Is sugar turning Big Food into the next Big Tobacco?

Executive summary

This note assesses the emerging trends that we think will create headwinds for the food and beverage sector. We believe that sugar consumption and its contribution to a wide range of health problems, such as diabetes, high blood pressure and obesity (which collectively are known as metabolic syndrome), are central to this risk. Our research suggests that there are a number of similarities between major food and beverage companies (“Big Food”) and major tobacco companies (“Big Tobacco”). We believe there are three catalysts that could result in Big Food becoming the next Big Tobacco, potentially resulting in lower sales growth, higher costs and large scale litigation.

Introduction: Financial impact of metabolic syndrome could be material

The prevalence of obesity and other diet-related diseases is at an all time high. Major food and beverage companies face potential risks linked to this health phenomenon including increasing regulation, public policy changes, lower workforce productivity, changing consumer trends and litigation that could transform the industry into the “new tobacco”. Investors are increasingly looking for “healthier” investments in healthcare companies, leisure and fitness firms  and “nutriceuticals” (specialist food products that provide additional health benefits). Forward-thinking food and beverage companies can adapt product portfolios and increase market share with healthier product offerings. While the risk to consumer companies of not adapting to these trends is accepted as a headwind by the market, we believe the risk is not fully understood. In our view, stock valuations fail to fully address not only the obesity epidemic, but the broader impact of metabolic syndrome too. When accounting for potential litigation costs, lower sales growth and increased research and development (R&D) investment, the impact on financials over the medium-term could be material. This note explores both the risks and opportunities as well as looking at the probability of Big Food becoming the new tobacco, and the subsequent impact on company valuations.   Metabolic syndrome: diet-related diseases

Metabolic syndrome is believed to be caused by excessive sugar intake. The diseases that can be classed under metabolic syndrome include type 2 diabetes, hypertension, coronary heart disease, lipid abnormalities, cardiovascular disease, non-alcoholic fatty liver disease, polycystic ovarian disease, cancer and dementia. Because the range of diseases is broader than just obesity, it affects a greater proportion of the world’s population at a rapidly increasing rate. Figure 1 below demonstrates the growth rate of just one type  of metabolic syndrome: obesity.

Figure 1: Obesity trends over time

Source: OEDC Obesity Update, June 2014.

The impact of metabolic syndrome can also be seen at the macroeconomic level, with studies suggesting that more sick days, higher absenteeism and lower productivity will negatively impact the global economy. A study from Morgan Stanley, suggests obesity and sugar consumption-related diseases will reduce global GDP growth from 2.3% to 1.8%.

Health and wellness trend: increasing awareness

There are an increasing number of scientific studies attempting to prove the link between sugar and metabolic syndrome and the relationship is garnering increased awareness amongst governments and consumers. As a result, sales of processed food and sugary carbonated soft drinks (CSD) are in decline (see Figure 2). In response to this trend, companies are rebranding themselves under the banner of “nutrition” or “health and wellness”, reviewing portfolios and starting to develop healthier products.

Figure 2: The decline of processed foods in the US

Source: Nestlé, 2015.


Contents of the full article

  • Introduction: Financial impact of metabolic syndrome could be material
  • Risks and opportunities
  • Catalysts for Big Food becoming the next Big Tobacco
  • A review of the similarities between Big Food and Big Tobacco
  • Company valuations: What are the potential outcomes if these risks materialise?
  • Case study: Carbonated soft drinks: declining sales and increasing costs
  • Conclusion: Valuations should reflect rising risks
  • Investor toolkit

 Download the full article


This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.

Contact Cazenove Capital

To discuss your DFM requirements, or to find out more about our services and how we can help you, please contact:

Nick Georgiadis

Nick Georgiadis

Former Head of DFM Team
Simon Cooper

Simon Cooper

Head of DFM Relationship Management