Originally published in U.S. News on February 7, 2013 by Seth Cline.

In the midst of an obesity epidemic, low calorie items are fueling the growth of America’s biggest and baddest restaurant chains.

Lower calorie foods and beverages, and the major restaurant chains that sell more of them, outperformed less healthy alternatives in the U.S. over the past five years, according to a report released Thursday by the Hudson Institute.

The study, called “Lower-Calorie Foods: It’s Just Good Business,” looked at 21 of the nation’s largest restaurant chains, from fast food giants like Burger King and McDonald’s to full-service chains like Olive Garden and Applebee’s, and separated their menu items into two categories: lower calorie items and traditional items. It then tracked the performances of the two food types from 2006 to 2011, and found that lower calorie menu items outperformed traditional ones at 17 of the 21 restaurant chains studied.

Henry Cardello, director of the Hudson Institute’s obesity initiative, emphasized that the menu options classified as low calorie weren’t always marketed as such, but sold better anyway.

“When it comes to more indulgent foods, the minute you tell someone ‘Oh by the way, you’re going to a fast food restaurant, and there’s a healthier item on the menu,’ everyone runs the other way,” Cardello says. “Nobody’s really selling these items very hard, demand is showing up here anyway.”

The restaurants which tapped into that demand increased their sales, increased their total food and beverage servings, and increased the number of customers walking through the door from 2006 to 2011, the study found. Sales revenue, total customers, and total servings all declined in restaurants that reduced the number of low calorie options on their menu in that time period.

Customers of the restaurants ate fewer french fries, drank fewer non-diet sodas over that time, and sales of 11 of the 12 most popular hamburgers also declined.

“Consumers are telling you they want more and more of these products,” says Cardello, who formerly worked for Coca-Cola and General Mills . “This is business, it’s strictly business — the moral argument, God-bless, there’s a good moral argument — but just do it for business because it just makes sense for you.”

Lower calorie items were defined as 500 calories or less for entrees, 50 calories or less for beverages, and 150 calories or less for sides and desserts. The study found about 38 percent of menu items offered by the 21 restaurants in 2011 were lower calorie, up from about 36 percent in 2006.

That modest increase is more impressive when the scale is considered: the 21 restaurants studied accounted for $102 billion in sales and more than 50 billion servings during the survey.

“The report shows that the right thing and the profitable thing are not mutually exclusive,” says James Marks, senior vice president at the Robert Wood Johnson Foundation, which sponsored the study. “Companies can do good while doing well.”

Originally published in Time Magazine on February 8, 2013 by Alexandra Sifferlin.

Offering lower-calorie options may mean more revenues for fast food restaurants.

A recent study from the Hudson Institute, a nonpartisan policy research organization, looked at the relationship between menu items and revenues of 21 fast food chains and quick-service restaurants including McDonald’s, Wendy’s, Burger King, and Taco Bell, as well as sit-down spots such as Applebee’s, Olive Garden, Chili’s, and Outback Steakhouse.

Lower calorie food was defined as a sandwich or entrée containing less than 500 calories; side dishes, appetizers and desserts with less than 150 calories, and beverages with fewer than 50 calories per 8 oz. Over a period of five years, chains that expanded their lower-calorie options had better sales growth, greater increases in customer traffic, and stronger gains in total food and beverage servings than chains who cut back on lower-calorie fare.

The researchers used the companies’ annual reports and data from market research firms to assess same-store sales, total store sales, total food and beverage servings (number of times a specific menu item was ordered), and customer traffic. Using the data, they analyzed the businesses’ overall performance related to sales of lower-calorie items.

The findings were pretty surprising — and, from a health perspective, potentially encouraging. Among all the chains, the lower-calorie items were driving growth for both food and drinks. For a group of restaurants that pulls in $102 billion in annual U.S. sales, that’s saying something. Chains that increased their servings of lower-calorie food experienced 10.9% growth in customer traffic compared to a 14.7% decline among chains that didn’t. Overall, they served 472 billion lower-calorie foods and beverages over the five year period, and 13 billion fewer servings of traditional items such as French fries.

To get a better idea of how real the shift toward lower-calorie items is, the researchers took a closer look at the largest chains that have more than $3 billion in sales, in which French fries make up 20% of their total food servings. Among this group, the percentage of French fry servings fell by one percentage point. “You may look at that and think, what’s the big deal? It’s just one percentage point, but when you realize that these five chains sell over 5 billion servings of French fries per year, to come down 1%, that’s a loss of 50 million servings,” says Hank Cardello, lead author of the report.

