Wall Street has finally gotten the memo that healthier products equal healthier financials
This month Unilever suffered a setback in its effort to transform itself into a more health-oriented company: its deal to buy GlaxoSmithKline’s Plc’s consumer health arm fell through after Unilever couldn’t meet the asking price. The pullout cost Unilever’s giant consumer product division $13 billion in market capitalization, and Unilever CEO Alan Jope has vowed to retool the company’s portfolio and shift towards a greater focus on health.
The market reaction to Unilever’s derailed acquisition was not a surprise. Increasingly, investors are realizing that a greater focus on consumer health is the path to future financial rewards. Consider that in December 53 big investors controlling $12.4 trillion called for businesses and policymakers to do more to promote changes that address a “global nutrition crisis.” The investors, which include PIMCO and UBS Asset Management, called for a carrot and stick approach that is not palatable to most US companies: both more regulation and an accelerated shift to healthier foods by businesses.
This point was echoed ten days ago when a group of 11 Unilever investor firms filed a resolution calling for the company to disclose the percent of sales coming from healthier products and to significantly increase that percentage by 2030. Their concern: failure to act in an environment of increasing regulations around health will be a hit to the company’s financials.
These developments are the latest proof that the big money sees the future in health rather than in continuing to pander to consumers’ worst weaknesses. Smart companies will see where this is going and get ahead of it.
Many companies are already moving in that direction because they are realizing investors are demanding it, and we’ve seen increased blurring of the lines between food and health. At the Consumer Analyst Group of New York conference last February, companies like Mondelez, ConAgra and Hershey were showing off their healthiest products, hoping to reassure analysts that their future bottom lines would be healthy as well.
Nestle has committed to bringing more of its products in line with the United Nation’s 17 Sustainable Development Goals, removing artificial ingredients and adding more grains, vegetables, nuts and seeds to its portfolio. CVS eliminated tobacco, which had been a $2 billion business, and acquired Aetna to (profitably) transform itself into CVS Health. The Hy-Vee supermarket chain is adding telehealth and prescription services to its portfolio. And just last week, Ahold-Delhaize announced that its Stop & Shop supermarket chain is partnering with a Boston-based nonprofit called About Fresh on a program that will allow eligible customers to use a prescription to buy healthy food. Food insecure shoppers can pay for their fruits and vegetables with prepaid debit cards prescribed by the providers.
The shift towards health has not been without its setbacks, even for the most dedicated companies. Nestle, which generally gets high marks for its commitment to healthy products, has vowed to do better and update its nutrition and health strategy after Britain’s Financial Times published leaked internal documents acknowledging that nearly 70% of its main food and drink products, making up about half of Nestlé’s total annual sales, do not meet a “recognized definition of health” and that “some of our categories will never be healthy.”
To its credit, Unilever just unveiled a major reorganization creating five business units, including a Nutrition unit focused on snacking, functional nutrition, plant-based products and cooking, and a Beauty and Well-Being division that includes vitamin brands.
Not every food company can set up health care clinics on the premises or buy a pharmaceutical company, but they can read the handwriting on the wall and start moving in the right direction by considering these actions:
- Commit to making half of all products sold healthier and/or in smaller portions by 2030. Inaction will send a signal to the financial markets that the company is not a good investment.
- Adopt the Guiding Stars or NutriScore system. These pragmatic rating programs can be used to track and demonstrate company progress in selling better-for-you versions.
- Up investments in R&D. The food industry continues to lag other sectors in the amounts spent on R&D: a paltry 1-2% of sales. These times call for major investments to transform the food supply to healthier products.
Investors and regulators rarely align, but rising obesity rates exacerbated by Covid have crystallized the need to sell more healthy products. Those companies that fully commit will be rewarded on their bottom lines.