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Reading the Tea Leaves on Big Soda's Calorie Reduction Deal

Posted by Capital Alphas Partners on 1 October 2014

We see Coke, PepsiCo and Dr. Pepper’s voluntary calorie reduction
agreement with the Clinton Global Initiative’s (CGI) Alliance for a
Healthier Generation announced earlier this week as a solid industry
policy move that should allow companies to leverage their own preexisting
efforts to cut product calories and develop new low/no-calorie
sweeteners.


• Public health advocates will continue to vilify the industry and push for
onerous taxes and sugar-sweetened beverage warning labels, but
companies have now established a major toehold in obesity policy and
politics that they can use to help counter these attacks.


• More broadly, we think the CGI agreement is likely to be a template for
future industry public health efforts, which could translate into less
adversarial industry-government relationships at both the state and
federal levels than what we’ve seen in the past.


Coke, PepsiCo, Dr. Pepper and the American Beverage Association announced a
major deal this week with the Clinton Global Initiative’s (CGI) Alliance for a
Healthier Generation to reduce overall soft drink calories by 20 percent by 2025.
Industry stated it will cut sugar-sweetened product calories and offer more low
and no calorie products in order to help honor the agreement, which will include
products sold in convenience stores, company-owned vending machines and soda
fountains.


We see the CGI agreement as a forward-looking, solid policy move that harnesses
calorie-reduction efforts the industry was likely to make anyway. Although antiobesity
activists will continue to lambast the soda industry and have already
weighed in against the calorie reduction promise, we think the Clinton deal
provides companies a credible voice in obesity policy and politics that it will be
able to use to its advantage.


Past lower-profile efforts such as building community playgrounds, removing full
calorie products from schools (also a CGI initiative) and offering smaller
container sizes have been largely drowned out by the anti-soda/consumer groups.
Not only is the Clinton agreement generating significantly more media attention
than industry’s previous “white hat” voluntary efforts, it’s also the only antiobesity
effort in place that will directly lower calorie consumption.

We think this feature will give industry a policy advantage over activists whose
tax and warning label proposals would only be applied in limited states and local
governments and at best would only have a theoretical, indirect impact on calorie
consumption. It’s also notable that the taxes and warning labels are geared
toward encouraging consumers to buy less soda, whereas industry-CGI’s calorie
reduction strategy is predicated on individuals losing weight while consuming the
same amount of product.


The industry-CGI initiative could also set a precedent for how policymakers
approach obesity issues in the future. Years-long advocate-backed government
efforts at the state and federal levels (soda taxes, CDC obesity grants, etc) have
been largely antagonistic to industry so far and have produced few results. For
example, obesity and diabetes rates continue to rise, no new state or local soda
taxes have been enacted over the past several years, and few youth meet federal
physical activity guidelines.


In contrast, Clinton was able to negotiate directly with the soda industry over a
matter of months to achieve a nationwide agreement that could have more effect
on obesity and calorie consumption than all other recent government efforts
combined. It is our understanding Hillary Clinton has been very supportive of
the CGI-industry deal, which could translate into a less adversarial White House
than what we’ve seen under Obama’s tenure if she is elected President in 2016.


Finally, from a business perspective, full calorie soda consumption dropped 3%
last year, which shows consumers are at least partly tuned in to warnings about
sugar-sweetened beverages. Unfortunately, this trend hasn’t translated into
more diet sales, which fell even faster at 6%, indicating some of the
(mis)information on aspartame safety and a shift to more “natural” products may
be taking greater hold. We think this downward sales trend was likely to force
industry to look at cutting calories and developing new low/no calorie sweeteners
anyway, and now the CGI agreement gives them some credibility to do it in the
name of public health.

Author: Capital Alphas Partners
Tags: Capital Alphas Partners

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