Perhaps due to their continued reputation as purveyors of unhealthy food, however, from 2006 to 2011, the industry overall experienced a 832 million drop in total servings. But there are hints that people are heeding messages for healthier eating, since sales of lower-calorie offerings rose during the same time period while the higher-calorie food items fell by 1.3 billion servings. “That to me is the ‘ah ha!’ moment, where you say, ‘Okay, I get it. If I’m not [bringing] in these lower-calorie items, I’d be worse off than I am right now.’”

“This is clear evidence that restaurants need to be more aggressive in carrying more low-calorie options. I don’t necessarily mean calling everything healthy or low-cal, it’s just shifting attention toward the lower-calorie diet brands,” says Cardello. “I expect to see more and more of those because that’s what the consumer is starting to demand, and those who lag on that and rely on their more traditional items will clearly see buy-in declines to their chains. It is just not good business to be doing that.”

According to the researchers, these findings may provide a practical, bottom-line reason for the restaurant industry to take lower-calorie, healthy food options seriously. The moral strategy of shaming the restaurants into changing their menus for the good of public health was never effective, nor sufficient. But if healthier fare can bring in more dollars, perhaps both consumers and the industry can benefit. “Bring the business into it and persuade them to act in their own enlightened self-interest,” says Cardello.

Originally published in Bloomberg Business Week on February 8, 2013 by Venessa Wong.

America’s romance with triple-decker, gooey cheese- and bacon-laden burgers is officially cooling. Not that we’re all noshing on baby carrots.

A new study by the Hudson Institute finds that demand for traditional items at restaurants is falling, with what the think tank calls “low-calorie” items rising to take their place. (At our favorite chains, “low-calorie” is a pretty inclusive category.) In this study, it meant no more than 500 calories for entrées, 50 calories per 8 oz. beverage, and 150 calories for side dishes, appetizers, and desserts. So while apple slices and grilled chicken make the cut, so do McRib sandwiches at 500 calories and and Egg McMuffins at 300 calories.

Not exactly health food, but marginally better than such burgers as Whoppers (630 calories) and Sonic Burgers (640 calories). Sales of signature beef burgers at Burger King (BWK), McDonald’s (MCD), Sonic (SONC), and Wendy’s (WEN) dropped 28 percent from 2006 to 2011, says the report’s author Hank Cardello, a senior fellow at the Hudson Institute, citing NPD data. This was despite a 3.7 percent increase in traffic at these chains.

“Eleven of 12 iconic burgers declined in this period. That’s a big deal,” he says.

The report examines U.S. sales at 21 large restaurant companies, from McDonald’s and Burger King to Applebee’s (DIN) and Olive Garden (DRI). Sales of all “low-calorie” items increased by 472.4 million servings from 2006 to 2011. In addition to low-cal foods, beverages such as diet soda and coffee are also growing categories.

Patrick Lenow, a spokesman for Sonic, says the chain has been helped by “products that are considered better for you, such as our new chicken sandwich and over 20,000 [options for] lower-calorie drinks.” (That’s not a mistake: Sonic takes great pride in its customizable beverages. Lenow swears there are actually 400,000 drink options at the chain, but most are full-sugar varieties.)

Fatty burgers were not the only food affected. Sales of all higher-calorie foods fell by 1.3 billion orders from 2006 to 2011, according to the report. Orders of fries dipped by 1.9 percent at the largest fast food chains.

Calorie consciousness will likely rise as restaurants with more than 20 locations will be required to post calorie counts, probably as of 2014, under the Affordable Care Act, reports the New York Times.

“You won’t see sales growth if you don’t start transitioning,” says Cardello. “You better be pushing smaller portions of these items, better-for-you items.” Or at least 20,000 lower-calorie drinks.

Originally published in The New York Times on February 6, 2013 by Stephanie Strom.

Driven by pressures like consumer demand and looming federal regulations that will require them to post calorie counts on menus, restaurant chains around the country are adding more nutritious choices and shrinking portion sizes.

The smaller portions, which are not necessarily cheaper, are the first step toward reversing the practice of piling more food on a plate than anyone needs in a single meal, a trend that began nearly three decades ago. Besides making a contribution to customers’ health, restaurant owners are finding that the move is paying off financially.

Sbarro for example, is offering a “skinny slice,” with a different mix of cheese and more vegetables at 270 calories. Longhorn Steakhouse has smaller portions of beef that qualify for its lower calorie Flavorful Under 500 menu.

“Menu labeling is part of it, but there’s also been a lot of finger-pointing at the industry by the media and others, including customers, that is spurring the movement,” said Anita Jones-Mueller, a registered dietitian who is president and founder of Healthy Dining Finder, a Web site that helps users find restaurants with healthy options using ZIP codes.

