For food and drink manufacturers, it has been a desperate 12 months. They face a tide of criticism about marketing methods and are accused of making children fat and creating a nation of binge drinkers. How are they rising to the challenge? Andrew Purvis reports It is sardonically referred to as 'the Cheeseburger Bill' – a legislative act that makes it impossible for a fat American to sue a fast-food company for larding on those extra pounds. Sponsored by Florida Republican Ric Keller (a self-proclaimed 'chubby guy' with a taste for cheeseburgers), the Personal Responsibility in Food Consumption Act – backed by the US House of Representatives in March and almost certain to be approved by Senate – must come as a relief to an industry under attack.
In the past two years, McDonald's has been implicated in two legal actions that could have cost it billions of dollars in damages and prompted a cascade of similar claims. First, it was the infamous 'McLawsuit', in which the parents of two teenage girls from the Bronx (weighing 19 and 12 stone respectively) tried to sue the fast-food company for failing to disclose ingredients that may have caused their children's obesity, diabetes and high blood pressure. Filed in 2002, the case was thrown out in January 2003 with a blunt dismissal by judge Robert Sweet: 'If consumers know the potential ill-effect of eating at McDonald's, they cannot blame McDonald's if they choose... to satiate their appetite with a surfeit of Super Size McDonald's products.'
But the assault didn't end there. A month later, an amended suit was filed alleging that the company was deceiving its customers by suggesting its food was nutritious. Filet-O-Fish (advertised as '100% fish with a pinch of salt to taste') was alleged to contain dextrose, cellulose gum, citric acid, modified cornstarch and other ingredients. For months, the action rumbled through the courts until the Cheeseburger Bill effectively outlawed frivolous lawsuits against burger restaurants.
It is all horribly reminiscent of the tobacco business, decimated by the verdict of a Miami jury in 1999, which found manufacturers guilty of conspiring for years to hide the dangers and addictive properties of cigarettes. The tide had turned against tobacco: last year, its advertising and promotion was banned in Britain; weeks later, New York outlawed smoking in public places, and Dublin soon followed. Could the same bludgeon of litigation be directed at UK food companies?
The threat is so real that public-liability insurance for fast-food and other restaurants rose by 35% last year, with further hikes expected. 'We are urging food and drink firms to revisit their risk management policies,' says John Inwood of Zurich London, 'as insurers will be looking more closely at what the sector is doing to demonstrate social responsibility.'
Yet the head offices of Cadbury Schweppes, purveyor of chocolate and soft drinks to the UK's increasingly overweight children, the prospect of litigation is greeted with sangfroid. Chairman John Sunderland recently declared that he 'was not losing a huge amount of sleep over it. There is a groundswell in the US of lawyers smelling an opportunity, but companies like ours, which offer consumers choice [between standard and diet products, for instance] will be low on the list.'
This bullish view is not necessarily shared by City analysts. Last year, JP Morgan placed Cadbury second only to Hershey in a league table of companies at risk of an obesity backlash (see below). The report was conducted before Cadbury's acquisition of dental hygiene supplier Adams from Pfizer, but even this sugar-free intake couldn't shake off the Dairy Milk image.
'Given that we are primarily a confectionery and drinks company,' says Trish Fields, consumer impact director at Cadbury, 'the JP Morgan assessment should come as no surprise. However, chocolate is not at the heart of the obesity problem. People mention it in relation to being overweight because it is indulgent, but obese people actually eat less chocolate than those of average weight. Our products have long been available in a variety of sizes with ingredient labelling, so I think it is unlikely we will be a litigation target.'
However, there is more to the obesity backlash than lawsuits. In recent months, a barrage of revelations about Britain's declining health and increasing girth has created negative publicity for the food industry. The catalyst was the controversial Hastings Report, published by the Food Standards Agency (FSA) last autumn, which examined the relationship between advertising and children's consumption of food. The peer study, by Dr Gerard Hastings of Strathclyde University, concluded that there was a link between the two, triggering a witch-hunt against junk food manufacturers and raising the spectre of a total advertising ban.
'We are very concerned about the inaccuracies and limited research underpinning this report,' says Hamish Pringle, director-general of the Institute of Practitioners in Advertising (IPA), 'because the Strathclyde study is, in our view, deeply flawed. One piece of data suggests there may be a 2% impact from advertising on food consumption by children, and based on that one study, the FSA has called for radical steps to limit advertising to children.'
