Industry Perspective
Brock Leach
MR. LEACH: Thank you. It is a privilege to be here tonight, and it is a real opportunity to share an industry perspective. I say that because I suspect I may be the first industry representative who has ever been at a Rosenthal Lecture. I hope that after tonight I am not the last, but I will let you be the judge of that.
I want to open with two things. The first is a caveat, and the second is a commendation. On the caveat side, I am going to share the industry perspective through the lens of one company, PepsiCo. I do that knowing that what we are doing is a drop in the bucket; it is the tip of the iceberg. I can tell you from my work on the grocery manufacturers committee that this is going to be the kind of thing that most of the leading food companies are going to take on. I can see that starting to happen as we speak. I am going to present what we are doing at PepsiCo as a case study, but be aware that it is not the only company that is doing these things. Most of the other leading companies are doing similar things.
The second point is, I want to commend you on the work that was completed here, and actually the work that is beginning. I think this is a fantastic piece of work. The diligence with which all the facts were brought to bear, the comprehensiveness of the recommendations, the fact that they have come so far down the path toward implementation—these are all huge steps in the right direction. For those of us in the food business, we want nothing more than to see real solutions take hold.
Tonight I will talk about what our role in those solutions can be. We are at the beginning of the game. I hope you will be proven right in your judgment that you are visionary, not naive, in thinking that the private sector has a role to play, if for no other reason than that we know how to make healthy products attractive, and we know how to market them in ways that make people want to adopt healthy lifestyle habits.
Let me give you a sense of how we are thinking about that right now. For those of us who have spent our careers in the food business, obesity is the largest issue we are ever going to deal with. No doubt about it, it is revolutionizing the way we think about our business. It is also the largest opportunity to add value. Wellness is the largest opportunity to add value that we have in front of us.
Let me tell you about the way food companies think about adding value. We recognize the population is getting more diverse. We recognize that time constraints are putting a bigger premium on convenience. By the way, wellness, not only the obesity epidemic but the aging of the population and what we see as a shift toward prevention, is creating opportunities to add value.
So, my job is to figure out new growth platforms for the company. I am looking for things that offer wellness in convenient forms that are accommodated to specific individual needs and tastes. That is my role. We think convenience has probably been the largest driver of growth in the food business over the last 15 years. We think wellness is going to be bigger than that for the next 15 years. So, we are working on it with everything we have got.
About three quarters of what we are doing in product innovation qualifies as being good for you. And that is just the beginning.
This is a context problem and, within a food company, it is easy to get distracted and not be sure what to do. So, we have some simple things we say in the office. First of all, we say, “There is a solution to obesity, and it is called energy balance.”
It is no more complicated than that. It is about helping people get the right mix of foods, and it is about helping people pursue the right activities. The challenge is that it is an individual choice.
What is our role in helping individuals make the right choices? There are lots of things that can be done to clean up the environment—better marketing practices and what we do in schools, for instance.
What is really going to help is to offer healthy products that people are excited about consuming, market them in a way that promotes a healthy lifestyle as well, and for the products to provide the emotional benefits to support making the changes that are required.
That is something we know how to do. That is something we have of years of experience doing. That is why we think we can be at least a part of the solution.
Now, a lot of people say, “Okay, PepsiCo, what do you know about health and wellness?” In reply, I have to explain a little bit about who we are. In North America today, about 38 percent of our business qualifies as better for you or good for you, better for you meaning it has reduced amounts, according to the FDA standards, of sugar, calories, fat, and so on. It is good for you means it is made out of essentially healthy ingredients that would meet the FDA requirements for healthy. The most important fact is that in the first half of this year that part of our business collectively grew 10 percent. It was almost 60 percent of our revenue growth in North America.
Is there a business case for health and wellness? Absolutely, and that is why we are putting the resources into it.
We also have the three best brands in nutrition from a consumer’s point of view: Quaker, Tropicana, and Dole, along with Gatorade, which is number seven. We also have leading share positions in a lot of these market segments, which is why we are willing to go after it, because we have an opportunity to further our share position.
Our whole approach is about determining what we can do that is at the intersection of business interest and public interest. Our approach is about marketing healthy products in conjunction with healthy lifestyles. Our expertise is making consuming a product more attractive, easier, and more fun. That is what we know how to do across our product portfolio.
