The Atlantic Online
August 5, 2010
by Hank Cardello
This is the second in a series covering the psyches of the key players involved in the obesity debate. My purpose is to highlight the strengths and blind spots of each participant so that we can better understand how the obesity epidemic got here, what can be done, and who can (really) fix it. First up are the restaurant chains.
The impact of restaurants on our economy is enormous. There are almost 1 million restaurants (945,000) in the United States, and the industry employs 12.7 million workers. Americans spend $580 billion a year at restaurants, which represents almost half (49 percent) of our total food expenditures. That's more than the entire gross domestic product of Switzerland, Poland, or Sweden.
The restaurant industry operates in a distinctive fashion and its personality can best be described—to use the chemistry analogy I introduced last time—as "solid." Recall that solids prefer the status quo and dislike anything that disrupts how they conduct business. Their focus is more short-term, but they are exceptionally good with following through and getting things done. They are traditionalists who frequently take either/or positions and are politically conservative.
Combo meals were born out of operational necessity. Restaurants observed that customers were having difficulty quickly deciding what they wanted to order off a menu board.
As "operators," restaurants must pay attention to a litany of detailed tasks, otherwise their business will suffer. Their job is to make sure that everything works smoothly—that everyone's fed the right product at the right time; the lights are on; and the bathrooms are clean. Day in and day out. Since their gross profits are less lofty than packaged goods and soft drink marketers, restaurant chains face particularly big challenges just trying to manage their businesses. An inordinate amount of attention must be given to efficient scheduling, shipping and utility costs, reducing high rates of employee turnover, food safety and cleanliness, and customer service.
Attention to these matters is absolutely essential for success. The flip side of this coin is that restaurants can be somewhat myopic. This is why many restaurant chains have been in denial too long about their role in contributing to their customers' expanding girth.
This restaurant mindset is why we end up with menu offerings such as combo meals and supersized beverages. Combo meals were born out of operational necessity. Restaurants observed that customers were having difficulty quickly deciding what they wanted to order off a menu board. This resulted in long waiting lines and the loss of patrons unwilling to wait. Enter the combo meal, which made it easier to pick predetermined items for a set price. Not only did lines move more rapidly, but restaurants were able to sell an extra item like French fries for a nominal increase in price with each order, thus improving revenues and profits.
From a business standpoint, this is easy to understand. But it has turned out to be a different story for America's waistlines, as extra calories were being unloaded onto fast food trays. A University of Wisconsin study showed that the small price increase of 15 percent for a combo meal delivered an extra 73 percent more calories.
A similar dynamic occurs with supersizing drinks. An iced tea or soft drink basically costs a penny an ounce (plus about three cents for the lid, cup, and straw). The economics become plain when one realizes that a 64-ounce Double Big Gulp can be priced to yield more profit than a smaller 24-ounce serving.
The industry's true "solid" character manifested itself recently with the brouhaha over whether to post calories on menu boards. Initially, the industry resisted the changes proposed for New York City, citing concerns over costs and hassles tied to changing menus and the inability to handle all the different menu items, which would each register a different caloric content. Instead, industry spokespeople touted that restaurants offered plenty of healthier options and consumers should take responsibility for their eating decisions. Emphasis should be placed on educating Americans on a healthy diet and exercise.
While seemingly sensible, this point of view is short-sighted in that it bypassed the opportunity to embrace the change and signal restaurants' commitment to being part of the solution by helping customers select lower calorie options. In the end, the industry supported the measure, now part of health care legislation—but only after recognizing that if it resisted it would have faced a costly and disruptive patchwork of municipal and state requirements instead of a single national standard.
So what does all this mean?
Despite its size, the restaurant industry cannot be expected to lead the charge to slim down America. It's simply not in restaurants' wiring. The "operator" personality simply cannot deal with a big picture issue such as obesity. Only with impetus from the top—CEOS and industry leaders taking a stand and lowering the number of calories they sell—can there be change.
Next time I will introduce you to the grocers, those master merchandisers. Will they be the ones to lead us out of the obesity mess?
Hank Cardello is a Hudson Institute Senior Fellow and Director of the Obesity Solutions Initiative.
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