The report's release coincided with growing evidence of an obesity epidemic in Britain. In November, the FSA warned of a 'ticking timebomb' of lowered life expectancy among children, calling for health warnings on food packaging and an end to celebrity endorsements. The National Audit Office revealed that obesity in England had trebled in 20 years and one in five adults was now overweight. Among children, the problem was worse: according to the Health Development Agency, 8.5% of six-year-olds and 15% of 15-year-olds are obese – a fourfold increase. Sensing that something had to be done, the Government began an inquisition.
In November, captains of industry were summoned before MPs to give their views on the crisis. Andrew Cosslett, MD of Cadbury Schweppes in Europe, argued that health warnings on food were unnecessary and should be reserved for dangerous things. 'I don't think a Curly Wurly is a dangerous thing,' he said. Tim Mobsby, area manager of Kellogg's Europe, said he would be 'quite happy' if a child ate Coco Pops 'most days of the week' and denounced any potential advertising ban as 'unpractical and ineffective'. Martin Glenn, president of PepsiCo UK, said the solution was a balanced diet and 'understanding the meaning of moderation'. When asked how a can of Pepsi (containing 36g of sugar) contributed to a balanced diet, he replied that the debate 'should not get sidelined on sugar'.
It was a robust performance, but one that gave the impression of an industry burying its head in the sand. The four senior executives interviewed (including Julian Hilton-Johnson, vice-president of McDonald's) blamed everything from uninformed parents and fish- and-chip shops to misleadingly labelled 'low-fat' yoghurts with 'more calories than a Crunchie bar', but gave little reassurance that the industry would address the issue itself.
Pringle of the IPA thinks he knows why. 'That is exactly what the Government wants,' he says, 'for the industry itself to educate the public, so it doesn't have to put its hand in its pocket. It wants manufacturers to include in their briefs to advertising agencies certain parameters around foodstuffs that introduce the idea of a healthy, balanced lifestyle, calories in versus calories out, and so on. We think the Government should set aside a budget, brief the COI [Central Office of Information], which in turn should brief agencies to devise a public information campaign. That's what they have done with smoking, seatbelts and drink driving. Why is diet any different?'
Next month, a White Paper on obesity – announced by health minister John Reid in February – will set out the Government's proposals to the industry, covering everything from salt and sugar content to labelling and possible restrictions on advertising. The FSA has already made its own draconian recommendations, leading one head of industry to predict a new era of regulation and scrutiny.
'We will come under increasing pressure,' says Sir Francis Mackay, chairman of the Compass Group, 'to reduce the fat content of processed foods and to provide more explicit information on calorie content – on restaurant menus as well as supermarket packaging.'
Consumers (not just Government watchdogs) will become ever more critical and de- manding. 'They may not understand all the big food issues,' Mackay says, 'but they have an innate suspicion of authority and a deep-rooted preference for the simple, natural and familiar – at the right price.' Health, he says, will be 'one of the key drivers of change', the real challenge being 'to create a generation of consumers who want food that is not merely less bad for them, but actively good for them'.
But what if companies can't or won't put their own house in order? 'If the food industry and parts of the soft drinks industry do not do anything,' warns Pringle, 'they will be outmanoeuvred on the political front. The sentiment will shift against them.'
That is, arguably, why Kraft (with brands that include Dairylea, Philadelphia, Ritz and Toblerone) pledged, in July 2003, to scale down its portions and reduce sugar and salt levels. That is why Walkers, part of Pepsico UK, announced that from this year it would fry its crisps in a new blended oil with less saturated fat. And why McDonald's in the US (which has introduced salads and fresh fruit on its menus worldwide) promised in March to discontinue Super Size portions and drinks, and McDonald's in the UK defied head office in Illinois by reducing the salt content of its fries, seasoning and ketchup by 23% just four days later.
By doing something about obesity, companies win back consumer confidence – as well as fending off potential lawsuits. At the time of the Kraft decision, a company spokesman said: 'We are making these commitments first and foremost because we think it is the right thing to do. If it also discourages a plaintiff's lawyer or unfair legislation, that is fine with us.'
The most progressive companies have, of course, gone further. One of the most inspiring is Compass, which buys £5 billion of food and drink every year to service schools, hospitals, office canteens and branded outlets such as Caffe Ritazza, Upper Crust and Harry Ramsdens. Fifteen years ago, its schools division Scolarest invented the Choices Café concept (in which pupils buy snacks and meals from sales islands like those at a motorway service station), long before there was an obesity crisis. 'Even then,' says MD Steven Watts, 'it was built around the idea of good health.'
