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 January 14, 2013.

Last month’s shooting of 26 elementary school children and adults at a Newtown, Connecticut, elementary school is beyond every parent and child’s worst nightmare. It has horrified the nation. As public outrage over mass shootings mounts, and as policymakers and gun-control activists rail for change, it’s time for gunmakers to do some soul-searching. If watching their products fall into the hands of dangerous people isn’t enough to move them, their profit motive should.

Here is why: Gun manufacturers that see their future narrowly as selling lethal weapons are leaving lots of money on the table for non-lethal personal protection devices. Further, by sticking to guns, firearms companies will risk facing legal battles of the type that have cost the tobacco industry hundreds of billions of dollars. A 2005 law largely shields gunmakers from those kinds of suits, but pension fund managers and other investors are nonetheless starting to act as if the tides have changed. If the legal floodgates open, the smaller and less profitable gun industry won’t be able to financially survive the attack that the tobacco companies withstood.

While I would prefer that a moral argument might persuade the gun industry to change its ways, especially after the murder of innocent children, unfortunately it comes down to profits and money. That’s the only way to get the gun industry, or many other industries, for that matter, to change products and practices that anti-industry activists claim are harmful to the public. Money, not Second Amendment rights, is the real reason that gun manufacturers fire back when anyone seeks to ban or limit sales of their products—even the extreme ones, such as armor-piercing bullets and the Bushmaster semi-automatic “sports rifle” used in the Newtown killings. Gunmakers cling to their guns because they believe their survival depends on preserving and enlarging the market for them. They think they’re all they have to sell.

From the 1929 St. Valentine’s Day Massacre to the 2012 Newtown massacre, history’s most notorious shootings have sparked outcries for more restrictions on gun sales and gun use. Despite the restrictive new policies that followed many such killings, from the 1934 National Firearms Act through 1994’s Brady Act, the gunmakers have prevailed by championing constitutional rights, courting and threatening legislators, and appealing to hunters, young men, and other core users.

However, those strategies may have run their course. It appears that public sentiment may be turning against unfettered gun ownership after 2012’s mass shootings. In a USA Today/Gallup Poll study taken after the Newtown massacre, 62% said they would favor a law to ban the sale and possession of high-capacity ammunition clips. In a separate Gallup Poll, 71% said they would support some restrictions on gun ownership; another 15% favored making guns illegal.

To be sure, the 2005 law enacted by Congress makes it difficult for firearm companies to be sued over the misuse of their products. But successful challenges to that law have already taken place. Last October, a New York appeals court unanimously held that a gunmaker, distributor, and dealer could be held liable for selling 181 “Saturday night specials” to a gun trafficking ring, which shot a Buffalo high school basketball star. And in light of Newtown, the cries for Congress to appeal the law have begun in earnest. As Vice President Joe Biden met last week with both sides in the gun debate, President Barack Obama vowed to enact new restrictions, with or without Congress. New York Governor Andrew Cuomo is pushing for a ban on assault weapons and allowing police to confiscate weapons from the mentally unstable; Connecticut Governor Dan Malloy is also calling for new restrictions.

As the anti-gun movement begins to hone its strategy, the blueprint is already in place for activists who want to pursue big legal settlements against gunmakers, using the same playbook that was successful against the tobacco industry. But unlike that industry, which staved off efforts to ban or curb smoking for decades before getting socked with a landmark $206 billion fine in 1998, U.S. gunmakers don’t have deep enough pockets to survive such challenges. Their industry profit margins are much smaller—8.5% on annual revenue of $11.7 billion, according to market researcher IBISWorld.

Consider that Altria alone, which owns Phillip-Morris, is a $23.8 billion business, twice the size of the entire gun industry, with net income margins that are two-thirds higher. Moreover, investors are defecting: The California State Teacher’s Retirement System announced last week that it would divest itself of holdings in gun companies that make weapons illegal in California. Harry Keiley, the fund’s investment committee chair, cited not only the Newtown tragedy but also “the financial pressures we anticipate this sector of the industry will face.” Cerberus Capital Management, one of the world’s largest private-equity firms, is selling its holdings in the Freedom Group, a top firearms company that makes the Bushmaster. Wall Street analysts, concerned over future liabilities, are likely to recommend that other investors follow Cerberus’ lead. After its investment missteps with Chrysler and GMAC (before the government bailout), Cerberus is surely capable of recognizing a big business risk.

Public sentiment and investors are turning against the gun industry, and anti-gun activists are howling for their heads. Still, gunmakers can appease the anti-gun activists, become a meaningful part of the solution to curb gun violence, gain new customers, and strengthen their bottom line—but only if their survival doesn’t depend on selling more guns and ammunition. That means they need to reload in three different ways.

First, they should redefine their business model from being purveyors of guns and ammunition to encompass all personal protection products. That would open them up to a host of new and existing nonlethal devices and markets that could very well generate much greater revenue and profit than the sale of guns and ammunition generates today. For example, the U.S. electronic security market is about the same size today as the gun market, according to figures from the Freedonia Group, and is expected to hit $17 billion by next year. Some reports estimate that the global market for home security will reach more than $34 billion in 2017.

Broadening the notion of the needs they fill has been a successful strategy in numerous other industries whose core products were under attack for safety, health, or environmental reasons. For example, Chevron, which once concentrated solely on fossil fuels, now focuses on natural gas, solar power, and biofuels, and touts its “human energy” platform. Danone jettisoned less healthy products to focus solely on nutritious ones such as bottled water and infant formula. Our research shows that Danone’s financial and shareholder performance has outpaced its peers’. Former soda companies such as Coca-Cola and Pepsi have redefined themselves as beverage companies, reaping new business from products like bottled water and sports drinks. Today they enjoy some of the highest operating profit margins in the food industry.

