Consumer companies hungry for revenues are starting to place more emphasis on nutrition and other global health challenges, but they could be taking bigger bites. This is especially true in the developing world where the societal needs and economic growth prospects are the strongest.
According to the latest annual State of Food Insecurity in the World report from the United Nations’ food agencies, 842 million people worldwide (roughly one in eight) suffered in 2011 to 2013 from chronic hunger—not getting enough food to lead active and healthy lives. Most live in developing regions, where improving incomes are helping ease hunger but obesity is escalating as rising middle classes eat more processed foods and grow more sedentary. The World Health Organization estimates that globally 1.4 billion adults are overweight and 500 million are obese.
In total, one-third of the world’s population is impacted by undernutrition or obesity and 2.5 billion people lack access to adequate sanitation facilities and hygiene products, according to the report Creating Value in Underserved Markets, published by MSCI ESG Research in 2013.
While the top 20 global publicly listed consumer companies generate an estimated 40% of revenues in emerging markets, only 12% provide appropriate products to address undernutrition and poor sanitation, the report indicates. Fewer than 30% of the 250 consumer companies in the MSCI All Country World Index generate more than 5% of their revenues from healthy and natural products.
“Since we know there is a lot of growth potential in this field, we think there are large opportunities for companies,” said Véronique Menou, manager of thematic research for MSCI ESG Research and a co-author of the report, in a recent phone interview from her office in Paris.
Healthier products do not always make for happier consumers or investors. Campbell Soup Co.’s soup sales slowed after it reduced salt, so in 2011 it made some soups saltier. PepsiCo’s share price fell in 2011 because investors felt the company was focusing too much on healthier items at the detriment of its North American soft drink business, whose market share had slid to third place, says Lauren Compere, a managing director and director of shareholder engagement for Boston-based Boston Common Asset Management.
Still, she and Menou think that changing consumer needs and demands will help push companies to be more health-focused.
They note that sales of health and wellness foods and beverages jumped to $663 billion in 2012 from $524 billion in 2007 and $375 billion in 2002, according to Euromonitor.
Macroeconomic arguments for better nutrition are also strengthening. A 2012 Cornell University study they point to estimates that obesity adds $190 billion a year to U.S. medical costs and accounts for about 21% of the nation’s annual medical expenditures. Malnutrition, which can cause lifelong physical and mental disabilities, can cost poor countries 2% to 3% of their yearly GDP, according to the World Bank. “Undernutrition is a drag, obesity is a drag,” says Compere.
To help curb obesity-related health-care costs, legislation to ban or tax junk food has been proposed or passed in a number of developed and developing countries. The toughest law, in Japan, sets maximum waistline limits for adults age 40 and older (33.5 inches for men, 35.4 inches for women). Menou and Compere anticipate more regulations around the globe.
They also expect companies to look closer at their labeling and marketing practices. At least two dozen lawsuits have been filed in the U.S. against food and beverage makers for allegedly misleading consumers about the nutritional content of products. “You’ve heard a lot about Big Tobacco and Big Pharma,” says Compere. “Now you’re hearing more about Big Food.”