The Little Label on Food Packaging Has Been Revolutionized Again. How Many Big-Company Secrets Does It Hide?

When food companies must choose between the short-term gain of satisfying consumer demand and the long-term interest of public health, they always choose the former.

The one thing ever-stricter food labels tell us is that what you are eating may be getting stranger, or less healthy, all the time.

That is exactly what America's new rule this year amounts to. On May 20, the U.S. Food and Drug Administration (FDA) announced major changes to the food label, the biggest since the 1990s. The most important change, and the most contested, is that manufacturers must now state how much added sugar a product contains.

"We may be able to find some information about added sugar in the ingredient list, but you can't find the specific amount added anywhere on the package. Consumers may not even know which ingredients are added sugar. For example, consumers may not know that concentrated fruit juice is a form of added sugar," said Jessica Leighton, an FDA expert.

Sugar is now the ingredient consumers try hardest to avoid, and yet we still eat all kinds of food loaded with it. A little digging into the history shows that sugar — originally just an energy source for living things — has also been the fuel behind the growth of these corporate giants over the past several decades.

Americans began to grasp the harm of too much sugar in the 1970s. The most visible problem then was tooth decay: data from the National Institutes of Health show that by the end of the 20th century, 92% of American adults aged 20 to 64 had had cavities. Today obesity and diabetes, two diseases closely tied to sugar, are doing serious damage to Americans' health. Data released by Gallup this February show that in 2015, 28% of Americans were obese and 11.4% had diabetes — both record highs.

"Sugar intake has to be controlled." "Too much sugar is bad for you." Views like these became common knowledge long ago.

Alongside the worry about disease, another set of numbers shows that the worry has already hit food companies' business. According to figures from the market research firm Beverage Marketing, soda sales fell 3.2% in 2013, another 1% in 2014 and 1.5% in 2015. Coca-Cola's first quarter of 2016 was not strong either: revenue of $10.3 billion, down 3.7% from the same period in 2015, and net profit of $1.48 billion, down 5.1%.

The short-term damage is real, but over the long run the companies that make their money by pouring in sugar have grown quickly. Counting from 1988, the year Warren Buffett bought Coca-Cola stock, Coca-Cola's revenue has risen from $8.3 billion to $44.2 billion, and its net profit from $1.02 billion to $9 billion. Hershey, another company that has profited from sugar, saw revenue climb from $3.971 billion in 1999 to $7.3 billion in 2015, and Kellogg's from $9.614 billion in 2004 to $13.525 billion in 2015.

In February 2014, the U.S. government proposed revising the food label. Michael R. Taylor, then the FDA's deputy commissioner for foods, estimated that carrying out the policy would cost $2 billion and produce $30 billion in health benefits.

The label Americans see on food today took its basic shape in the 1990s. Over the two decades since, their eating habits and their health have changed beyond recognition, so the old label was going to be retired sooner or later. The question was how to reform it.

The giants of the food industry do not want consumers to know how much sugar they put in. In the two years and more between the proposal and the final decision, industry groups spent heavily on lobbying to keep "added sugar" off the label. In June 2014 the American Bakers Association, the American Beverage Association, the American Frozen Food Institute, the Corn Refiners Association, the International Dairy Foods Association and the National Confectioners Association wrote a joint letter demanding that the reform be delayed.

The FDA says the change will affect American consumers' health costs over the next 20 years, but the lobbying by trade groups and companies shows that what they care about is how fast it will affect them. To work out the likely impact of the new label, several food-industry trade organizations commissioned academic research. The economist John Dunham, who led the study, published findings saying the label change would add at least $640 million in net costs to the industry as a whole.

In other words, even a small change to the label's sugar rules will reshape these companies' product mix, their research and their marketing. They also know that no amount of lobbying will help: sugar has drawn far too much attention, and they will have to change to satisfy the public and the government.

As early as 2012, Nestlé and General Mills promised to cut the sugar in their breakfast cereals, reformulating the products to take out 24% of the sugar and 12% of the sodium. General Mills has since also reformulated its yogurt brand Yoplait, cutting its sugar by 25%.

