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Could Big Food go the way of Big Tobacco?

Our latest thematic research piece assesses emerging trends we think will create headwinds for the food and beverage sector. We believe excessive sugar consumption and its contribution to a wide range of health problems, collectively known as metabolic syndrome, are central to this risk. Our research suggests that there are a number of similarities between the threat facing “Big Food” and the problems that Big Tobacco has wrestled with for years.

 Life looks less sweet for Big Food

A growing global population accompanied by increasing rates of metabolic syndrome means that global healthcare costs are soaring. These healthcare costs, along with premature death and lower worker productivity, are threatening to act as a drag on global GDP growth. We believe that this environment raises a number of risks for the food and beverage sector. Consumer tastes and preferences are changing, with an increased focus on health and well-being. Big Food can respond to this through product reformulation and innovation, but this may result in pressure on margins through greater R&D spend. Regulatory risk is also changing. After decades of self regulation, the food industry is now facing increased scrutiny from regulators, a possible sugar tax and stricter labelling requirements. This has been driven by growing concern from public health bodies about the health implications of excessive sugar consumption, as well as pressure from governments facing increasing healthcare costs resulting from metabolic syndrome.

 The next Big Tobacco?

In addition to changing consumer trends and increasing regulation, we believe the other big risk is litigation. Our research concludes that there are three catalysts that would need to be triggered before Big Food faces the same litigation risk as Big Tobacco. The first two have already been activated through changing consumer trends and soaring healthcare costs. The final catalyst in our view would be independent scientific evidence proving the link between sugar consumption and metabolic syndrome, thus establishing the liability of the makers of the relevant food products. Having reviewed a timeline of the tobacco sector since the 1950s, we have identified several similarities between these emerging threats to Big Food and what has happened to Big Tobacco in the last 60 years. We conclude that scientific evidence proving product liability is the only barrier between Big Food and material litigation claims.

Metabolic syndrome could shrink company margins

Food and beverage companies can head off these threats by adapting their product portfolios. The opportunities for sector-leading, forward-thinking companies are therefore significant. We are already seeing a polarisation between the sector’s winners and losers, with the growth in natural and organic foods up by 9% year on year*. But for the losers, the potential litigation costs, lower sales growth and required R&D investment could have a material impact on valuations over the medium term.

The full report is available at

*Bloomberg presentation on organic and natural products, as at April 2015.

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