Hank Cardello Q&A: Selling Better-for-You Foods is Good Business

Nov 8, 2011, 4:48 PM, Posted by NewPublicHealth

Cardello Hank Cardello, Hudson Institute

The Obesity Solutions Initiative at the Hudson Institute, a think tank based in Washington, D.C., has released a new report, Better for You Foods—It’s Just Good Business,” that found food and beverage companies with a higher percentage of their sales coming from better-for-you foods and beverages perform better financially.

Funding for the report was provided by the Robert Wood Johnson Foundation. NewPublicHealth spoke with Hank Cardello, MBA, lead author of the report, director of the Obesity Solutions Initiative and previously a marketing executive for several major food and beverage companies, about the report and its implications.

NewPublicHealth: Tell us about the study findings.

Hank Cardello: We looked at 15 companies, mostly consumer package goods companies and the large beverage companies such as General Mills, Kellogg’s, Coca-Cola and Kraft. These are the companies that are in the top 30 of the largest food companies in the country and also account for about a third of all the grocery sales to consumers. We looked at sales, we looked at their profits, we looked at their reputations, we looked at their shareholder returns and one of the key findings was this: most of the growth in sales (over 70 percent) was coming from better-for-you products. The other interesting finding was that not only was the percentage increase greater but also the absolute dollar sales were greater. A two-to-one ratio of better-for-you growth versus traditional products such as sugared soft drinks, cookies and ice cream.

NPH: And why is this study so important?

Hank Cardello: It’s important because it’s never been proven to business in their language and in the way they assess their performance whether it makes sense to get more aggressively into these better-for-you products. So this is the first time we’ve been able to prove that. We’ve been able to prove that sales increased for those companies that have a higher percentage of their product portfolio in better-for-you products. Their sales have increased more, their operating profits increased more, their returns to shareholders are better and even their reputational scores are higher. So you now have a metric evaluation or a quantitative evaluation of why it makes sense as opposed to it being a visceral argument or even a moral argument.

NPH: Why do you think better-for-you foods are generating healthy profits? Is it that consumers are demanding them?

Hank Cardello: Well I think partially it’s that consumers are demanding them. Generally, there are three consumer segments. One group, about 26 percent, based on our analysis, “walk the talk.” They’re eating well, they’re exercising. And this group generally clamors for healthier products. Then there’s another group, almost 40 percent, that are what we like to call “dazed and confused." They may be interested, but they have so much going on in their life or they’re confused about nutrition information. It’s elusive for them, it’s not top of the list, and while they’re potentially a group that we could convert, right now they’re not fully there. Sometimes they might eat well, other times, because of time constraints, or other factors, they don’t. Then finally, there’s about a third of the population, with an attitude of “don’t bother me, I’m not going to change.” So we have to be careful about a blanket comment that every single consumer is clamoring for change. Dannon is a good example. Dannon made a conscious decision years ago, to jettison their beer, confections and cookies/biscuits businesses and they have become a yogurt and bottled water company. They are the first company that led the way to a total overhaul of their product portfolio and when you look at their results, it’s very clear that the strategy has worked for them. I like to use that as a beacon to show their peers.

NPH: You gave examples of better-for-you foods in the report. How were those chosen?

Hank Cardello: Well, we took a few factors into consideration: strict nutritional standards, Wall Street analyst definition of better-for-you products and consumer perceptions of what foods and beverages they felt were healthier for them. We make it clear though that these aren’t “healthy” products all the time—some of them are, some of them aren’t. So it might be a diet soda or a 100-calorie pack of cookies, but at least it’s a lower calorie version. But also included are those products normally perceived as good products like whole grain cereals and yogurt. We looked also at what were improvements to the traditional products that these companies were selling. So if somebody pulled the fat out or calories, those were considered improvements. Companies moving in the right direction are reaping the benefits.

NPH: In addition to developing and selling these foods, do you think food companies have an obligation to educate consumers about things like portion sizes, recommended amounts per day and how the food that they’re selling fits into an overall diet?

Hank Cardello: Well, if you look at it from a strict shareholder perspective, I wouldn’t call it an obligation. However, I would say the smart companies will see that this is an opportunity for them and it makes perfect sense for them to do so. The debate has been going on back and forth on an altruistic basis, and while I tend to skew in that direction, that’s not enough to get companies to go over the edge on being more aggressive about these products.

NPH: What role, if any, do you think industry should play in preventing childhood obesity?

Hank Cardello: Well, I think, again, it comes back to the fact that the smart ones will. I’ve used the term “cuddle capitalization” in looking at Wal-Mart—the chain is putting more of their stores in inner cities to address some of the food deserts. It’s a marriage of capitalism with also doing the right thing, and that’s what I push for. I’m a proponent of companies doing more on social responsibility, but it will only work if it concurrently improves their bottom line.

NPH: How should industry use this report?

Hank Cardello: I actually think this is a blueprint for industry. It gives them ammunition to move more aggressively into those products. In many cases, companies have tried and they’ve received resistance. A good example is PepsiCo. Their CEO made a claim that she wanted to build what they describe as their “nutrition” business from $10 to $30 billion by the end of the decade. So they were on track to do that and then all of a sudden Pepsi slips to the number three soft drink after Coke and Diet Coke. At that point a lot of marketing dollars go back to the soft drink side to buttress up regular Pepsi, and they’ve been spending anywhere from $60 to $90 million extra behind that brand. So what it does is it provides a company like that with ammunition to take to their board and to take to Wall Street and says “okay, we’ve got it, we can’t take our eye off the ball on regular Pepsi, but it’s still an imperative that we move in this direction because this is where the growth and the future profitability is.”

>>Read more on the business case for public health and prevention.

This commentary originally appeared on the RWJF New Public Health blog.