This year Mars promised to reduce the sugar in its sauces and meals by 2018, and Danone announced that it had already brought the sweetener in each serving of its products down to 23 grams and was working with the American Heart Association to get the figure to 20 grams.

It looks as though food companies are finally thinking about consumers' health. How far they will go, and how much they will change what the public eats, is not a simple question. The answer may well be decided by us — by what consumers demand.

Henry Ford is not the only one who could say people would have asked for a faster horse. Food-company chief executives read consumers just as sharply. Charles G. Mortimer, the CEO of General Foods (later bought by Kraft), once said: "Today, consumer expectations are so high, and new products come so fast, that housewives don't know what they really want until a company invents a new product and puts it on the supermarket shelf."

In the 1950s more and more women went out to work, and still had to spend hours after work on housework and family. Food companies saw this and launched ready-to-mix drinks like Tang and instant breakfast breads that took only a step or two to prepare. Women loved them, and instant, convenient food went on to rule the American kitchen.

What food companies do is not to see demand. They manufacture demand, and then satisfy it.

In fact, when it comes to reformulating a product to meet consumer demand, Wall Street's opinion may count for more than the FDA's. Salt Sugar Fat tells one such story.

Campbell Soup, answering regulators' demands, had long been trying to cut the salt in its products without cutting sales. In 2010 the business was doing badly: sales of soup, its most important product, kept falling, revenue shrank, and Wall Street had little faith in the company's prospects.

In 2011 Campbell chose to raise the sodium in 31 soups under its Select Harvest brand. Wall Street approved, and the stock closed up 1.3% that day. The change did nothing for consumers' health, but it would make them unable to stop eating. An analyst at Standard & Poor's said: "By improving the taste of the product to drive sales, we have high expectations for its future performance."

Whatever food companies and Wall Street thought, the FDA passed the new label in the end. Most manufacturers must adopt it by July 26, 2018; companies with annual food sales below $10 million get an extra year.

Food companies responded in different ways. Mars and Nestlé said they supported the change. General Mills said the "added sugar" line would make it harder for consumers to understand how much sugar a product contains. The Grocery Manufacturers Association, which speaks for most American food and drink companies, said the change would confuse consumers and would require a "robust consumer education program," and added that it looked forward to working with the FDA. Coca-Cola and PepsiCo both said they would follow the industry association.

Once the new label is in use, consumers who already believe that too much sugar is bad for them will start paying real attention to how much sugar is in what sits on the shelf. That does not mean they will give up high-sugar food altogether. It means that among a great many "unhealthy" products they will pick the least unhealthy one.

Food companies have indeed made one promise after another to cut sugar, but cutting sugar while keeping the taste as good as before is very hard. "Whenever the public's health worries touch their core ingredients — salt, sugar and fat — food manufacturers reach for only the simplest solution: change the ingredient. That is, swap in something that isn't drawing as much attention at the moment."

Stevia is natural and low in calories but tastes poor, and consumers are wary of artificial sweeteners such as sucralose: low-calorie or not, people still fear the side effects of something man-made and will not eat it with an easy mind. So a sugar that can replace corn syrup and the like has yet to appear, and food companies may have to go back into the laboratory and find another ingredient that keeps the taste the same while holding the sugar down.

Besides thinking about changing ingredients, food companies have done two other things in answer to consumers' worry about sugar.

The first is to change their image. Many of the giants want to get into popular categories such as organic and natural food so that consumers will see them differently, but they do not want to risk their old products. So they buy up relatively mature young companies.

In 2014, General Mills bought the organic food brand Annie's for $820 million to fill the gaps in its product line. Annie's has always claimed it uses no artificial flavors, synthetic ingredients or preservatives, and by 2013 it was selling in more than 35,000 retail stores. Annie's has stayed relatively independent — the organic cereal it launched early this year, for instance, contains no high-fructose corn syrup — though in 2015 its revenue came to only 1% of General Mills' total.