I am going to give you a very quick snapshot of the kinds of things we are doing and have done this year, beginning with healthy choices. Starting about two years ago, we set the goal of having half of our new product revenues come from better for you and good for you products. We have far surpassed our goal. Right now, a little more than 70 percent of our products that will be available in three years will qualify as either good for you or better for you.
We have had a lot of successes. For example, Quaker Breakfast Squares supply all the nutrition of a bowl of oatmeal in a square, and Propel fitness water was one of the largest beverage introductions a year ago. A lot of the work is manifesting itself in some good ideas. One of my challenges is to figure out how do you get value-added proteins, whole grains, fruits, and vegetables into convenient forms. It can be done. It’s not easy or it would have been done long ago, but it can be done. Food technology, packaging technology, and distribution technology has advanced to the point where it can be done.
To improve the healthfulness of our existing products, we pledged we would go through and look for things that needed to be changed. Our first and largest target was eliminating trans-fats. We did that at Frito-Lay. We took 55 million pounds of trans-fats out of the American diet, not just the oil, but the actual trans-fats. We did it because we didn’t want to be the poster child for trans-fats as the issue progressed over the next 10 years. The science was compelling. We actually think it has helped our business too. Now that people are more aware of trans-fats, they are looking for choices that don’t have them, and we offer those choices. It was not a small decision to change the oils, but it is one that was a calculated risk that we felt was worth taking.
We have done some work around nutrition standards, which I will address. We are currently proving to ourselves and others that portion control can be sold. People are willing to pay for convenience and portion control. One example of this are the 8-ounce cans that we are putting in multipacks that we are selling at Wal-Mart. We cannot keep them in stock.
We are selling the same number of ounces of soda per multipack as a single large container, but at a slightly higher price because of the packaging costs, and people are buying it because they want to be able to limit their consumption to 8 ounces.
Another example is in Frito-Lay, where we offer 12 sacks, which are 12 ounces in individual 1-ounce bags. Women, in particular, are saying, “I want to be able to control the amount of chips I am eating in one setting.” That section of the business is growing by leaps and bounds.
We are one of three companies to say we are going to go to total calorie labeling on all of our single serving products, and that will be up to three racks or four racks, depending on what category it is, but we are in the process of putting that in place.
We are doing a lot in schools, but the emphasis on schools is getting our healthier products in distribution. So, some of that is new product SKUs, stocking keeping units, of about 30. Some of that effort are our specifically designed products for schools. We have a product called Sobe Synergy that is 50 percent juice plus filtered water and Splenda fortification. It’s actually better nutrition than 100 percent juice and has fewer calories. We have a similar milk product that is a 12-ounce can that has only 130 calories. It is flavored, it has Splenda, and test results put it on parity with Nesquik or Hershey Chocolate Milk, which have much more calories. So, progress is being made in getting the formulations right.
There is a lot of effort to get water and Gatorade in vending machines, and our policies continue to evolve about what we recommend selling in schools. We want 100 percent of what we sell in elementary school cafeterias to be better for you and good for you products, because children don’t have a choice anyway. Because there is a question about what is the right developmental age to give them a choice, we don’t vend foods in elementary schools as a policy. For secondary schools, we would like half of the vending slots and half of the a la carte placements to be our better for you and good for you products.
We are also working to promote healthy lifestyles for children. We have worked closely with youth sports over the years,
recognizing, however, that by and large our efforts are not reaching the children most in need of help.
So, we have been working on how can we help children understand about energy balance. We became a presenting sponsor of America On The Move, founded by Jim Hill in Colorado, and we continue to do a lot with that.
The largest application is taking the principle of energy balance into a curriculum, called Balance First that we have distributed this fall. We set out to have 2.5 million children sign up for this curriculum, and we have 3 million signed up.
We are also working closely with food service workers. All of these things I’ve mentioned are just an indication of the kind of changes we’ve made this year. Many of our accomplishments have centered around reducing fat in our products, but we’ve also been adding protein and doing things like adding fruit and nuts to oatmeal. The majority of what we are doing now is reducing the sugar in most if not all of our beverages, bars, ready-to-eat cereals, and instant oatmeals. We are also offering sugar reduction options. Splenda, it turns out, is a great performing product, enabling many people to reduce their sugar intake.
