It’s hard to imagine many things that would be more essential to us humans than food and beverages, and for that reason anything linked to it is by definition a mass business. Of course the concept of food business is pretty wide as companies can monetize in different phases of the value chain, but no matter whether you are Monsanto poisoning our soil with pesticides, Cargill trading commodities, or Target selling food to the end customer, you have a huge business in your hands. IMF, CIA World Factbook, and the World Bank all list the global GDP in around $63 trillion. From that the agriculture is about 20% or little over $7 (!) trillion and the processed food business is over $3.2 trillion. Big numbers. Clearly many people are making dough, but what are they doing for our health? As health consciousness is clearly on the rise, what are the largest food corporations doing regarding this secular trend? Here’s my first stab to answer the question.
First I need to narrow the scope of the question to: what are the consumer-focused brands doing for our health? My personal bias is that the Archer Midlands, DuPonts, and Sysco Corporations are way too (1) non transparent and (2) lost souls to even examine. Their whole business models are based on quantity-over-quality and I can’t even imagine them trying to do anything up and beyond the legal obligations towards planet or human health. One could even argue they don’t even do that. For these reasons I’ll stick with the more obvious consumer brands.
Credit: The Consumerist
Here’s the Cliff Notes on the world’s largest food and beverage companies, to give you an overview on their scale and possibility to impact the world big time. All numbers are in US$.
Nestlé is the world’s largest food and beverage company. They are conveniently headquartered just on the other side of Lake Geneva from me at picturesque Vevey. Known best for its milk chocolate and infant formula products, but they do sell food products from A to Z. They also own Nespresso and are the 2nd largest shareholders of L’Oreal. They make >$120 billion in sales, >$10 billion in net earnings, and spend >$2 billion in R&D.
PepsiCo is the largest U.S.-based food and beverage company, and only Nestlé is bigger in the whole world. Pepsi has had a lot of inorganic growth through mergers and acquisitions, including mergers with Frito-Lay and Quaker Oats. Besides the mother brand of Pepsi, they own Mountain Dew, Doritos, Tropicana, Gatorade, and 7UP. PepsiCo did a $57 billion top line and around $10 billion in operating profit in 2010.
Kraft is the world’s second largest food company by revenue, following its acquisition of Cadbury in 2010. Just like Nestlé, this Illinois based food giant has gazillion famous brands e.g. Oreo, Milka, Kool Aid, Toblerone, and of course all the Kraft Dinner products. Kraft’s history is full of mergers and acquisitions, and they used to be owned by Phillip Morris. They do in the ballpark of $49 billion in revenue, >$4 billion in net earnings, and spend $0.5 billion in R&D.
Coca-Cola Company is apparently the world’s second largest beverage company. The company is also unofficially maybe the world’s most international company with a presence in over 200 countries, which is depending on the definition close to 100% of the world’s countries. After traveling around the world to some of the most isolated places, I can agree that Coke is everywhere. Besides their flagship Coca-Cola product, the company has over 500 brands including Fanta, Sprite, and Powerade. The Coca-Cola Company makes over $35 billion in sales and $11.8 billion in net income.
Unilever is an Anglo-Dutch company that owns many of the world’s consumer product brands in foods and beverages. Their product portfolio includes both personal care and food brands, making them kind of a hybrid of Kraft and Procter & Gamble. On the food sector the household names include Ben & Jerry’s, Lipton tea, and Knorr. Their spearhead is manufacturing ice cream, and with $5 billion sales in that category they are the world’s largest player in it. The whole company generates >$44 billion in sales and >$4.5 billion in net income.
Other multi-billion dollar food giants include for example:
Dole Food Company is the world’s largest fruit and vegetable company, with >$6.8 billion in revenue
Mars Inc is a large manufacturer of confectionery with $30 billion in revenue
General Mills is the world’s sixth biggest food manufacturing company with >$14 billion in revenue
The Hershey Company is the largest chocolate manufacturer in the US with $5.6 billion in worldwide revenue
Groupe Danone is a French food product manufacturer focused on dairy making around $24 billion in revenue
H.J. Heinz Company, or more commonly known as just Heinz, makes mainly ketchup and pre-prepared meals. Yearly revenue is around $10 billion
Kellogg Company is a large producer of cereal and convenience foods making over $12 billion in revenue.
Just to give you a comparison, here’s some big independent health food brands and their turnovers (ballpark figures as there’s less public data on independent companies):
So instead of trying to list what these companies have done against our health (it’s a long list!), I’ll try to dig deeper and see what they are doing to fight global health issues. This could easily be expanded to a master thesis or more, but I’ll keep the analysis very simple and product focused. I think most of these companies have something going around e.g. food labeling, product packaging, and other more “political” crap, which I’ll keep also out of scope. These are product companies, so that’s the strongest message they send to the world anyway.
I divided my findings into three categories:
acquisitions of health food brands, innovations to existing unhealthy food products, and completely new internally developed health product launches.
1. Acquisition of health food brands
This is the segment where the food giants have been very active. They have been trying to buy themselves to the market, which is fine to me if you’re there for the right reasons. Unfortunately in many cases the ownership/control of the mother company is not always transparent to the end customer, making it a bit shady. The organic food labels are the perfect examples of this. Some customers are not happy to find out few years down the road that their favorite organic brand is owned by a big food corporation. Here’s two (slightly dated) graphs (click to enlarge image) to illustrate the acquisition/ownership landscape.
