, like Winnie-the-Pooh, in a tight spot. Ten days ago Michael Bloomberg, New York’s mayor, announced a ban on the sale of “supersized” sugary drinks in restaurants, cinemas and stadiums. And this week – prodded by Michelle Obama, the US first lady – Walt Disney, the media giant behind the film versions of A.A. Milne’s Pooh stories, said it would ban junk food ads on its children’s TV programmes and websites by 2015.
These measures, coming on top of taxes on unhealthy foods in places such as Denmark, Hungary and France, hurt. For this is an industry that relies on marketing (which swallows up about $1 in every $10 of revenue) to sell products that no one needs and which, in excess, can lead to obesity.
The big fear for food producers is that legislation, taxation and regulatory clampdowns such as those that engulfed the tobacco industry will come to plague them – despite their protestation that food, unlike cigarettes, does not kill.
Coca-Cola and PepsiCo, the two biggest beverage makers, both flagged a potential dent to earnings from legislative changes long before Mr Bloomberg hatched his plans. In its most recent annual report, Coca-Cola topped a list of more than 30 risk factors” for its profitability with concerns about obesity, related negative publicity and the possibility of new legislation.
“Obesity and other health concerns may reduce demand for some of our products,” it said.
“In no way can we [the industry] be complacent,” says Fiona Dawson, managing director at Mars Chocolate UK. She argues that “progressive” companies, such as Mars, are staving off legislation by keeping ahead of the curve – reducing fat, sugar and salt, and curbing advertising to children.
Some believe the health lobby will receive an extra boost from cash-strapped governments, pointing to the introduction last year of Denmark’s “fat tax”, which charges DKr16 ($2.70) per kilogramme of saturated fat in a product. “The nature of budget deficits worldwide is going to lead to more creative taxation under the guise of health,” says Martin Deboo, a food and drink analyst at Investec, the UK brokerage.
Companies are responding with a range of strategies, from working with government, to self-regulation, to lobbying to stave off legislation.
Mars ditched all advertising to under-12s globally in 2007; Nestlé, the world’s biggest food company by sales, stopped advertising to children under six last September and limited the products it advertises to those below 12.
But not all their peers followed suit, which makes Disney’s ban a big blow to the industry.
“It was a pretty significant thing,” Margaret Hamburg, commissioner of the US Food and Drug Administration, told the Financial Times. “[Disney] were ... coming up against some components of the food and beverage industry in deciding that they weren’t going to allow certain products to be advertised because of their public health impact.”
Despite Disney’s move, restrictions on advertising unhealthy food are tighter in Europe than in the US, where one-third of American adults are obese, the highest percentage of any nation in the world.
Advertising restrictions were introduced in the UK in 2006, when the media regulator Ofcom announced a ban on ads for foods high in fat, sugar and salt around children’s viewing times.
European companies have also led the way in working with government to set policy. For example, in the industry group working under the UK government’s Public Health Responsibility Deal, set up in 2011, business interests have as many representatives as government and civil society combined.
Elsewhere, companies have worked to reformulate their products, eliminating as much sugar, salt and calories as they can while trying not to compromise taste: no one, as Ms Dawson points out, will buy a treat that does not taste good.
Heinz discovered as much last year when it reduced the salt in its HP sauce, a favourite British accompaniment to eggs, bacon and sausage. As the mass-market Daily Mail newspaper trumpeted: “HP sauce’s recipe secretly changed after 116 years by American owners of the Great British Condiment.”
Changing recipes is not only risky; it also takes time and gobbles up cash. Mars, for example, has reduced saturated fats in its Mars bars and Snickers by 15 per cent. “But that took us five years and millions of pounds in research and development spending,” says Ms Dawson.
For some companies, the easier response is to follow the path set by their tobacco peers and head to emerging markets, where regulators are often more relaxed about the health implications of their products.
Carbonated drinks are already growing faster, admittedly from a lower base, in emerging markets than in the developed world. Latin America overtook North America in sales by volume in 2008, says Euromonitor, the data agency.
Although increasing their market share in emerging markets is the holy grail for many food companies, some caution against exaggerating the effects of regulation on sales in the developed world.
“Imperial Tobacco doubled its profits in the UK in the last 20 years despite the tidal wave of regulation,” says Mr Deboo of the UK’s biggest cigarette maker. And, of course, Pooh eventually got out of his tight spot too – with a little help from his friends.
Diet plan stays off TV
Television networks are not likely to go on diets of their own following Walt Disney’s announcement this week that it was setting nutritional standards for food advertising on its children’s programmes, writes Emily Steel in New York.
While food and beverage companies spend an estimated $2bn a year in the US targeting ads at children, several of the country’s largest food and beverage companies, including Burger King, McDonald’s, Coca-Cola and PepsiCo, are already adopting nutritional guidelines to promote healthier eating to children.
“I suspect that [Disney’s move] is a moot point,” said Brian Wieser, a media analyst with Pivotal Research. “It is as if the TV networks were to say, ‘We’re not accepting tobacco ads’. Well, no tobacco ads are being created.”
The nutritional guidelines, set by the Children’s Food & Beverage Advertising Initiative, a self-regulatory group, aim to shift the products advertised to children to ones with more nutritional value. As a result, several marketers have tweaked their ads or their products to fit those standards.
Some of Disney’s competing TV networks, like Viacom’s Nickelodeon, have pledged to follow the guidelines. Other networks are not expected to follow Disney’s lead in adopting their own standards.
While Disney could receive a boost from positive public relations buzz, the effect on its ad revenues will be minimal, analysts say. Total ad spending from food, non-alcoholic beverage and fast food restaurant marketers on two Disney-owned networks with children-focused programming was $7.2m in 2011, according to Kantar Media, the ad-tracking firm. The estimate, however, is conservative because Disney said the guidelines would apply to other properties not tracked by Kantar. Advertising revenues for Disney’s media networks, including its international and domestic cable networks, were $7.6bn in 2011.
Some argue that Disney’s new guidelines go beyond industry standards, which they said were not strict enough. Only 16 food and beverage marketers have pledged to follow the standards, said Margo Wootan, director of nutrition policy at the Center for Science in the Public Interest.
“The foods that the CFBAI considers healthy – SpaghettiOs, mac and cheese, sugary cereals – are not foods most parents would consider to be healthy foods,” she said.
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