Today, Scolarest runs initiatives that would seem more at home next door to a California Pilates studio than in one of the 600 secondary schools it caters for (in addition to 1,500 more under the umbrella of local education authorities, plus 300 universities, colleges and private schools). 'We're putting in milk bars with chopped fruit and yoghurt so pupils can mix sugar-free milk- shakes,' says Watts. 'There's a liquidiser for making fruit smoothies. A big school in Bristol used to sell five pieces of fruit a day, mostly to teachers. We put in clear bags of fruit with melon, grapes and apple, crimp-sealed and labelled 'Made today, buy today, eat today'. They now sell 120 a day.' Given the choice, says Watts, schoolchildren will eat both healthy and unhealthy foods. 'I'm not an advocate of removing chips and burgers, because they can form part of a balanced diet,' he adds. 'We still need fat. But you can change the way children eat using marketing.'
In Choices Cafés, the price of fruit is reduced until 'it is almost a loss leader', while confectionery is priced higher than the high street to make it less attractive. 'That is purely a health-promoting initiative,' clarifies Watts, 'and the same is true of our jacket potato promotions.' When Scolarest introduced baked potatoes in one school, 'the sale of chips fell by 100 portions a day'.
Add to this boxed salads (50 hits a day in one school, up from five when they were served limp and Clingfilm-wrapped on a plate), rigorous nutritional standards, sports promotions in schools and a 'Battle of the Chefs' education programme (in which pupils help touring chefs cook a meal made from fresh salmon and organic vegetables) and Scolarest begins to look more like a charity. Not so, says Watts. 'We run a business, first and foremost. We are beholden to shareholders and shareholder values, and we simply offer what our head teachers want; they want better, we want better.'
Mind you, health promotions run by food giants are nothing new. One of them, the 'Get Active' campaign launched by Cadbury last year, raised awareness of physical activity in schools using the brand. The manufacturer offered £9 million of free, unbranded sports equipment – as well as teacher training – in exchange for tokens on confectionery wrappers. 'John Sunderland did a huge amount of preparatory work on that,' says a spokesman, 'but he ran into a firestorm of criticism because the idea seemed contradictory.'
Nevertheless, 5,000 teachers were trained in the initiative and 6,000 schools became involved; 17% of adults and 24% of children said it had raised their awareness of child obesity. In other respects, too, Cadbury was ploughing the social responsibility furrow ahead of the current obesity debate.
'For quite some time,' says Fields, 'Cadbury has not advertised during children's television programming or on children's channels. We were one of the first food companies to label the Big Four – fat, carbohydrate, energy and protein – back in the 1980s. We also aim to reduce levels of trans fats [which raise LDL, or 'bad', cholesterol] to less than 0.5g per single serving by the end of 2005.'
It's an impressive raft of measures, not unlike those adopted by Diageo, the world's leading premium drinks company, with Smirnoff, Guinness and Baileys among its brands. In its voluntary code of marketing practice for alcohol beverages, it pledges to place advertising only in media where 'a majority of the audience can be reasonably expected to be over the legal purchase age' and to use models who 'must be, and must look as if they are, 25 years of age or older'. Abstinence will not be portrayed as 'wrong or foolish' in ads, or drinking as a route to 'social acceptance or sexual success'. Since 1998, Diageo has printed information about alcohol units on its labels.
'Marketing our brands in a responsible way is very important to us,' says Jennifer Crowl, consumer affairs director, 'and one thing that can demonstrate that is our ability to self-regulate – whether through our own marketing codes or the principles outlined by the Portman Group. In July last year, for instance, we ran our first responsible drinking campaign in the UK [for Smirnoff vodka] using the slogan "Knowing when to stop is a good thing".'
It was a message heeded by many drinkers – but clearly not all. That same month, the British Medical Association (BMA) warned of a 'binge-drinking epidemic' among the young and called for an urgent ban on alcohol advertising worth £270 million a year. 'Alcohol harms,' said medical student Leigh Bissett, after tabling the motion at the BMA's annual conference in Torquay. 'Adverts don't just say have a glass or two; they portray people getting off their face.'