Another one of my projects has been to make fruit more accessible. We are currently testing this in Whole Foods stores in the northeast.
The idea here is this: what if we took fruit and put it in convenient packaging? It turns out, by the way, there is a fair amount of consumer dissatisfaction with fresh fruit, especially when the consumer is on the go. How many times have you had an apple, and it didn’t taste as good as it looked? How many times have you been in an airport and you were reluctant to pick up the orange, because you weren’t sure who sneezed on it or who touched it, or where it had been? That’s why we are developing a method to put nothing but the fruit in convenient forms, have it taste very good, and have it be consistent and hygienic. We are off to a good start. It is too early to claim victory, but we are heading down the right path.
Two years ago we realized there was a lot we don’t know about how to deal with this problem and opportunity. So we de-
cided to find some people who could advise us. We had a terrific list of people. What we tell them is, you don’t have to go out and stump for us. You don’t have to be a spokesperson.
Instead we asked them to tell us what we needed to hear before we heard it elsewhere, and they have been bold in doing that. Reducing the trans-fats in our products came about partly because Dr. Cooper and Dr. Reiner said, “You have to do this.” We knew that, but they were the impetus to get us moving. They told us, “You have to confront this, and you have to do it fast.”
I would say, across everything we are doing, this has been a really good idea. We are yet to have any reason why we thought this was a problem. One of the first things they said is, okay, you guys are doing good stuff, but what are you doing to take this mainstream? What are you doing to take your marketing muscle and help people make healthier choices? Those questions evolved into a program that we launched September 1, that we call Smart Spot. The idea is putting a simple device on our better for you and good for you products that will allow consumers to make healthier eating selections. The way this works is a little green dot is placed on the front panel of all these different products. On the back panel is a box that says, “Tropicana light and healthy,” for example, “is a smart choice because it has half the sugar of regular orange juice.” It also states that the product is one of more than 100 smart choices from PepsiCo, and if you want more information, go to Smartspot.com, where you can learn about healthy lifestyles, nutrition information, or government standards, and so on. A lot of people want to know more, so we provide them more information through the World Wide Web.
We held 20 focus groups on this idea, and we performed four quantitative studies, the last of which was with 1,600 people. Over and over we heard the same thing: Keep it simple. We looked at star systems, we looked at stoplight systems, some of which we weren’t excited about, I will say at the front end. Consumers repeatedly said, “Just direct me to a good choice, tell me why it is a good choice, and then encourage me. Keep it on the positive side.” So, that is what we have attempted to do.
We are in the process of putting this on all of our packaging. We will be finished by the end of the year. That is 230 items. It is a total business worth $6.5 billion, so it is taking us some time to change the packaging.
This is the way we are advertising it. We are doing it in the context of our brands. It is a delicious way to help lower cholesterol, it is a family tradition that warms you all over, is it the Smart Spot, the symbol of smart choices made easy. You can find Smart Spot on Quaker oatmeal: “Proven to help lower cholesterol after just 30 days as part of a healthy diet. It’s one of over 100 smart choices from PepsiCo.” The marketing all follows the same format, but is highlighted differently on different products.
We are getting ready to do our first ever PepsiCo-wide Smart Spot program at retail. We have lined up all 16 of our largest retail customers to do this program. It is going to be, for the most part, in the first two weeks after the Super Bowl. We are going to be out there doing a national insert at 50 million newspapers that introduces smart spot and healthy life styles. We are going to be on display with pamphlets that talk about getting started, the simple steps to getting started, with access to signing up for America On The Move, as well as products.
It is our first attempt. We haven’t done a test market on this. We are not exactly sure how it is going to be received, but it is our first attempt to market simple, good choices and a healthy lifestyle.
These are the products we are going to feature in schools, both in the programming and in the vending locations and so forth. To do it, we recognized that we had to be real; we had to have standards. This is somewhat controversial in a food company at the front end, because people say, we are doing a lot of good things that are healthy, like we took trans-fats out and we have natural and organic and so on and so forth. But we wanted to be provably genuine. A product has to be truly good for you or it has to be better for you to qualify for Smart Spot. To accomplish this, we referred to authoritative statements from the FDA and supplemented those with reports from the National Academies.