The companies seem to be active in the, what I call, “soft” health food segments. So organic labels, whole food brands, and fruit juice products seem to be their biggest bets. Not a lot of action yet on the superfoods, herbs, and raw food segments. General Mills did buy the raw food success story Lärabar awhile back. Often these kind of acquisitions actually alienate the existing customers away from the brand as they see it as selling off to the original mission. Still, I can give A for an effort for the large companies on trying to make (or fake?) their product portfolio more healthier.
2. Innovations to existing unhealthy food products
Here the core focus seems to be on sweeteners, butter and soft drinks. Couldn’t find so many things on other categories. There’s some stuff on dairy like adding healthy bacteria (i.e. bifidus and gefilus) into them and on grains where companies might change to less produced whole food ingredients to increase the amount of insoluble fibers. These are still rather rare and useless because eating these, at least in my book, is not that healthy. The big thing is to go for low-calorie sweeteners like Stevia. However, often the companies modify the original plant to get a patent or trademark for it. Good example of this is Truvia, which is a stevia-based sugar substitute developed jointly by Coca-Cola and Cargill.
Like said, the other more ingredient based health innovations are around fat. One example of this is using powdered Tapioca to replace 50% to 97% butter in bakery products or beta-glucan (from spent brewer’s yeast) in mayo production. Most of the food companies claim that they have done a lot in the fat sector, where for example Kraft has been reducing fat content in most of their products. Be this true or not, I think that this low-fat product trend is just a smoke mirror. Eating highly processed low-fat product is not exactly a 1st class ticket to health. Same goes for highly processed low-calorie products. Changing white sugar to aspartame is not really a big win.
Anyway, Kraft and Pepsi seem especially active in this frontier. The former has been adding calcium to certain products like crazy. The latter is making around 20% of their money from products they call “good for you”, while the rest comes from the traditional “fun for you” products. Still, according to the WSJ the Street doesn’t like Pepsi’s emphasizes on health segments and they are thirsty for the bigger profits coming from these unhealthier segments like soft drinks. Just another perfect example where the pressure to make short term profits is higher than the sustainability and long term gains.
On a personal note, I have been waiting when does the very simple honey and rice bran based products become more popular. These two extremely healthy foods could be added to a variety of commonly known/consumed products to make them healthier. Also basic things like upgrading the quality of salt is still surprisingly uncommon. How hard it is to do that? Well, at least Unilever has their Sodium Reduction Strategy in place.
3. Internally developed health product launches
At first glance I thought there was a big list of new “soft” health products the food giants have introduced. Seems like something very easy to launch with their scale and cash flow. But after a deeper look you realize that there’s actually little to no new health food launches from these companies. Not even on the the easy places like juices and soft drinks. VitaminWater (by Energy Brands), Innocent, and Odwalla are all examples of Coca-Cola acquisitions and not internal product launches. Same goes for Naked Juice and Pepsi. And these are not even that healthy. Honestly, what’s wrong when the only mass market examples I found were the organic/vitamin Cokes around there? And, again that’s not really solving the problem, or is it?
The only real product discovery that could fit into this category was that Pepsi has launched a herbal Quaker Oats product containing goji berries and tremella in China. Good for them! Really. I wish that there was more of this kind gradual progress towards healthier habits, but seems like Pepsi is the most advanced company with their health strategy. This specific product was clearly just a localized Quaker product for the health oriented Chinese market, but I hope similar things could land here in the “West” too.
But that was it. If anyone knows products that the large food corporations have internally developed, please let me know! There must be at least a few more, but I just couldn’t find them.
On the future development side I found material on Nestlé’s new functional food venture. They have invested $500 million in what they call “Nestlé Health Science”. They plan to develop and sell kind of medicinal foods/supplements to help prevent diabetes, obesity, Alzheimer’s and cardiovascular disease. Even though this is pretty scientific, and less natural path, at least these Research and Development funds are away from the basic sugar drinks and pesticide-packed frozen meals. A common characteristic with this kind of product development that Nestlé and also Kraft are doing is that it’s done through collaborating with smaller start-ups or universities. This gives them more room to innovate/disrupt in both good and in the bad, but at the end they are still not fully owning the development themselves.
Pulling it all together
As a summary I could say that there’s very little that the large food companies are doing for our health. They all claim they are all in for a healthier planet, but seems like most actions are just to mitigate the churn they have faced amongst this current health trend. They promote wellness through increased exercise and continued use of their products. For example Kellogg’s thinks that a brisk daily walk and a bowl of cereal is all we need to be healthy. So basically they are setting down fires and not so much innovating for the future. The healthy mindset seems to be a challenge for the incumbents, as their current business model, talent pool, and brand image doesn’t support the changing industry. I’m not a hater, so unlike many other health foodies, I would actually want these guys to succeed. It would be a much faster/bigger global impact, but they would need to understand that the rules of the game are changing. You just can’t buy a brand and then lower the quality standards. For this reason my guess is that the real change and innovation will first come from small independent companies making bit bets on big things.
Mes cordiales salutations,
Ps. If you would like to read more on the organic labels and how independent they might be, I could recommend you this article by Vanessa Barrington. A very good read.