Two months later, a report by the prime minister's strategy unit revealed that one in three men in Britain and one in five women fail to drink sensibly, while today's youngsters start bingeing at an early age. The habit begins at 16 and alcoholism costs the UK £20 billion a year. In an echo of its White Paper on obesity, the Government announced an Alcohol Harm Reduction Strategy for dealing with the crisis. Published in March, this included a social responsibility charter for drink manufacturers.
But September was only the beginning of the industry's annus horribilis. In November, a lawsuit was filed in Washington DC against Adolph Coors Co (America's third-largest brewer), Heineken, Bacardi and Diageo, among others, alleging that they market their products to under-age drinkers. In February, a class action was begun in Los Angeles against Anheuser-Busch and Miller Brewing, again accusing them of targeting minors with their advertising (notably the Budweiser frogs).
'Yes, we were named in the Washington lawsuit,' Diageo's Crowl confirms, 'and I can tell you it is pending.' Is there a chance of a similar action being brought against UK brewers and distillers? 'It's hard to imagine that something happening in a country like the US might not happen in other places as well,' she replies. 'It's something we have to consider.'
Cynics argue that this explains not just Diageo's responsible Smirnoff ads, but its latest strategy of listing nutritional information on its websites and packaging – announced in the US a month after the lawsuit was filed and coinciding with efforts by American consumer groups to obtain a compulsory listing of such data. But how would it stop binge drinking or protect against cirrhosis of the liver? 'If we provide information about what is in a unit and what the unit measure is for making a drink, people can take that information and make an informed choice,' says Crowl.
Despite litigation, it's business as usual at Diageo, she insists. 'There are no crisis meetings, not at all.' But the industry is facing a troubled future, with hardly a month passing without some new complaint about the way alcoholic drink is consumed or marketed. In February, the Office for National Statistics revealed that the average UK household spends more on alcohol each week (£5.90) than it does on fruit and vegetables. In March, the Food Commission protested to the Advertising Standards Authority after Coors, the company behind Carling lager, claimed beer drinkers could enjoy positive health benefits, including protection against heart disease and reduced blood pressure. In April, the Portman Group lobbied Ofcom for a tightening of the rules governing alcoholic drink advertising.
Yet all this – litigation, binge drinking, negative publicity and a potential advertising ban – is nothing compared with the real villain of the piece: the public's deep disenchantment with alcohol. While the young and foolhardy may be drinking themselves to death, the vast majority (even the oenophile French) are eschewing alcohol for a healthier, less indulgent lifestyle – something that worries City analysts specialising in the drinks market.
'Crisis is a fairly strong word for it,' says Nigel Popham of Teather & Greenwood, 'but a gradual decline is accurate. In the UK, people are spending their money on health clubs and things; places other than pubs and wine bars compete for their leisure, time and money. Demand for alcohol has remained surprisingly strong, but now there is this huge demand for social responsibility. Companies will have to self-regulate, they will have to educate consumers to participate in their products in a sensible way – and if they have any sense, they will, even if they lose sales in the short term. From the shareholder's point of view, that is a slight negative. But investors aren't deserting in droves and the City isn't over-concerned.'
Nor is the spectre of massive class actions instilling fear in drinks-company lawyers. 'It may be doing so at Diageo,' quips Popham, 'but analysts and observers are giving the company the benefit of the doubt. I would say the US lawsuit isn't a runner and Diageo is beyond reproach. Along with Allied Domecq, it is very aware of its social responsibilities. The last thing it wants is future sales being jeopardised by spotty youths overindulging. This litigation is all modestly unhelpful, but I don't think booze will go the same way as tobacco.'
For the entrepreneur, a food and drink sector in disarray creates a world of opportunity. Jenny Irvine, founder of Pure Package, provides wealthy, unhealthy London workers with a pure, nutritionally sound breakfast, lunch and dinner delivered to their door. Was Irvine's timing coincidental? 'I studied food marketing economics at Reading,' she says, 'which is about looking for economic changes that show the market is ready for something.' She had seen a similar concept in America, but it provided vitamins and nutrients in capsules while hers does so 'in the food itself'.
Trialled in January and launched in March, Pure Package has boomed at a time when the mainstream food industry is in retreat. 'We're about to move to new 3,000sq ft premises,' says Irvine, 'which shows how confident we are in the market. By the end of the year, I anticipate we will have at least 200 clients a day. By the end of next year, it will be 2,000. We're the ultimate convenience food and we are healthy. We think of fast food as junk food, but fresh food is actually the fastest food around.' mt