One gauge — the number of restaurants with vetted healthy options listed on the site — has increased more than 2,000 percent, and many have been added just in the last couple of years, Ms. Jones-Mueller said. “Customers really want these items, so restaurants are working to make them more appealing,” she said.

Hank Cardello, director of the obesity solutions initiative at the Hudson Institute, a public policy research organization, has been studying the impact that lower-calorie menu options have on restaurants’ business. “Lower-calorie menu items were driving restaurant growth over the last several years, no doubt about it,” Mr. Cardello said.

The results of his research were published Thursday in a report financed in part by the Robert Wood Johnson Foundation.

The Obama administration’s health care act, which was passed in 2010, included a provision requiring restaurants and food establishments with 20 or more locations to post the calorie counts of standard items on their menus. The final regulations are expected soon, with compliance likely to be required by 2014.

Some restaurant chains have already begun posting calorie counts.

After perusing Longhorn Steakhouse’s lower-calorie menu, Denise Garbinski, a registered dietitian in San Francisco, said the portion sizes were bigger than the four ounces she typically recommended, but that it was “a step in the right direction.”

“What they’re trying to do here is cut back on portion size, which is brilliant,” Ms. Garbinski said. “I always tell people to ask for a to-go container when they first order and then put half of the meal in it before they eat, but this takes that step out of the process.”

While the move by restaurants to more nutritional menu offerings is driven by external factors, many operators are finding that cutting calories, sodium, sugar and fat pays off.

“It’s doing great,” Brian Bailey, co-founder and chief executive of the Ichor Restaurant Group, said of the company’s new restaurant concept, Baja Pizzafish. “To serve fish tacos in Ohio is testament not only that the food tastes good, but that people really want it.”

The chain, which opened in July, offers the option of brown rice in its rice bowls, and three ounces of grilled salmon, steak or shrimp can be added. Mr. Bailey describes the dishes as, “smaller amounts of protein and more fresh vegetables.” Other menu items include thin-crust pizzas with potatoes and other lean toppings, salads and tortilla wraps.

The company also operates the Old Carolina Barbecue Company, a chain of six restaurants. It has added a new menu for its catering operation, the Lighter Side of Old Carolina, that features grilled chicken wraps, carved turkey sandwiches and chicken salad made with light mayonnaise.

“I don’t want to describe this as the anti-barbecue,” he said. “It’s more like I’m hedging my bets on comfort food.”

Matt Friedman, founder and chief executive of Wing Zone, said the company’s decision to add Skinny Dippers, fried chicken breast nuggets with no breading, to its menu in January was as much about business as about offering customers a healthier choice.

The price of chicken wings, the company’s bread and butter, has risen, Mr. Friedman said, so Skinny Dippers are more profitable for the chain. “From a business perspective, when the core product and its price have an impact on profitability, you diversify the menu,” he said.

The chain already offered grilled chicken sandwiches and salads with grilled chicken, but those are “somewhat mainstream,” Mr. Friedman said. “What distinguishes Skinny Dippers is that you can get them in any one of the 17 flavors our regular wings come in,” like Nuclear Habanero and Sweet Samurai.

Skinny Dippers are a limited time offer — or maybe not. “If this is a massive success, we’re going to keep it,” Mr. Friedman said.

Similarly, James Greco, chief executive of Sbarro, said that while the pizza chain had added the lower-calorie slice to capitalize on New Year’s dieting resolutions, the slice now outsells all other slice varieties but cheese and pepperoni. “Although our plan was to have it through March, we’re actually thinking about keeping it,” Mr. Greco said.

Mooyah, a build-a-burger chain based in Frisco, Tex., that dedicates itself to burgers, fries and 100 percent ice cream shakes, put lower-calorie options on its menu to attract a group of customers that Alexis Barnett Gillette, the marketing director, nicknamed “the veto vote.”

“What we found is if you limit yourself to the beef hamburger, there are certainly a growing number of folks who wouldn’t even consider our restaurants,” Ms. Barnett Gillette said. “It could be mom, who’s a vegetarian and may not want to go to a burger restaurant, or turkeytarians or someone with a health restriction of some sort.”

So Mooyah offers the choice of a 200-calorie turkey burger with fewer than 10 grams of fat on a choice of a white or whole wheat bun. It also has a black bean vegetable burger and sweet potato fries, a small portion of which is 255 calories, compared with 278 calories in the same size portion of regular French fries.

Still other restaurants are finding ways to highlight existing options on their menus that make a healthier meal, like Pita Pit’s Resolution Solution. The menu helps customers who build their pitas better understand how to create a healthy option, said Jack Riggs, chief executive of Pita Pit USA.

