Posted on: Monday, December 9, 2002

Attack on junk food may thin profits

By Rachel Beck
Associated Press

NEW YORK — Getting fat wasn't their fault. They blame that on McDonald's.

Teens were eating Big Macs, fries and milkshakes, sometimes two or three times a day, without knowing that each 1,800-calorie snack was bad for their health.

Don't laugh — this isn't just fodder for late-night talk-show hosts' jokes. It's a real lawsuit. And regardless if it stands up in court, it is serious stuff for anyone in the junk-food business.

It is only the latest blow to an industry under attack. Schools have started banning fattening foods, and there's been talk about restricting advertising of these products.

The trend could take a big bite out of the bottom line, eventually, as well as from some waistlines.

It's not that obesity is a new problem. But it has become a far more serious one.

Statistics tell the story: Three in five U.S. adults and 13 percent of children are considered overweight, according to a 2001 report by the surgeon general.

That's double the figure for adults in 1980, and triple what it was for children.

About 300,000 deaths a year are associated with overweight and obesity, compared with 400,000 from smoking, the surgeon general said.

How did we become so super-sized?

Much of the blame is going to junk-food manufacturers. And it is coming from all sides — health lobbyists, politicians and public-interest lawyers.

It's enough to worry analysts at investment firm UBS Warburg, who say in a recent report that pressure on manufacturers is

creating "a clear long-term risk ... that anti-obesity measures will curb their ability to grow revenues in the future."

The bottom is not about to drop out on the industry, the analysts said, but serious challenges lie ahead. The most public one has been the lawsuits.

The lawyers argue that fast food is addictive, especially to children, and restaurants aren't doing their part to tell customers about nutritional content.

And as little as the public might count the merits of the lawsuits, they are expensive to fight.

Meanwhile, the Center for Science in the Public Interest, a Washington-based health lobby, has attacked junk-food makers publicly for aggressive marketing tactics, and suggested they should pay higher taxes on their products to pay for public-health campaigns.

The World Health Organization, in a report last spring, also suggested implementing more stringent regulation on marketing, especially to children.

And U.S. Surgeon General David Satcher has been quite public about his concern about obesity.

"Overweight and obesity may soon cause as much preventable disease and death as cigarette smoking," he said as he issued the report on obesity late last year.

Schools have taken their own initiative. Starting in 2004, more than 700,000 students in Los Angeles public schools — the second-largest system in the nation — no longer will be able to buy soda during school hours.

With all the heat on junk-food makers, some are changing their ways.

Both McDonald's and Frito-Lay have announced they will start cooking with healthier oils. Other brands are adding healthier menu options, and some are seeing strong results.

UBS analyst Caroline Levy said Frito-Lay's low-fat and fat-free products, including Baked Lay's potato chips and reduced-fat Doritos, now account for 30 percent of North America volume growth, while making up only 12 percent of total volume.

Still, it costs money to come up with new products, and each miss puts a drag on profits.

No one is saying Americans will stop eating McDonald's hamburgers anytime soon.

But the push to get them on a healthier path could affect the economic health of junk-food manufacturers.