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 Forbes Magazine on February 26, 2013.

For the restaurant industry, like most others, moral arguments have little or no place in financial decisions. As a result, despite a decade of activists railing against half-pound cheeseburgers, accordion-size racks of ribs, haystacks of fries, and supersized Big Gulps that fuel obesity, restaurants haven’t changed much. Menus tout highly caloric food and plenty of it because restaurant chains feel that’s how they’ll lure customers. But a new study I led shows that that’s no longer true, and restaurants will miss out on a huge growth opportunity if they don’t rethink their strategy.

A Hudson Institute study released earlier this month on the performance of 21 U.S. restaurant chains that collectively generate $102 billion in revenue found a pocket of prosperity in a shrinking industry coming from an unlikely place, lower-calorie meals. Our research, funded by the Robert Wood Johnson Foundation, found that although the total number of meals served fell 1.6% from 2006 to 2011, servings of lower-calorie items grew 2.5%, while the number of higher-calorie servings fell 4.2%. To put that in a bite-sized sentence, supersizing is out; health is in.

Chains that dished out a greater number of lower-calorie servings grew their same-store sales much faster from 2006 to 2011. Per-restaurant sales went down at chains whose servings of lower-calorie foods declined during that period. Another new study confirms our findings from the consumer end. The Centers for Disease Control and Prevention released a study this week that found that U.S. adults consumed 11.3% fewer calories in food from fast food restaurants in 2010 than in 2006. In other words, consumers want fewer calories on their plate, not more.

Both reports should convince the restaurant industry that bedazzling customers with calorie-laden fare no longer makes economic sense. It’s time for restaurateurs who have been timid about offering healthier fare or smaller portions to wake up to this fact.

In the past, menu changes have typically been forced from the outside, by local laws requiring that restaurants post calorie counts; embarrassing documentaries such as Supersize Me; activists who targeted partially hydrogenated frying oils (for French fries and other fried foods); trans fat bans in places like New York, Boston, and California. The restaurant industry’s typical reaction to such assaults has been to counterpunch. Consider its legal challenge to New York Mayor Michael Bloomberg’s Big Gulp ban.

But the Hudson study indicates that restaurants need to put down the gloves. Their top lines depend on it. Cutting calories in their menus is better for their business. Our research examined 21 of the nation’s largest restaurant chains, which together account for about half of the total sales of the top 100 chains. We looked at quick-service chains such as McDonald’s, Wendy’s, Burger King, Chick-Fil-A, and Taco Bell, as well as sit-down restaurants such as Applebee’s, Outback Steakhouse, IHOP, and Olive Garden.

The nine chains that increased their servings of lower-calorie items not only had a 5.5% increase in same-store sales, they also increased their customer traffic 10.9%. Sales at the 12 chains with declining numbers of servings of lower-calorie offerings fell 5.5%, and traffic shrank 14.7%

The findings weren’t a total surprise to us. A year ago Hudson conducted a similar study of 15 of the largest retail food and beverage companies, including Nestle, Kraft, General Mills, and Coca-Cola. Products they marketed with reduced calories, smaller portion sizes, or whole grains or other ingredients generally recognized as more wholesome accounted for more than 70% of their U.S. dollar sales growth from 2006 to 2011. And yet these offerings constituted less than 40% of the companies’ product sales.

Natural Marketing Institute research has shown that 66% of American adults are choosing smaller portions at mealtime to help maintain or manage their weight. Restaurants that emphasize their high-calorie offerings or offer only a few uninspired lower-calorie choices will turn away those people.

So what can chains with years of high calorie-menu habits do? Before they do anything else, they must realize that their business will be at risk if they don’t act. The Hudson and CDC studies should be regarded as a health warning to the economic vitality of the restaurant industry.

This doesn’t mean chains should eliminate their popular high-calorie dishes. That, of course, would chase away the considerable percentage of customers who still enjoy those profitable items. Instead, they need to begin shifting their food portfolios toward the lower-calorie offerings that a growing number of customers now demand. There are four ways to do this:

  • Offer popular high-calorie items in smaller portion sizes, and price them to generate a comparable margin. The Cheesecake Factory’s “Skinnylicious” menu is a good example of this.
  • Accelerate servings of lower-calorie beverages, like Diet Coke, that a growing number of consumers prefer and that provide the same profit margins as higher-calorie ones.
  • Adopt healthier cooking oils like omega-9 sunflower blends that still yield tasty fried foods.
  • Promote the lower-calorie items more prominently, but don’t make them look like diet fare. Subway has taken such a stealth-health approach with its combo meals, which offer, for example, a sandwich, Coke Zero, and baked Lays potato chips.

For the first time, restaurants have a compelling business reason to change their dietary ways. The industry has plenty of room for revenue and profit growth, but only if it plays a role in keeping its patrons’ waistlines in check. Rather than “Supersize Me,” the new restaurant mantra needs to be “Downsize Me.”

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.”

Originally published in Forbes Magazine on January 4, 2013.