“When the public starts saying it wants healthier options — and we are hearing that — we have an obligation to help show you what that means in our restaurant and give you choices to help you achieve that,” Dr. Riggs said. “That’s good business.”

Written by By Don Sapatkin, an Inquirer Staff Writer at Philly.com/Health

Amy Jordan, a children’s media researcher at the Annenberg Public Policy Center, was walking down Walnut Street one day last summer when she overheard two teenagers talking as they passed a CVS/Pharmacy.

“The boy said to the girl, ‘Let’s stop here, I want to get a soda,’ ” she recalled. “And the girl said, ‘You want to get a soda? That stuff’s nasty!’ ”

Is this the future of soda?

Twenty years from now, will all the school bans and downsized portions and worries about obesity and heart disease mean that things will no longer go better with Coke?

Some things already don’t.

Per capita consumption of full-calorie soft drinks fell by more than 20 percent from 2000 to 2011, according to Beverage Digest. Diet Coke is now No. 2, ahead of Pepsi.

So how far can regular soda fall, and how fast?

Will it go back to being the treat that it was 50 years ago, when vending machines sold 6.5-ounce bottles? Will soda companies find their Holy Grail – a natural, no-calorie sweetener that tastes just like sugar, erasing the line between diet and regular?

“In the very long term, sugar-sweetened beverages, and probably juices, will be regulated in the U.S. just like cigarettes,” said Barry M. Popkin, an economist and nutrition professor at the University of North Carolina-Chapel Hill. He said rising health costs that hurt American competitiveness will be a factor.

Comparisons between soda and tobacco are imperfect. Even second-hand smoke is harmful, whereas soda is more a matter of too many calories coming in for the amount going out. But there are intriguing parallels.

Advertising played a big role in the rise of each – from the American Tobacco Co.’s “Reach for a Lucky Instead of a Sweet” campaign in the early 1930s to the airwaves-saturating battle between Coke and Pepsi a half-century later.

In both cases, education – the surgeon general’s report on smoking in 1964 and various health initiatives on obesity in recent years – coincided with the end of long-term trends.

“But it wasn’t until you saw the policy changes” – cigarette taxes, smoking bans, and advertising restrictions – “where you actually saw decreases” in smoking rates, said Mary Story, who studies obesity prevention at the University of Minnesota.

There has been no surgeon general’s report on soda, although nearly 100 health groups called for one in July.

So far, the scientific evidence linking soda and obesity falls into three categories:

For years, people drank more and more soda. Daily caloric intake of sugar-sweetened beverages nearly tripled between 1977 and 2001, Popkin found, roughly paralleling the surge in obesity. Teenage boys now get more calories from sugar-sweetened beverages than from any other food or drink.

Liquid calories don’t make you feel full in the way that solid food does, so the body doesn’t compensate for them by eating less, a growing body of research has found.

Emerging evidence suggests that high-fructose corn syrup, a mainstay of soda, might be metabolized differently from other substances.

If soda is on a tobacco trajectory, said Kelly D. Brownell, director of Yale’s Rudd Center for Food Policy and Obesity, then “everything is happening at a very accelerated rate.”

In less than a decade of scrutiny, sugar-sweetened beverages have been removed from most schools nationwide; portions are set to be cut by law in New York; calories are labeled by mandate in such cities as Philadelphia and will be voluntarily in Chicago and San Antonio, Pepsico and Coca-Cola said this month; and various soda taxes have been proposed, with two more on local ballots in California next month.

Even when the anti-soda lobby loses, as it has with every tax so far, more “information comes out. . . . Usually consumers only hear what the food and beverage companies say,” said Harold Goldstein, executive director of the California Center for Public Health Advocacy.

The industry, which the Federal Trade Commission estimated spends nearly $500 million a year marketing sugary beverages to adolescents alone, is light years ahead of public health campaigns. But the public health advocates are improving.

The Real Bears, a cartoon video by the Center for Science in the Public Interest that went viral, shows a family of polar bears surrounded by soft-drink advertising as extra-large Baby Bear gets stuck in an ice fishing hole and Papa Bear experiences erectile dysfunction, a side effect of diabetes. They finally pour their sodas into the sea.

“We’re trying to figure out, what are the emotional factors. Does fear work? Does nurturance work? Does humor work?” said Jordan, the Annenberg researcher.

Her findings helped shape a 30-second TV commercial, which is posted at www.foodfitphilly.org, the city health department’s sugary drinks site.

The commercial, part of a $1.5 million ad campaign funded by federal stimulus money, shows a mother driving with her son, thinking about what his doctor said about diabetes. “We’ll fix this,” she says finally, shaking her head at their two big drinks and gazing at her son with concern. “Just wish I’d known sooner.”

