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The Bottom Line
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Your essential guide to global business and technology
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Can the food business adapt to healthier diets? | | |
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For years nutritionists have preached a simple rule to anyone looking to eat healthier: shop the perimeter. In most Western supermarkets, the outer aisles are stocked with fresh meat, dairy, fruits and vegetables. The inner aisles, with their shelves of canned goods, chips and sugary drinks, are where the temptations lurk. Yet many shoppers cannot resist the pull of salty and sugary treats.
Sales for some food and beverage firms have slowed lately as inflation has squeezed consumers. On Thursday Nestlé replaced its chief executive after a series of earnings misses. On the whole, though, the industry has fared remarkably well amid rising economic pressure. Last year the average operating margin of the ten most valuable companies in the industry was 17%; grocers typically make 2-4%.
Still, upheaval may be coming.
This week I look
at two threats to the industry. First, users of weight-loss drugs are losing their appetite for indulgent snacks. David Ricks, the boss of Eli Lilly, one of the companies behind the medications, recently said that they are experiencing “unbelievable demand” without even “trying that hard”.
So far food companies have taken this in their stride. Fewer calories do not necessarily mean lower sales. Already some firms have rolled out new formulations geared towards the weight-loss crowd that are high in protein but low in calories.
The bigger threat could come from growing worries about ultra-processed foods (UPFs). That relatively new designation covers things from frozen pizza to protein bars that contain significant amounts of additives not normally found in home cooking.
A growing number of researchers are worried that heavy processing of foods might be harmful. The science linking UPFs to poor health outcomes is still debated, but some governments are already taking action. In November last year Colombia imposed a tax on a range of UPFs. Dietary guidelines in Belgium, Brazil, Canada and elsewhere recommend avoiding the products.
Abandoning processing would be tricky for the industry; it would make products more expensive to produce and shorten their shelf life, hitting profits. That is a risk worth chewing on.
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Fast fact: In America, Britain and Canada around half of calories consumed come from ultra-processed foods. | | |
Your preview of next week | | |
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Monday August 26th
There is little sign of a rebound in the German economy, according to the Ifo Institute’s business-climate survey. The index is updated for August. In July it noted that the mood among companies in Germany had “noticeably deteriorated”. In manufacturing, assessments of the current situation were “significantly worse” than in June.
A federal court hears the Federal Trade Commission’s argument against the proposed $25bn merger of Kroger and Albertsons. The deal between the two supermarket giants was first proposed in October 2022 but has faced opposition from states and unions, who claim it would hurt shoppers and workers. Kroger wants the courts to handle the case, and is suing the FTC to stop the regulator from using its own in-house tribunal.
Tuesday August 27th
BHP reports earnings for the 12 months ending June 30th, its first financial statement since the collapse of its takeover bid for Anglo American. The mining company produced a record amount of iron ore during its fiscal year, in part to feed ever-hungry Chinese steelmakers.
In April Nordstrom announced that it is exploring the possibility of taking the company private. The department-store chain, which publishes its results, has seen its share price fall by 40% over the past three years. Like Macy’s and other rivals, it is struggling to reinvent itself, as more and more consumers abandon department stores for online shopping.
Wednesday August 28th
Markets now greet Nvidia’s earnings as totemic of the artificial-intelligence boom. Its latest results follow an astounding previous quarter, in which revenue of $26bn was up by 262%, year on year, and net profit, at $14.9bn, soared by 628%. There is much debate between bears and bulls about whether this can continue. Two big hedge funds slashed their holdings of Nvidia’s stock ahead of the recent market rout, whereas Eric Schmidt, Google’s former boss, reportedly said that nearly all large investments in AI chips are going to Nvidia.
Around 14% of all personal computers shipped in the second quarter were AI-capable, according to Canalys, a market analyst, double that in the first quarter. Some 8% of PCs shipped by HP, which releases its results, were AI-capable, as were 7% of Dell’s, which reports on August 29th.
CrowdStrike provides its first earnings update since a defect in its Falcon content software caused a global systems crash in Windows PCs in mid-July. The disruption to airlines, banks and other industries is estimated to have cost $5bn. The cyber-security company faces a mountain of lawsuits from companies hoping to recover their losses.
In June more pure-electric and hybrid vehicles than conventional cars were sold in China for the first time. BYD delivers its results. The company is the number-one seller of electric vehicles in China, taking 31% of the market between January and June.
Thursday August 29th
Qantas recently released the findings of a review of its management in recent years, when its reputation suffered “considerable harm” amid soaring ticket prices, mass delays and cancellations. The Australian airline found no instance of “deliberate wrongdoing”, but it slashed the exit salary package of Alan Joyce, who departed early as chief executive. The company announces its results.
Birkenstock’s share price has risen by more than half since its wobbly IPO last October. In May the sandal-maker, which walks out its earnings, raised its profit forecast for the year, even though it is investing more on expanding production at its factories. As well as sandals, there is growing demand for Birkenstock’s boots, clogs, slippers and sneakers.
Friday August 30th
The euro area provides a flash estimate of inflation for August. The annual rate increased slightly in July, to 2.6%, in part because of rising energy prices. Those hoping for another interest-rate cut from the European Central Bank will pay close attention to the services sector, where the rate-setters are most concerned about inflationary pressures.
The Canadian economy has avoided a recession in 2024, despite weak consumer and business sentiment. The mood has been described by one Canadian economist as a “Me-cession”, where economic activity is strong but individual behaviour restricts purchases and people act as if they are in a recession. GDP figures for the second quarter are released. | | |
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Theodore Roosevelt’s bull terrier once chased the French ambassador up a tree. Commander, President Joe Biden’s German shepherd, had to be rusticated after repeatedly biting Secret Service officers. Sir Gavin Williamson, a British politician, refused to remove a tarantula he kept in a glass tank from the office. He defended the presence of Cronus by insisting the “clean, ruthless killer” was “part of the team”. | | | |
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