Shopping for health

Stephen Cadogan on why food companies without a strong presence in the healthy food sectors will fall behind.

FARM produce is getting better, but food is getting worse. That’s a valid conclusion, as produce leaving the land comes under an unprecedented level of scrutiny, but at the other end of the chain, food is one of the chief suspects in the deadly obesity epidemic sweeping the world.

Farmers have been complaining that they get no return for reaching the higher and higher quality, traceability, animal welfare, environmental stewardship and land management standards set for them by the EU, national governments, food processors and retailers.

Now, they also have grounds for suspecting that the food processing industry takes Grade A produce from farms, and turns it into killer food, through the obesity scourge which is blamed for 300,000 deaths in the US per year, and associated with 78,000 cancers a year in Europe.

The overweight epidemic has taken the food industry unawares, and how companies respond to it is likely to determine how the coming years go for all who earn their living from the food chain - including farmers.

Obesity has put the industry in the spotlight around one of the major issues for modern societies.

There’s growing pressure from international health organisations on governments to take action, as the number of people afflicted internationally hovers around 300 million, with 15% of children affected, and one billion classified as overweight - one sixth of the world’s population.

Europe has 200 million people affected by obesity; this is linked to huge healthcare costs related to cancers, type 2 diabetes, heart disease, and high blood pressure. Given these figures, it’s no surprise that more and more consumers look for one word when they shop for food - “health.”

Nor is it surprising that companies without a strong presence in the healthy food sectors are in daaanger of falling behind.

For Irish companies, research and development efforts must be accelerated from historically low levels, in order to stay in the race.

Their food labs must come up with snacks and products that combine health with taste, ensure that convenience food remains a healthy alternative, and that healthy food remains affordable

But the rewards could be considerable.

They could find another Actimel - the yogurt drink which has grown since its launch in 1994 to annual sales of €800 million.

It’s estimated 14.5% share of Ireland’s fresh dairy brands market make the product devised by Danone of France the envy of Ireland’s dairy industry.

Still, it is an ideal model for Irish companies of how to develop health products which can be premium priced, allowing companies to regain pricing power lost to supermarkets, and thus earn higher profits.

The ‘healthy’ tag is now the key driver of food sales, according to last October’s presentation to the United Nations by Arnaud Langlois of J P Morgan, whose equity research arm advises the world’s most prominent corporations, governments, wealthy individuals and investors. Mr Langlois said 18 of the 24 fastest selling food and beverage categories globally, and 6 out of 7 categories enjoying double digit sales growth have consumer perceptions of health and wellness.

Unfortunately, Ireland may not be well placed to break into the top rated category, soy based drinks, sales of which are growing annually by a massive 31%. But drinkable yoghurt, rated second best with 19% annual growth, is an ideal product for the Irish dairy industry.

The J P Morgan report identified three key food and beverage sales drivers:

Healthy diet choices: High protein and low carbohydrate diets have boosted consumption of eggs, meat, and fish - and may have helped to push Ireland’s 2005 meat earnings.

Healthy Staples: Fruit and vegetable sales have also grown at above average rates. Bottled water is included in this category.

Healthy Alternatives: These include soy-based or yoghurt drinks, and sport-energy drinks; but soft drinks have lost out. Sugar substitutes are also gaining sales, at the expense of sugar; the story is the same for margarine, with butter losing out. So there are gains and losses for Ireland’s important dairy sector.

The losses could be huge for food companies that cannot meet the health challenge. The J P Morgan report warned that even large corporations will be swallowed up in mergers.

Foods could be “destroyed” if identified as very heavy in calorie terms.

Genuinely ‘healthy’ food suppliers should build a real competitive advantage, but manufacturers will be penalised if they unscrupulously make false claims for products with poor nutrient profile.

Companies depending on advertising and sales to children, or sales in schools and hospitals, face lower sales growth and diminished brand image, due to potentially restrictive new laws.

The benefits of products marketed as “healthy” may be challenged in courts, and companies will have to substantiate their claims.

Famous brands could be weakened, because new laws on the way will require bigger ingredient labels on packaging.