No one expects soft-drink manufacturers to go under.

“I kind of view the obesity crisis as the indicator of the next big business opportunity for all these companies,” said Hank Cardello, a former beverage company CEO and author of Stuffed: An Insider’s Look at Who’s (Really) Making America Fat. Cardello said smaller portion sizes and “good for you” beverages tend to be more profitable.

The industry is responding to consumer demand, American Beverage Association spokeswoman Karen Hanretty said, by creating smaller containers and new products like vitamin water.

Some have caught on quickly. But diet sodas, while rising four percentage points in market share as full-calorie fell by four points, are not being consumed any more than in 2000. Hence the industry’s focus on new formulations.

Within two years, “you will see Pepsi and Coke and Dr Pepper coming up with a whole variety of no-calorie sweeteners,” said Harold Honickman, who chairs the region’s largest independent bottling group and worked on the beverage association’s campaigns that twice gutted Mayor Nutter’s proposed soda taxes.

Twenty years from now, Honickman said, “I honestly think you will find ‘regular’ Pepsi, ‘regular’ Coke with new kinds of sweeteners. They will be better-tasting drinks than we have today.”

And truly regular sodas?

“I personally think that soda will remain a large product category in the U.S. Responsibly consumed, it’s not just healthy and fine, it is also fun and tasty,” said John Sicher, publisher of the independent Beverage Digest. What that means differs from person to person, he said.

The American Heart Association recommends that most women consume no more than six teaspoons and men nine teaspoons a day of “added sugar” – the stuff added by manufacturers to cookies, ice cream, fruit-filled yogurt, soda, and anything you stir into your own coffee.

A 12-ounce can of Coke contains eight teaspoons of added sugar.

David B. Allison, director of the Nutrition Obesity Research Center at the University of Alabama at Birmingham, has often played a contrarian role on the soda issue, and the industry refers reporters to him for an opposing scientific viewpoint. But he said that two studies published last month in the New England Journal of Medicine led him to conclude there is now sufficient evidence to show reducing consumption of sugar-sweetened beverages will reduce obesity in certain people.

Eventually, he said, drinking a soda will be akin to smoking a cigar or not wearing a seat belt.

“What I say to my kids” – ages 7, 9 and 12 – “is whenever possible, do not have sugar-sweetened beverages,” Allison said. “If you are at a birthday party and the only beverage available is a sugar-sweetened beverage, and you want to be comfortable [in the group], if that happens once a month, it’s not a problem.”

Originally published in Forbes Magazine on October 3, 2012.

With two-thirds of American adults tipping the scales these days as overweight or obese, the same lawyers and activists who took on Big Tobacco are now sharpening their knives for their next target: Big Food. A look at activist crusades against the automobile, tobacco, and other industries over the last century provides three lessons: The war will be long, both sides will dig in, and the losses will be unnecessarily heavy all around.

History shows there is a better way, but it will demand unusual cooperation by all, especially by the $1.2 trillion food industry, whose primary challenge is to recognize the attack not as a threat but rather as an incredible new profit opportunity. The activists, for their part, must engage the industry not with diatribe, which can lead to protracted legal battles, but by understanding the industry’s pressures and playing to its best interests. Common ground abounds for both sides. If the activists discover it, they will see that the industry’s marketing savvy and financial clout can be turned into instruments for benefiting consumers.

More than a dozen law firms that took on tobacco firms in the last decade now have filed suits against companies like ConAgra and PepsiCo, charging them with misleading labeling and health claims. In September, New York City’s Board of Health approved Mayor Michael Bloomberg’s ban on sales of sodas bigger than 16 ounces at restaurants, movie theaters, and food carts. It will go into effect next March if the soda lobby fails to contest it successfully. And Bloomberg isn’t finished. He’s crusading against junk food in prisons and potato chips in Bronx bodegas. The Federal Trade Commission recently won a settlement against Dannon over claims about its products’ health benefits. In July, the Center for Science in the Public Interest sued General Mills for allegedly putting artificial ingredients in Nature Valley products marketed as natural.

The history of activist movements against an industry’s controversial products and practices is a study of long, costly battles with little quick relief, especially to consumers. Consider that by the 1960s more than 50,000 people a year were dying in car crashes, despite the fact that crash experts had been sounding the alarm about safer car designs since as early as the 1930s. The alarm went unheeded by U.S. automakers for many more decades; they embraced safety only when they lost market share to more safety-conscious competitors. Consider, too, that more than 2.5 million lives could have been saved if everyone had quit smoking when the U.S. Surgeon General first unveiled tobacco’s dangers back in the 1960s. The tobacco industry fought for 50 years to stave off public health efforts to tax and ban smoking, and many lives were lost.

