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 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 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.

On paper, the Smart Choices package labeling initiative was a step in the right direction. Designed to help guide consumers to choose more nutritious food products, it reflected an industry driven solution to the nation’s overweight and obesity crisis.

The program began by highlighting the total number of calories per serving AND the number of servings per package right on the front of the label.   This allowed consumers to immediately determine the caloric merits for each product. Unfortunately, the Smart Choices effort quickly derailed by trying to accomplish too much.  In addition to communicating calorie and serving information, it complicated the matter by grading each item on its relative “healthfulness” according to interpretive nutritional criteria. Against all sensibility, items such as Fruit Loops and mayonnaise were bestowed the “Smart Choices” label, sending mothers and nutrition activists into a frenzy, resulting in an early death for the program and damage to the industry’s credibility.

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Here’s a press release outlining my position on why tax incentives make better sense than taxing soft drinks in order to lower rates of obesity:

 

FOR IMMEDIATE RELEASE
September 22, 2009
 
Author Stirs “Fat” Tax Debate with Controversial Proposal
Anti-Obesity Advocate and Former Food Executive Says Tax Incentives for Food Corporations a Better Way to Trim the Fat
 
Chapel Hill, N.C. – (September 22, 2009) Hank Cardello, a well-known author, advocate for addressing America’s obesity epidemic and former food industry executive has spent more than thirty years as a senior executive for some of America’s largest food and beverage manufacturers. While Cardello is the first to admit that the food industry has played some role in the proliferation of obesity in America, Cardello’s position highlights the importance of engaging the food industry to solve the problem – through incentives rather than ineffective taxes on select products deemed “unhealthy” by government and health advocates. Cardello also wants to tap into the marketing power of the food industry to help educate consumers about portion control.

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