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Can the Profit Motive End Obesity?

Hank Cardello

Last week, we at Hudson Institute issued a study titled “Better-for-you Foods: It’s Just Good Business.” For the first time, we now have evidence that packaged food and beverage companies selling a higher percentage of better-for-you (BFY) products enjoy greater sales increases, operating profits, investor returns, and reputation scores.

Among the key findings were:

  • BFY foods and beverages now account for just under 40 percent of sales in grocery, drug, and mass merchandisers
  • BFY products contributed over 70 percent of sales growth in the last 5 years
  • Companies that grew their BFY products more than their traditional ones delivered 2 1/2 times the operating profit growth
  • Returns to shareholders were 1 1/2 times higher for companies selling above-average levels of BFY products.

Our analysis intentionally did not define products according to tight nutritional standards. We developed our BFY descriptor by examining the full spectrum of classifications from nutritionists, food industry analysts, and, perhaps most importantly, consumer perceptions of which products were healthier. When we were done, a pragmatic measure of products that are both lower in calories and healthier than more traditional versions emerged.

We believe this approach offers a better way to jump-start a mass reduction in the calories sold. If companies embrace this message and increase the percentage of BFY products in their portfolios from today’s 40 to 50 percent, that’s $10 billion more a year in lower-calorie, healthier foods. Yes, all these products would not be “healthy” according to strict nutritional standards, but the increase in sales would go a long way toward reducing the number of calories bought each year. And obesity is a calorie issue.

To engage the food industry constructively, it’s necessary to understand their goals and needs. This does not mean kowtowing to their every demand. But as any good negotiator knows, you have to know where the other side is coming from in order to effect movement. And what is paramount for a company’s success, if not its survival, is growth — sales growth, market-share growth, and profit growth. When these go up, the people a company is accountable to — the shareholders — are happy and retain their investments in the company.

The results from this study set a foundation to align the needs of both food corporations and the public health community. These findings provide ammunition for food and beverage executives to justify moving more aggressively into better-for-you foods given the potential to improve sales and financial performance. And they offer public health advocates and policymakers insights as to how to construct proposals that can better motivate food marketers to adopt change.

So we are now confronted with a choice: rigidly insisting on being right, that every food be perfect (and thus generating fierce resistance from industry) or adopting a more pragmatic pathway that gives businesses a way to both make money and do some heavy lifting to help reduce childhood and adult obesity in this country.

The win-win approach advanced by the Hudson study opens the door to significant tangible progress toward improving our food supply in a way that also improves bottom lines. Without the two working in concert, reaching a workable solution to obesity is doomed to failure.

The choice is staring us in the face.

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