Well-meaning activists are dusting off their old strategies of research, regulation, and litigation to use against Big Food. Trying to force the risk-averse food industry to jettison time-proven brands and add healthier products will be a slow process. The industry has long memories of expensive, high-profile flops. Even countering the lawsuits will be less costly than risking another debacle such as New Coke or McDonald’s McLean Deluxe sandwich.

Yet both sides are overlooking a golden opportunity that could help everybody win, food companies and consumers alike. In fact, the obesity crisis may just be the food industry’s biggest market opportunity over the next 10 years.

Hard to swallow? Consider what might have happened if American automakers in the 1960s had begun designing and building safer and more fuel-efficient cars just after Ralph Nader first published his seminal book, Unsafe at Any Speed. Instead, their response to activists like Nader (whose book took the industry to task for resisting safety features) was to dig in their heels. They resisted adopting voluntary safety improvements because, they claimed, “safety doesn’t sell.”

So the U.S. auto industry let foreign competitors like Volvo and Mercedes-Benz take the lead in adding features such as three-point seat belts, crumple zones, and side air bags. It also allowed Japanese automakers to make strides in safety and fuel-efficiency and rapidly gain new U.S. customers. U.S. automakers found out the hard way that safety did indeed sell. By 2009, when two-thirds of the public said that safety was the most important factor in buying a new car, U.S. car manufacturers’ share of the American market had plunged by more than half since 1965, from 91% to 44%. Safety turned out to be a huge moneymaker for the auto industry, not an immense financial burden.

In contrast to automakers, look at how the beer industry responded to activist groups such as Mothers Against Drunk Driving, which began targeting the alcoholic beverage companies about three decades ago. Top brewing companies got ahead of the issue. They worked to lighten up both the alcohol content and the calories in their beer, and they began a campaign to encourage people to drink responsibly. Light beer now accounts for four of the top five best-selling beers. The top brewers have doubled their profit margins, even while losing market share to wine and liquor and spending $875 million over the past three decades—and while telling people not to drink too much.

The soft drink industry has been fighting activists who paint it as the bad guy in the obesity crisis. It should take a cue from its brethren in beer, and, indeed, from its own success in selling more water and fewer sugar-sweetened products. Consider that soft-drink makers today enjoy some of the highest operating profit margins in the food industry, even though some have reduced their calorie footprint (the average calories sold per capita) by a quarter over the last decade. Zero-calorie carbonated beverages and bottled water are now a bigger part of the mix, and consumers are clamoring for them. Instead of fighting the campaign against Big Gulps, the soft drink industry should be looking for the next big opportunity.

New research is already proving that the profit opportunities are there. One study by my organization, the Hudson Institute, has found that food companies with higher percentages of healthier food sales in their portfolios report healthier bottom lines. Hudson, an independent policy research organization, recently looked at 15 consumer goods companies that sold varying percentages of “better for you” products—ones with reduced calories, marketed in smaller portion sizes, or whole-grain and other foods generally recognized as more wholesome. These products accounted for less than 40% of the companies’ sales between 2007 and 2011 but drove more than 70% of their sales growth. Companies selling above-average levels of better-for-you foods and beverages enjoyed higher operating profits, larger returns to shareholders, and a better image among consumers, branding studies have shown.

In short, the food industry can still enjoy healthy profits while doing the right thing, urging restraint and selling products that deliver more nutrients or fewer calories.

What will it take to get the entire food industry to hear this message, instead of spending time and resources fending off its attackers? First, activists and the industry need to change the rules of engagement. When hardcore activists begin to oppose an industry, industry executives become defensive and competitive. Under attack, they grow even more opposed to change and dig in and fortify their positions. Message to activists: Pursuing harsh regulations and litigation only prolongs the time it takes to reach a solution.

Materials science provides the perfect analogy for this problem. When it is backed into a corner, the food industry, which is highly traditional, can become an immovable, impervious solid. The activists display combustible gas behaviors. They’re highly reactive, sometimes explosive, but unable to change the solid very much. Only a liquid state can get anything done, but neither side is willing to undergo a fundamental change.

The public health outcry over less nutritious food promises to be very combustible. Many have compared it to the fight against Big Tobacco, which is now paying a $206 billion settlement to states that claim that smoking-related illnesses increased their Medicare costs. Activists hope to paint food as, like tobacco, a highly addictive threat to public health.

The escalating war against Big Food has a key difference: Unlike tobacco, food companies manufacture a necessity to public health, and nobody can argue that it shouldn’t exist. Its antagonists need to approach this industry differently. Most of all, food executives need to look behind the vitriol and see a very real opportunity, to make more money and do good at the same time.

