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More and more people across the world are adopting an unhealthy lifestyle that could lead to health problems as they get older. Excessive consumption of certain foods and drinks is a big part of this problem, so food and beverage makers are under increasing pressure to respond to this issue. Those that fail to respond, run the risk of suffering falling revenues: Changes in the regulatory and taxation systems, lawsuits, and consumer pressure are all driving the need for companies to change. Those that respond to this issue effectively will maximize their chances of achieving a sustainable, reputable operating model over the longer term.
Consumption of sugar and high-fructose corn syrup (HFCS) has increased dramatically over the past few decades. The global average daily consumption of sugar and HFCS is now 70 grams (equivalent to 17 teaspoons) per person each day, up 46% over the past 30 years. This is equivalent to 280 calories per day. Consumption varies considerably from country to country. Near the top, we find Brazil, Argentina, Australia, and Mexico, all of which consume more than double the global average. But it is the US that consumes the most sugar, with an average figure of 40 teaspoons of sugar per person each day.
On May 22, Robeco hosted a session with a leading expert on the health implications of sugar consumption, Dr. Robert Lustig, Professor of Pediatrics at the University of California, San Francisco and Director of the Weight Assessment for Teen and Child Health (WATCH) Program. Dr. Lustig has been conducting clinical research focusing on the regulation of energy balance by the central nervous system for the past two decades.
He presented some of his research findings:
Diabetes is having a significant impact on society due to the high cost of treating the growing number of sufferers. There is no cure for diabetes, and patients require lifetime treatment that is increasingly expensive due to complications that appear after 10 to 20 years of treatment. Dr. Lustig expects a third of US citizens to be diabetic by 2050, resulting in huge costs to American society.
People are becoming more and more aware of the long-term dangers of an unhealthy lifestyle. This trend is particularly apparent among better-educated members of society who are more mindful of the risks of developing Type 2 diabetes due to high sugar consumption.
Some companies in our ‘Food & Health’ theme have a more responsible product portfolio than other companies in the peer group. Companies that could benefit include Nestlé and Danone. Danone is a food and beverages company that operates across four business lines: Fresh Dairy Products, Waters, Baby Nutrition and Medical Nutrition.
The aims of our ‘Food & Health’ engagement theme include encouraging companies to increase the number of healthy products in their product portfolios, and to market their products to children and other consumers responsibly. We also encourage companies to disclose their strategy on obesity and how they are reacting to the latest developments related to this issue.
Our dialogue with Danone goes back to 2012, when we had an initial conference call with the company, which gave us a good overview of its marketing practices. The company has been fined by regulators for making unsubstantiated claims about the health benefits of its probiotics (foods containing certain micro-organisms) in the past, but now its marketing practices are industry-standard.
Our research suggests that Danone has committed to responsible marketing to children by increasing the percentage of its advertising that is in line with the International Chamber of Commerce (ICC) code, which forbids marketing that promotes behavior incompatible with a healthy lifestyle. This code places heavy emphasis on a lack of physical exercise and excessive consumption of unhealthy products. 94% of Danone’s Fresh Dairy Products and Waters divisions’ total advertising spending now complies with the ICC Code.
What’s more, the company and its subsidiaries have been developing educational material for children to promote a healthier lifestyle. In Belgium, for example, Danone has now rolled out its "Bon appétit, bouge ta santé" (Enjoy your meal, and move for health) program to all primary school children in the country. When the program started in 2011, it only reached a third of schools.
Regarding the proportion of healthy products in its portfolio, we indicated in our earlier analysis that Danone had little room to improve as its portfolio already consisted mainly of healthy products. In retrospect, we recognize that Danone made significant business strategy decisions back in 2005 to leave behind its less healthy beer, sweets and sauces divisions and focus on four healthier strategies including low sugar products. It reports that in 2011, 45% of sales of newly launched products were of healthy options.
We regard Danone’s disclosure of sales volumes of healthy products as leading practice compared to other companies in our ‘Food & Health’ peer group. And its efforts also resulted in Danone taking number 1 position in the 2013 Access to Nutrition Index (a ranking by an independent foundation based on companies’ contribution to addressing poor nutrition and related diseases).
This quarter we closed our dialogue with Danone. Based on the company’s progress, we closed the 'Responsible marketing to children' objective and upgraded ‘Quantitative targets for healthier products’ to ‘positive progress’. With the changes the company has implemented, our success threshold has been met.