For Major Food and Beverage Companies, Healthier Products Yield Healthier Profits
Food and beverage companies with a higher percentage of their sales coming from better-for-you (BFY) foods and beverages perform better financially, according to a new report from the Hudson Institute. These companies record stronger sales growth, higher operating profits, superior shareholder returns, and better company reputations than companies that sell fewer BFY products. This report is the first comprehensive look at the business impact of selling such foods and beverages.
BFY products include no-, low- and reduced-calorie items, such as flavored waters or diet sodas, as well as products that generally are perceived to be healthier, such as yogurts and whole-grain cereals. During the five-year study period, BFY items drove more than 70 percent of sales growth.
Researchers examined sales and other financial metrics for 15 major national and international food and beverage companies, including General Mills, Nestle, Campbell Soup and Kellogg's, from 2007 to 2011. During those five years, more companies grew the percentage of their sales coming from BFY products than decreased it. The 15 companies were selected because they make up the majority of the largest food and beverage purveyors.
"For the first time we now have concrete evidence demonstrating that it's just good business to sell better-for-you products," said Hank Cardello, lead author of the report and senior fellow and director of the Obesity Solutions Initiative at the Hudson Institute. "Companies' bottom lines can benefit from selling these sorts of products." Cardello is a former executive with Coca-Cola, General Mills, Anheuser-Busch and Cadbury-Schweppes.
The analysis in the report included Nielsen sales data from grocery stores, drug stores, and mass merchandisers; financial metrics, such as operating income, share price appreciation, and return to shareholders; and company reputation and favorability rankings. It assessed whether or not sales of BFY foods and beverages affect these key business performance measures.
In addition to the impact on sales growth, Cardello and colleagues found that, compared with companies with lower-than-average sales of BFY items, those with a higher percentage of BFY sales:
- showed a 50 percent growth in operating profit, as compared with just over 20 percent growth for the other companies;
- outperformed the S&P 500 Index by 60 points on average, compared with roughly 40 points for the other companies;
- delivered returns to their shareholders that were 15 percentage points higher than those generated by companies with lower sales of BFY items; and
- recorded reputation ratings that were more than 30 percent higher than those of companies with lower sales of BFY items.
Over the last several years, many industry members have made commitments to help address the nation's obesity epidemic through individual efforts and in collaboration with organizations like the Partnership for a Healthier America and the Healthy Weight Commitment Foundation. Data in the new report indicate that companies now have compelling business reasons to make and sell healthier foods and beverages to American consumers.
"We hope this report inspires companies to do more to create and sell truly healthy products," said James S. Marks, MD, MPH, senior vice president and director of the Health Group at the Robert Wood Johnson Foundation, which funded the report. "We still have a way to go, but we believe we can have healthy companies and a healthier country. We need both."
According to Cardello, the major findings of the report provide a roadmap for food and beverage companies looking to increase their sales, profits, shareholder returns, and reputation. Such strategies include:
- placing more emphasis on selling BFY foods and beverages;
- accelerating the development of more nutritious foods; and
- adopting the measurement of BFY sales as part of their annual assessment of company performance and progress.
About the Hudson Institute
Hudson Institute is a nonpartisan policy research organization dedicated to innovative research and analysis. The mission of its Obesity Solutions Initiative (www.obesity-solutions.org) is to bring about practical, market-oriented solutions to the world's overweight and obesity epidemic. Founded in 1961, Hudson is celebrating a half century of forging ideas that promote security, prosperity, and freedom. www.hudson.org
About the Robert Wood Johnson Foundation
The Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the nation's largest philanthropy devoted exclusively to health and health care, the Foundation works with a diverse group of organizations and individuals to identify solutions and achieve comprehensive, measureable and timely change. For nearly 40 years the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problems that affect the health and health care of those it serves. When it comes to helping Americans lead healthier lives and get the care they need, the Foundation expects to make a difference in your lifetime. For more information, visit www.rwjf.org.