Originally written in The Atlantic Online on August 12, 2010

This is the third in a series analyzing the psyches of those involved in the obesity debate. Last time, you met the restaurant operators and learned that keeping the kitchens running will always trump matters such as obesity. Today you get to meet their cousins, the grocers.

According to the Food Marketing Institute, there are more than 35,000 supermarkets in the U.S., and, last year, Americans spent $557 billion on groceries. But don’t be deceived by this huge number; their profits are pitifully low, at only 1 to 2 percent of sales. This forces them to live in the present, since it is a survival-of-the-fittest business.

Like their restaurant-industry relatives, grocers can best be described—to use the gas/liquid/solid metaphor I’ve borrowed from chemistry—as “solids.” By this I mean that they are traditionalists who defend the status quo and value protocol and structure. Logical, organized, and realistic, they are quick to make decisions and get things done. They are well suited to dealing with a taxing retail environment.

Shoppers select almost 60 percent of the brands they buy during the act of shopping itself.
This means that grocers have undue influence over what consumers buy.

Those entrusted with managing grocery departments are responsible for a whole host of tasks, including the purchasing of food items, managing inventory levels, identifying and adopting new products, product merchandising, employee scheduling, delivering excellent customer service, and setting prices.

Concerns about competition and labor costs (they know these to the penny) often consume them. And close attention is paid to same-store sales compared to last week. But perhaps the worst six-letter word for a grocer, according to former Harris Teeter President Bob Goodale, is “shrink,” the amount of money that walks out the door because of employee theft, shoplifting, and backdoor mistakes and dishonesty. With shrink over 2 percent and profits under 2 percent, this is a make-or-break matter that keeps grocers awake at night and forces them to be diligent about the details.

With this as background, it becomes obvious that attacking Big Picture issues such as obesity falls far down the priority list. Of higher import is the “now”: squeezing a profit out of every square inch of the store.

One way grocers use their practical thinking skills to generate profits is to use “power” items to drag the customer through the store. These are the staples consumers buy, like bread, milk, bananas, ground beef, chicken, and eggs. Grocers know you need them and place them in far away locations, like the back of the store, to expose you to more of their offerings. It’s very similar to finding your way through a maze.

Another way grocers “find” money is by getting food marketers to pony up in order to place their products in the best, most prominent locations in the stores. Bestselling national brands like Pepsi and Kellogg’s pay handsomely for the privilege of being up front or more visible on the shelf. But oftentimes these fast-selling items come with a high-calorie sticker price.

Is there anything grocers can do to help us check-out with fewer calories? The answer is “yes,” if they remember that shoppers select almost 60 percent of the brands they buy during the act of shopping itself. This means that grocers have undue influence over what consumers buy. It’s time for them to exercise this power.

That means they can set up special sections for healthy kid’s lunches, insist that certain display space be reserved solely for lower-calorie products, and add healthier snacks at the checkout line.

But are they likely to do this on their own?

Alas, like their restaurant kin, the “solid” grocers are unlikely to lead us out of the obesity mess. The business survives on razor-thin profit margins and those who toil there must simply attend to the day-to-day rigors of the grocery aisles. The grocer personality is not aligned with fixing a complex problem like obesity.

Only with pressure from the top will there be any meaningful change. Perhaps chains like Safeway, with their Healthy Measures program, or Walmart, which has taken a proactive role in forcing suppliers to be more environmentally responsible, can lead the way? The jury’s still out, so we’ll have to wait and see.

In our next feature, you will meet those sitting on the opposite side of the obesity table: the researchers, academics, and public health activists, otherwise known as the Food Police.

The Combo Meal Mindset

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Originally written in The Atlantic Online on August 5, 2010

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.

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?

Originally written in Food Technology Online on May 17, 2010

Obesity is now a national burden with two-thirds of American adults either overweight or obese. No regulatory measure or amount of consumer prodding has proven effective in addressing obesity. It’s time to change the playbook and look to food marketers as the best solution.

The debate around obesity has centered on food industry mouthpieces stating that consumers are offered plenty of healthy choices and should take personal responsibility for what they eat. Public health advocates and regulators counter that food marketers have acted irresponsibly by promoting foods and beverages that are inherently of poor nutritional quality and they must be held accountable.

Soda taxes offer a case in point. The argument for taxing sugared soft drinks and beverages is based on projections that a 10% tax would lower consumption by a corresponding 8–10% and generate $150 billion in government revenues over 10 years. Pretty compelling, except for one missing ingredient: there is scant evidence from academic studies that obesity rates would decline.

The real culprits, no matter what the source, are excess calories. Since 1970, the number of calories available for each of us to ingest has increased by a whopping 30%. What went up must now come down.