Congress’s “fiscal cliff” deal on New Year’s Day included a nine-month extension of the expiring U.S. farm bill, preventing retail milk prices from doubling to $7 or more in 2013. That’s a great relief for milk producers, but the last-minute reprieve shouldn’t blind them to the fact that they have already fallen off their own cliff.

Demand for milk has been in a free fall for decades. U.S. milk consumption has dropped 36% since the 1970s. The dairy industry’s plight is a cautionary tale for other industries whose core product falls out of favor or is under attack by activists. It illustrates the dangers of focusing on just one highly commoditized product, ignoring market trends, and trying valiantly to sell what you make rather than to make what people want.

All the milk mustaches in advertising history can’t disguise the fact that milk is no longer the drink of choice—not for teens and 20-somethings, or people with busy lifestyles, or aging baby boomers, or the elderly. With per-capita U.S. milk consumption down 36% between 1970 and 2011, an industry trade group spokesman recently admitted something everybody already knew: The dairy business is in trouble.

Yet the industry has nobody to blame but itself. It’s in trouble because it has focused on cows instead of consumers. For decades its strategy has been to make dairy operations more efficient. It has succeeded: From 1970 to 2006, as the number of cows declined 25%, output per cow more than doubled. But while dairy companies focused on squeezing more milk out of fewer cows, they largely ignored the fact that demand was getting squeezed as well. By the early 1980s, per capita consumption of soft drinks eclipsed that of milk. The kids who had enjoyed four-ounce cartons of milk with their school lunches became the Pepsi Generation who preferred more refreshing soft drinks; later generations discovered vitamin water and sports drinks. Rising milk prices, health advocates who questioned milk’s calories and nutritional value, and activists concerned about bovine hormones further soured sales.

Meanwhile over the past 40 years new milk-based or milk-like products such as yogurt, soy milk,muscle repair formulas, and meal replacements became wildly popular. The original 1963 members of the Pepsi Generation are now 60-somethings with fragile bones, who need calcium and vitamin D but don’t want milk. The 20-somethings who have graduated to Gatorade and bottled water also drink Muscle Milk after a workout and snack on Greek yogurt. Their frail octogenarian grandparents drink Ensure.

In their dogged focus on selling more milk, dairy companies largely overlooked these highly profitable markets, even though they had the lock on the basic ingredient for many of them. Instead, companies like General Mills(which owns Yoplait) are reaping riches from the $1.5 billion-a-year Greek yogurt craze. The $2 billion market for “meal replacements”—powered drink mixes, liquid shakes, edible bars that replace prepared meals and the like—belongs largely to Abbott and Mead-Johnson, both pharmaceutical and medical companies. CytoSport makes Muscle Milk, marketed to fitness enthusiasts to help repair muscles and recover from exercise.

Milk producers also failed to put milk in packages pleasing to on-the-go consumers. In fact, it took them decades to redesign and move away from those messy gable-topped cartons. Shapely one-serving milk bottles that consumers can easily pick up at a convenience store and drink from on the run are a relatively new offering.

In response to competitors that are draining away their business, milk producers have clung stubbornly to their “Got Milk?” campaign, a failed attempt to make milk drinking hip. They’ve clung to their “Real” badge while deriding highly popular soy milk and other milk-like products as “imitation milk.”

What should they have been doing all these years? First, they should have redefined themselves as a dairy-based nutrition provider rather than as a milk business. Other companies, such as United Parcel Services and IBM, successfully stepped back and redefined what businesses they were in to create value-added services that built on their core products. UPS is not just a package shipper; it’s a logistics manager. IBM doesn’t just sell computers and software; it helps companies make their businesses more competitive with consulting and information technology services.

Had it defined itself as a nutrition provider rather than a milk producer, the dairy industry could have shifted its focus from production to marketing. Milk companies could have been faster to recognize the opportunity to create milk-based beverages that met growing consumer demand for more refreshing drinks. They could have added popular, high-margin products such as yogurt and nutrition shakes to their portfolios, to insulate themselves from swings in the demand for milk, instead of letting companies like General Mills move in.

Milk producers also should have embraced grab-and-go packaging long ago, to move milk beyond the breakfast table. They should have formed strategic partnerships with other companies, as Campbell’s Soup did when it partnered with the Coca-Cola Company to distribute V8, and as Pepsi did with CytoSport to deliver Muscle Milk.

Can the industry turn over a new leaf? In a time when many are pondering resolutions for the new year, the milk business needs to do some serious soul-searching. Maybe its resolutions will be to listen more; to focus on others rather than on itself; to find new ways its products can help people improve their nutrition and live better lives.
But as long as it continues its narrow focus on cows and production, its outlook will continue to sour.

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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Several grocery chains are implementing new labels to help the consumer identify which products might be more healthy than others. The Healthy Ideas program, just introduced by two northeastern chains, Stop & Shop and Giant Food, is designed to identify varying degrees that products conform to federal guidelines for better-for-you foods. This means that products containing at least one nutritious ingredient, such as calcium, in concert with lower levels of fat or cholesterol will qualify for the designation.

 

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