There are three ways a product can qualify for Smart Spot. The first way is for the product to be healthy—meaning the FDA
definition of healthy. The only changes we made to that definition were that the product had to have zero trans-fats, and we set a sugar limit by using the National Academies 25 percent added sugar limit. Then we applied that to our different categories of food. Interesting things happen when you do that, by the way. Items such as chewy granola bars, which people think of as healthy, do not qualify because they have too much sugar and too little granola. Almost our entire pretzel line was disqualified because it has too much sodium. Our pretzels may be low in fat, but they have too much sodium. Our Twister juice drink was disqualified because it has too much added sugar, which is caused by the fact that it has too little juice.
We felt that our standards passed the common sense test. Another way for a product to qualify for Smart Spot is for the product to have a functional benefit confirmed by significant scientific agreement. That would typically be a food that the FDA claimed was beneficial. Whole grains are an example. It can’t be any worse in any other regard, and with this, meeting FDA standards for reduced sugar and calories.
We want the Smart Spot program to be robust. We don’t think there is anything that qualifies for the designation that you would question. We are supplying complete information about our nutritional standards on the Smart Spot website. We ultimately want smartspot.com to be a portal for consumers who are not otherwise aware of healthy choices and healthy lifestyles to come in and begin learning about staying healthy—think of it as a paint-by-numbers approach that could really help the average consumer.
As part of buying media on Discovery, they are going to run public service announcements with healthy snacking reminders. These will run at 3:00 p.m. across all six of their channels. It is the first time they have done that. They are going to run healthy breakfast reminders during prime time as well. We are sponsoring such efforts as their National Body Challenge that are held during Fit TV’s Fit Family Week held in March.
One of the things I am really excited about is they are going to take our Balance First curriculum into every middle school in
America as part of their schools distribution program. It is a way of bringing media scale to the activity.
We are incorporating these efforts in our internal operations to unite all of our health and wellness efforts, including a new program for our employees called Health Rows. It is powered by Web MD and provides individualized interactions after an employee completes an online health assessment. We have 60,000 U.S. employees. Twenty thousand of them have taken the health assessment so far, and many of them are active in the program.
My wish, as a marketer, is that we can bring economies of scale to the effort to persuade people to adopt healthy lifestyles. We think about new product introductions. We want to be unavoidable. We want our message to be seen everywhere. I would encourage everyone who is interested in this issue to help figure out how can we bring economies of scale to this message. I know that the messages pertaining to diabetes, heart disease, and cancer are working. How can we work together to create a message that we all can reiterate? Similarly, how can we widely disseminate interventions such as America On The Move. How can we take the great work that has been done in the Institute of Medicine’s (IOM’s) report and build a consensus around the key implementation strategies for schools? Right now, every school district in every state is encouraging healthy lifestyles, but each one is doing it in a different manner. Can we build some consensus around what is the best way to do that well?
We are actively looking for ways to pilot interventions in African American and Latino communities, particularly in the inner city. Our Latino and African American advisory boards told us, you don’t know what you are doing when it comes to marketing health in these communities. You need to get some practical lab experience. We would like to do some marketing lab work at the same time that we are doing intervention lab work. So, we are investigating ways to accomplish that.
We are in favor of anything that helps bring economies of scale to the message and to the solutions. I hope that gives you a sense of where we are in our efforts. A year from now it will look differently, but the journey continues.
DR. KOPLAN: Thank you, Mr. Leach. Our final speaker is Dr. Bill Dietz. Dr. Dietz is the director of the Division of Nutrition and Physical Activity at the Center for Disease Control and Prevention (CDC). Prior to coming to the CDC, he was professor of pediatrics at Tufts School of Medicine and director of clinical nutrition at the floating hospital in Boston. He is a past president of the American Society for Clinical Nutrition and past president of the North American Association for the Study of Obesity. He is a member of the IOM and an international figure in the fields of nutrition and obesity, and we are delighted to have him here.