No one is better equipped to deal with depleting this overabundance of calories than companies like Coca-Cola, General Mills, and Kraft. Rather than taxing, a better approach is to offer them incentives to lower the calories they sell.

One initiative I am advancing is the “20 by ’20″ program, designed to reduce the supply of calories 20% by the year 2020. It offers all packaged foods marketers and restaurant chains a straightforward quid pro quo: keep your tax deductions for advertising in exchange for lowering the number of calories per serving you sell. Specifically, food manufacturers and restaurant chains must lower their calories sold by 2% each year for 10 years in order to retain their deductions for advertising.

So, if the makers of items like Pepsi, Lunchables, and Monster Thickburgers lower their calories by 2% per year, they get to keep their deductions. Lower them by 10% or more in a given year, they receive a 25% bonus on deductions. But, do less or spew more calories on the consuming public, and companies will see a reduction in their deductions.

From a corporate perspective, the flexibility to determine which products to change or promote offers a huge advantage over a government imposed one-size-fits-all tax mandate.  And progress is easily tracked.

Why should food corporations go along with this? There are three good reasons:

  • An opportunity to get ahead of regulators and avoid more draconian measures like soda and “fat” taxes.
  • A demonstration to consumers who purchase on the basis of corporate responsibility that the marketer cares about their customer.
  • An ability to improve bottom line profits.

It is time that food marketers recognize that becoming part of the solution to obesity presents them with one of the biggest opportunities in decades. It’s just good business.

Despite skepticism surrounding the Healthy Weight Commitment Foundation pledge that its food industry members will sell 1.5 trillion fewer calories in the next five years, there is an emerging track record that suggests that food marketers are recognizing that they must deal with the spiraling-out-of-control obesity crisis … or else. Witness the recent announcement by the American Heart Association- and Clinton Foundation-run Alliance for a Healthier Generation that soft drink giants Coca-Cola, PepsiCo, and Dr Pepper Snapple Group have reduced the number of calories shipped to schools by 88 percent since 2004. PepsiCo has gone one step further by unilaterally declaring that it will halt the sale of full-sugar soft drinks in primary and secondary schools globally.

With companies like Coca-Cola, Kraft Foods, and Campbell Soup participating in the Foundation’s pledge, here’s a preview of what’s coming on grocery shelves. Don’t expect traditional Coca-Cola to change (again), but readers are likely to see more visible displays of lower-calorie beverages like Coca-Cola Zero and Vitaminwater. Kraft will pull even more calories out of its Lunchables or reduce the size of Kraft cheese slices. And those Milano cookies from Pepperidge Farm may be just a wee bit less fatty. Anticipate that a plethora of packages will be “downsized,” with a whole array of smaller portioned boxes, mini-packs, cans, and bottles to choose from. Even the food inside will be smaller.

More enlightened food marketers are getting the message that doing the right thing is in their best interests. Why are they lowering calories, fats, and sodium? The simple answer is: impending regulations. Smart packaged goods firms have taken a lesson from their restaurant brethren after watching how the restaurant lobby resisted the move to place calories on menu boards. Once the light bulb went off that several states and multiple municipalities beyond New York City might pass legislation requiring different formats for listing calories, agreement to a national standard as proposed by Senator Tom Harkin (D-IA) became a no-brainer. And it has not been lost on marketers that health advocates and activists are reading from a new playbook published by the Urban Institute titled “Reducing Obesity: Policy Strategies from the Tobacco Wars” (PDF).

So is a 1.5 trillion calorie reduction over five years enough to make a difference? Clearly, focusing on lowering calories to deal with the obesity problem is the right call, and the Foundation should be applauded for taking a stand, but this is a drop in the bucket and represents only a 0.5 percent reduction in the 300 trillion calories available for Americans to consume each year. That translates to less than 1.5 pounds of added weight per person. Hardly enough to resolve an obesity crisis.

To fix obesity, we must reverse what got us here in the first place. Daily calories supplied are up 30 percent per person since 1970, and returning to that “pre-obesity” level requires a discharge of 69 trillion calories.

It’s time to be bold. REALLY BOLD. “Put a man on the moon” bold.

With all the tools available to food marketers to lower the calories they sell while maintaining profits—introducing low-calorie alternatives and high-profit-margin 100-calorie portion packages, and putting marketing support behind lower-calorie brands—it is time to step up and “tear down this wall” of obesity by committing to eliminating those excess 69 trillion calories. This 20-percent or more reduction in calories is what’s really needed to take back American’s health and waistlines. So declare this goal for the end of the decade and we’ll all be better for it … consumers as well as corporate bottom lines.

Or else?