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Is Big Food the Next Detroit?

For decades, the Big 3 U.S. automakers fiddled while Detroit burned. Ultimately, out-of-synch products, resistance to change and misreading of the regulatory climate in Washington contributed to their fall from glory. These same problems are now becoming evident in an unlikely place: the food industry.

If food companies don’t heed the lessons learned in Detroit, their ability to sustain profits will be severely tested by new mandated regulations and unsatisfied consumers.

While the industries are structurally different from each other, their behaviors are eerily akin. Confronted with pressing social and economic issues such as pollution, a shortage of fuel and rising rates of obesity, both industries have taken the same stance: defend the status quo at all costs.

Examining the behavioral parallels reveals some striking similarities:

  • Profit models based on “bigger is better.” The Big 3 automakers got into trouble by pushing their higher margin SUVs, Hummers and light trucks. Larger sizes became engrained in the system. All was fine until the market hit a speed bump due to the economy, rising gas prices and the shift toward more environmentally friendly vehicles.

    The food industry finds itself in an analogous situation. Through offerings that can be dubbed “Weapons of Mass Consumption,” such as high calorie combo meals and supersizing, its profit model has relied on larger servings to return greater profits. The industry got hooked on bigger portions bring bigger profits. Bonus packs and extra servings created better value for the consumer and that helped drive sales. It was just too easy to convince consumers to pay a little bit more for an extra serving.

    A 64 ounce Double Big Gulp returns higher profits than a 16 ounce beverage. The same holds for Monster Thickburgers – there is more profit in the larger sizes. Calories were not considered in designing these products and marketing practices.

  • Turning a blind eye to a changing market. Automakers missed the boat on evolving demands for higher levels of quality and styling. This opened the door for both Japanese and German manufacturers to capture significant market share.

    The same phenomenon is occurring in the food industry. Consumers are aching for healthier options and several iconic brands are seeing their revenues stall or decline.

  • Misreading of the regulatory climate. Automakers fought, and ultimately succumbed to, government CAFÉ Standards to improve their mileage per gallon figures. The food industry finds itself in multiple battles with local, state and federal agencies regarding new labeling requirements and tax proposals on soft drinks to candy. In both cases, industry chose to resist rather than take a leadership role to get ahead of draconian legislation harmful to their bottom lines.

To avoid the path taken by the auto industry, food corporations must decide NOW that they will break the cycle of profiting at the expense of their customer’s health. Without such a commitment, they are sure to be on the wrong end of severe regulatory measures limiting not only how they market their products but what they can actually sell. The cash cow machine is in jeopardy unless industry steps up and takes a leadership role in solving the obesity crisis.

By taking one major step, the food industry can avoid strict regulation, improve their customer’s well-being and augment their bottom lines. This involves making a commitment to reduce the calories food corporations sell by 10% by the end of the decade. And there is big incentive to do so; consumers will automatically put on less pounds, regulators will back off their punitive measures to tax, and corporations can improve profits via a “smaller is better” model.

Examples of how this can be accomplished include (1) 100-calorie snack packs, which research shows lower the caloric intake for eaters and offer higher profit margins for food marketers, and (2) “zero-sizing,” the promotion of no calorie beverages in large sizes to preserve profits.

Unless food companies trim down their product offerings in short order, they are doomed to follow in the Big 3 automaker’s footsteps.

 


Hank Cardello is CEO of 27ºNorth and the author of “Stuffed: An Insider’s Look at Who’s (Really) Making America Fat.” He is a former executive with Coca-Cola and General Mills and now chairs the Global Obesity Business Forum sponsored by the University of North Carolina at Chapel Hill.

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