Are Food & Beverage Companies Making the Grade on Nutrition?
By Lauren Compere, Managing Director at Boston Common Asset Management
The food industry is undergoing a profound transition. Faced with an escalating global nutrition crisis, which sees one in three people worldwide either overweight or underweight, regulators, investors and consumers are demanding that the world’s biggest food and drink manufacturers change the way they operate. Companies that want to keep pace with changing expectations need to adapt their business models, reformulate their product ranges, make healthy products more affordable and accessible, improve labelling and marketing, and do more to reach vulnerable populations with nutritious food.
There is some evidence that this is already happening. The 2018 edition of the Global Access to Nutrition Index, the leading ranking of major food and beverage manufacturers’ performance on nutrition, shows an overall improvement since the last assessment in 2016. The increase in the average score (from 2.5 to 3.3 out of 10) is largely driven by companies having better policies on nutrition and undernutrition, and sharing more information.
However, this Index also includes the results of a nine-country survey of the healthiness of more than 23,013 products sold by 21 of the 22 companies in the Index. Remarkably, less than a third of the products assessed could be classified as healthy, indicating a clear gap between company policies and execution on nutrition. Furthermore, many companies state that a higher proportion of their products are healthy than the Access to Nutrition Index found, suggesting their definitions are less strict than the independent research conducted for the Index.
For example, Nestlé, which tops the 2018 Index, says it generated more than 80% of its global revenues in 2016 from healthy products. However, Index researchers found that only 19% of Nestlé’s sales in nine countries (which represent 54% of its global sales of the categories assessed) were generated by healthy products. Such a wide discrepancy indicates that even leading companies have scope to review their definitions of ‘healthy’, and that investors — and others — should encourage them to do so. Of even greater concern is that many of the companies assessed do not have or publish a basis for their sales of healthy products, nor publish those figures.
It makes business sense for companies to increase their focus on nutrition, not least because failure to do so could expose them to material business risks. For example, governments in many countries are introducing measures aimed at reducing consumer exposure to, and consumption of, less healthy food. Thirty countries now have a sugar tax and the growing cost of poor nutrition to national budgets suggests that it is only a matter of time before similar taxes are introduced in other countries or on other ingredients. It would be wiser for businesses to adapt now than be forced to do so in the future.
Another key risk is to companies’ brands and reputations. Consumers are increasingly aware of the need to eat healthily. Manufacturers seen to be swimming against the tide and not taking their responsibility seriously risk losing consumers’ trust and — more importantly — their custom. Marketing unhealthy products to children or providing misleading information could be particularly damaging.
There is also a legal risk. Many companies have already been subject to lawsuits for making inappropriate health claims or for inappropriate labelling. Several potentially significant suits are ongoing in the U.S. where 16 state governments are suing food and beverage companies for increased medical expenditure linked to treating diet-related illnesses in their states.
The good news is that these risks are all offset by considerable opportunities. As consumers turn away from high-sugar, high-fat products to more nutritious food, companies can grow their business by investing in healthier ranges. Indeed, a large proportion of the 15 fastest growth global product categories (analysed by both value and volume) are either specifically or generally associated with good nutrition.
From an investor perspective, it’s clear that health and nutrition will be among the most important drivers of growth in the food and beverage sector, and that the manufacturers that anticipate and respond to these factors will be best-positioned to deliver more sustainable financial performance as well as play a vital role in achieving the second and third UN Sustainable Development Goals — to end hunger, and to improve health and wellbeing through better nutrition over time.
For this reason, I urge the companies included in the 2018 Index, and those outside its remit, to focus their efforts on demonstrating clearly to investors, and other stakeholders, that they are delivering much-needed better performance on nutrition and that this is translating into more positive results in terms of sales, category and market shares, and profitability. Board members should get more involved, because this is a long-term performance and sustainability issue, and senior executive pay should be linked to hitting nutrition targets. If these changes are made it will be good for business, and good for global health: a double win.