The second strategy that gunmakers should consider is appealing to new customers who don’t want to use deadly force to protect themselves. Overall, a minority of households packs heat; a late 2012 Pew Research Center poll showed that homes without guns outnumbered homes with guns by nearly two to one.

Both the University of Chicago and the Pew Research Center estimate that roughly two-thirds of American households don’t own guns. These people are a far richer vein of future income than the testosterone-filled young males who are the target of Bushmaster’s now-infamous “Consider your man card reissued” ads. Products that offer protection from intruders are highly profitable; ADT, the home security company, is a $3.2 billion business that delivers bottom-line returns exceeding 12%.

A 2011 study by Homeland Security Research projects that the market for non-lethal weapons, at $2.4 billion in 2012, will have a 17% compound annual growth rate, as demand rises in the leading-edge law enforcement and military markets. Consider that the Los Angeles County Sheriff’s Department has used nonlethal devices that combine mace and 600 lumens of light to temporarily stun a criminal, achieving a 96% “stop rate” and a 43% decrease in the necessary use of lethal force. ICD Research estimates that the global market for body armor and personal protection equipment will grow to $19.4 billion by 2022. Protective devices that use sound instead of bullets are an emerging opportunity. All in all, gun makers have a huge opportunity to make and market these devices to the majority of households that shun guns.

Finally, gun-makers need to demonstrate leadership in the public debate about the safety of their products, instead of merely playing defense. When Mothers Against Drunk Driving targeted the beer industry in the 1980s, beer companies started campaigns such as Anheuser-Busch’s “Know When to Say When.” They lightened up the alcohol in many beers and spent millions on public service announcements telling people to drink more responsibly. Even after losing market share to winemakers, brewers are more profitable today than ever; the four largest beer companies’ profit margins more than doubled from 1999 to 2011. Many food and beverage companies have joined the Childhood Food and Beverage Advertising Initiative, which promises more responsible marketing practices. Some members, including Coca-Cola Company, Mars, Cadbury and Hershey, have stopped advertising directly to children under 12.

Gunmakers need a new message and a new mouthpiece. The NRA now looks to be more on the fringe than ever: Wayne Lapierre’s statement that the Newtown mass murders occurred because of too few guns was greeted with revulsion. Clinging to the Second Amendment will no longer resonate with the majority of U.S. citizens. Most people who want to protect themselves and their families don’t care about getting their “man card” reissued.

In short, gun manufacturers need a broader focus, more nonlethal products, and new messages that demonstrate leadership and responsibility in the gun debate. The costs of relying on guns and ammo alone for profits are too high for society, gunmakers, and their shareholders. The societal toll alone is horrific. The U.S. averages 87 gun deaths each day as a function of gun violence, with an average of 183 injured daily, according to the University of Chicago Crime Lab and the Centers for Disease Control. The crime lab’s research estimates the annual cost of gun violence at $100 billion. Clearly, the gun industry’s single-minded focus comes at too high a price.

The needs of society and shareholders are too much for gun manufacturers to ignore. By focusing on and defending their rights to sell guns, they are only shooting themselves in the foot.

I spoke on the recent BBC series “The Men Who Made Us Fat”. Around the world, obesity levels are rising. More people are now overweight than undernourished according to the documentary. My appearance times are noted below.

The Men Who Made Us Fat Part 2 of 12 (The Beginning)

The Men Who Made Us Fat Part 4 of 12 (11:00)
 
The Men Who Made Us Fat Part 6 of 12 (7:55)

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?

U.S. News and World Report recently featured ‘Stuffed’ and interviewed Hank on solving the obesity crisis:

“In more than 30 years of working in the food industry, Hank Cardello didn’t think much about the health consequences of the products he promoted, whether Betty Crocker cake mixes, a proposed new malt liquor, or Diet Coke. He thinks about them plenty now, though. After a cancer scare in 1995, Cardello switched gears and started to look more critically at how his industry might help combat obesity. He’s now CEO of 27 Degrees North, a consulting firm that helps companies marry profit and social responsibility. In Stuffed: An Insider’s Look at Who’s (Really) Making America Fat (Ecco), just released in paperback, Cardello lays out his views on why consumers are not entirely to blame for their own girth, why well-meaning government regulations often fail, and how the food industry might put its marketing oomph behind better alternatives to some of the high-calorie packaged foods that Americans snarf down. Here are edited excerpts from our conversation…”

Focusing on food package labels as a panacea for the nation’s overweight and obesity crisis is like rearranging deck chairs on the Titanic: lots of activity, but no real impact. Too much emphasis is placed on micromanaging acceptable levels of trans fats, sodium or the type of sugar used rather than focusing on the big picture. We need to engage the food corporations to lower the calories.

Labels alone cannot change the fact that for Americans there are 29 percent more calories available to eat than 50 years ago. Obesity is a supply problem and must be dealt with at the source.

A better way to start reducing America’s collective girth is to give food corporations incentives to sell less calories in a way that does not damage their bottom lines. One novel approach would be to adjust the deductions food corporations receive for their advertising expenditures based on their willingness to cut back on calories.

Companies that lower calories get to maintain their deductions. Those that do an exceptional job of cutting calories by more than 10 percent in a year can receive even higher deductions. And those that continue to spew excess calories on their customers would forfeit a percentage of these favorable tax treatments.

Unlike punitive “fat taxes” on soda, candy and snacks, which hurt industry sales, raise costs to consumers, and result in corporate push-back, a better approach would give food companies reason to reduce the calories they sell. It’s time to recognize that the food manufacturers must be a partner in helping to solve the obesity problem.

Do We Need to Know What’s in Junk Food? – Room for Debate Blog – NYTimes.com