Big food, it seems, has a sweet tooth. On August 14th Mars, a packaged-food giant best known for its chocolatey fare, announced it would gobble up Kellanova, maker of Pringles and Pop-Tarts, for $36bn. It is not the only company betting big on calorific goodies. Last November Smucker’s, a purveyor of jams and peanut butters, completed its $6bn acquisition of Hostess Brands, maker of Ho Hos and Twinkies.
Filling bellies is a lucrative business. The West’s ten most valuable packaged-food and soft-drink companies have a combined market capitalisation of around $1trn. Their average operating margin last year was a plump 17%; grocers typically make just 2-4%. Consumers have continued to feast on the cheap calories served up by these firms despite the recent bout of inflation. Last year the group’s sales grew by 5%, on average. Rising demand in the developing world is bolstering growth. Around half of Coca-Cola’s revenue already comes from outside Western markets. HSBC, a bank, reckons that global food demand will increase by more than 40% between now and 2040.
Yet the industry also faces threats. The impact of its products on the health of those who consume them has long been a concern for shoppers and policymakers alike. Consumers may now indulge on them less as weight-loss drugs become cheaper and more convenient. What is more, a growing body of research suggests that it may not only be an excess of sugar, fat and salt that causes health problems, but also the heavy processing used to whip up cheap nibbles. Both are set to reshape the industry—and transform what the world ingests.
The roots of today’s food industry stretch back to 19th-century innovations such as pasteurisation and canning that helped make food plentiful, convenient and safe. Today a humble bag of crisps is manufactured in an assembly line where spuds are sliced, fried, drenched in seasoning, preservatives, and colouring agents, then sealed in a bag with nitrogen to keep them from going stale. The process takes around 30 minutes.
Such tasty products have contributed to the surge in obesity in recent decades. According to the UN Food and Agriculture Organisation, the average daily calorie intake of people in the rich world has risen by a fifth since the 1960s, to 3,500 calories, well in excess of what their bodies need. By the end of this decade nearly half the world’s population is expected to be obese or overweight.
Consumers who have found it difficult to alter their diets may at last be able to do so thanks to new blockbuster weight-loss drugs including Wegovy (from Novo Nordisk, a Danish pharmaceutical company) and Zepbound (from Eli Lilly, an American rival). For now, the hefty price tag and inconvenience of weekly injections mean only a sliver of the population in rich countries is taking these medications. But uptake is expected to rise as competition lowers prices and pill forms hit the market.
Patients taking the drugs have reported that they crave calorific food less. Analysis by Grocery Doppio, a research firm, finds that users lower their spending on groceries by 11% on average, with spending on snacks and confectionery falling by more than half. Morgan Stanley, a bank, reckons 7-9% of Americans could be taking weight-loss drugs by 2035, resulting in reductions in overall demand ranging from 3% for cereal to 5% for ice cream (see chart 1).
Big food may well take these developments in its stride. The industry has a record of launching new products that cater to weight-watching consumers. Coca-Cola first launched Diet Coke in 1982, and has released various other sugar-free alternatives since then. Most food and beverage companies now offer products with reduced sugar, fat or salt. According to Mintel, a market-research firm, the number of new health-conscious snacks launched annually rose by 2% between 2015 and 2020, compared with a decline of 1% for traditional snacks. Some companies, such as Mondelez, an American snack giant, now offer smaller portion sizes.
Indeed, a number of food companies see weight-loss drugs as an opportunity. In May Nestlé, the world’s biggest such firm, said it would launch a new frozen-food brand, Vital Pursuit, targeted at users of the drugs, who still need to ensure they get adequate quantities of protein and other nutrients despite consuming smaller quantities of food. Mark Schneider, the company’s boss, says Nestlé is already preparing for a “lower-calorie, higher-nutrient future”. Last year the business set a target of growing sales of “more nutritious” products by 50% by the end of the decade. Other packaged-food businesses such as Conagra and General Mills also now have products targeted at users of slimming jabs.
Upstarts might try to steal their lunch, but incumbents will be in a strong position to cater to consumers seeking out nutritious low-calorie options. It takes just six to nine months to develop and launch a new product, notes Mr Schneider. Deep ties with supermarkets and other retailers make it easy to get products onto shelves once they are ready. Vast marketing budgets can be deployed to raise awareness among consumers.
Food for thought
The threat from a crackdown on processed foods, if it materialises, will be trickier to deal with. In 2009 Carlos Monteiro, a Brazilian scientist, sorted food into four buckets based on the degree of processing undertaken. The first covers unprocessed items such as fruit and vegetables. The last, called ultra-processed foods (upfs), covers items such as breakfast cereal, frozen pizza, crisps and fizzy drinks, which contain significant amounts of ingredients not typically found in a home kitchen. Since the 1990s the share of UPFs in diets worldwide has been increasing. According to one study, they now account for around half of the calorie intake in America, Britain and Canada (see chart 2). Many studies have linked the consumption of large amounts of upfs to weight gain and various health issues, although some do not disentangle the effects of heavy processing from the large doses of fat, sugar and salt that are often found in these foods.
The research is nascent and not everyone is convinced. Arne Astrup, a researcher at the Novo Nordisk Foundation in Denmark, believes that the definition of UPFs is too woolly. But policymakers in some countries are already taking action. In November last year Colombia imposed a tax on a range of UPFs. Dietary guidelines in Belgium, Brazil, Canada and elsewhere recommend avoiding the products. Mr Monteiro has called for health dangers to be labelled on UPFs, as many countries have done with cigarettes.
The industry’s approach to upfs so far has ranged from scepticism to suspended judgment. Ramon Laguarta, the chief executive of PepsiCo, said in January that he doesn’t believe in the term; Mr Schneider says Nestlé is following the debate “very closely”. But the stakes are high. If pressure from governments ratchets up, then the industry will have to do more than tweak its recipes or roll out a new product line. Companies would have to overhaul their manufacturing processes. Ditching additives could make products more expensive to make and shorten their shelf life, cutting into profits. Big food has so far managed to thrive even as concerns around consumers’ health swirled. With upfs, it could face its most daunting challenge yet. ■