Kellogg's did worse. It bought Kashi in 2000. Founded in 1984, Kashi catered to consumers who wanted whole grains and high-protein, high-fiber food, and in the year it was acquired its annual sales had doubled from the year before. But from 2007 Kashi had less and less freedom, and began making products that belonged to Kellogg's tradition rather than its own. It lost what made it distinctive, and lost a great many customers with it.

Irwin Simon judges this approach differently. He is the CEO and founder of Hain Celestial Group, a competitor to the giants that sells natural and organic food brands and had $2.2 billion in sales last year. He doubts that the big companies are really as willing as they say to give up the 10% to 15% in profit their traditional core businesses throw off. On one hand they want to own new businesses like Annie's and Small Planet (an organic food brand bought by General Mills); on the other they still want to sell genetically modified food and food heavy with artificial additives. "It's hard to have it both ways — you have to place your bets."

That explains why food companies usually run into trouble, and rarely succeed, when they try to buy their way out of the product-line and growth problems that sit behind sugar, salt and fat.

Their newer move, close cousin to the acquisition, is to set up venture capital funds to dig out "more natural" food startups. On June 20 this year, a month after the FDA published its label reform, Kellogg's launched a $100 million venture fund. Campbell's venture fund, set up earlier this year, raised $125 million and hired outside partners to run it. General Mills runs its venture fund in-house. Hunting for healthy-food startups looks no different in kind from buying Annie's: food companies want to get across that they care about the public's future health.

The second thing they do is tell consumers the truth selectively, with deceptive marketing. Coca-Cola's products contain a great deal of sugar, and the company tries to tell consumers that this does not matter.

Marion Nestle, a New York University professor who studies the food industry, says the soda business today is walking the path the tobacco business once walked: "First, they attack the science. Then they fund groups that push exercise as the solution. Then they say they are so disciplined that they don't need outside regulation."

Last August, Coca-Cola announced that it had funded a research organization called the Global Energy Balance Network, which said there was "strong evidence" that the key to keeping weight off is not eating less, as many experts advise, but "maintaining an active lifestyle while consuming more calories." The "strong evidence" turned out to be two papers paid for by Coca-Cola.

Even while striking that pose, Coca-Cola had already launched mini cans in North America in 2014, leaving consumers with the impression that a mini can is healthier and cuts their sugar and calorie intake. It worked: in the year of the launch, mini cans' share of total sales was 60% higher than that of traditional packaging.

Besides making food companies change their labels, governments have used taxes to force the sugar down. This June Philadelphia, America's fifth-largest city, passed a soda tax, effective next year, at 1.5 cents an ounce. France, Finland and Hungary have been introducing sugar taxes in Europe since 2011.

How well the tax works remains to be seen. After Hungary imposed its tax, the sugar in drinks fell, but the obesity rate rose. A tax is passed on to consumers in the end, and the result is a fine on an unhealthy way of life, an extra stream of revenue for the government, and a little more caution from Wall Street toward food companies. A sugar tax is only legal proof that a food is high in sugar. People generally eat those foods for the taste, not — to borrow another famous line — because they are buying sugar. They are buying satisfaction.

A report published this year by the market research firm Hartman Group shows that plenty of people do care about food labels: even among those not watching their weight, 44% read labels regularly. But before the new label arrives in 2018, food companies may already have found some other substance to take the place of added sugar and keep consumers coming back.

Since the day food companies were born the scales have tilted their way. Consumers have always believed the industry was meeting their needs, when those needs were created for them, and this time looks no different from any time before. The industry always has to choose between the short-term gain of satisfying consumer demand and the long-term interest of public health, and through decades of pressure from Wall Street, shareholder expectations, product development, marketing decisions and the fight over salt, sugar and fat, it has always given in to the short-term gain.

Food companies will go on finding unexpected ways to satisfy the consumer's tongue. If they do, these giants at our dinner table will end up where Steve Hughes of the American organic food company Boulder Brands put them in an interview: "It's such a classic case of winning the battle but losing the war."

Graphics: Wu Lingwei

Cover image: Pixabay, paljasporgand.ee. In-text images: qz.com, urbery.com, businesswire.com