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The real skinny: Fat fight may crimp junk-food makers' profits

Posted: Friday, December 06, 2002

NEW YORK (AP) -- Getting fat wasn't their fault. They blame that on McDonald's.

Teens were eating Big Macs, fries and milkshakes sometimes two or three times a day, without knowing that each time they downed an 1,800-calorie snack it was bad for their health.

Don't laugh. This isn't just fodder for late-night talk-show hosts' jokes.

It's a real lawsuit. And regardless if it stands up in court, this is serious stuff for anyone in the junk-food business today.

It's the latest blow to an industry increasingly under attack. Besides the lawsuits, schools have started banning fattening foods and there's even been some talk of possibly restricting the advertising of these products.

All this could eventually take a big bite out of the bottom line, from profits and maybe some waistlines, too.

It's not that obesity is a new problem. It's that it has become a far more serious one.

Some even call it an epidemic.

The statistics tell the story: Sixty-one percent of all adults in the United States and 13 percent of children are now considered overweight, according to a report last year by the surgeon general.

That's double what it was for adults in 1980, and triple what it was for children.

About 300,000 deaths a year are associated with being overweight and obesity, compared with 400,000 due to smoking, the surgeon general said.

Given all this weight gain, the finger-pointing has started.

How did we become so super-sized?

Much of the blame right now is going to junk-food manufacturers, which sell everything from fast food to cookies to soda to chips. And it is coming from all sides, from health lobbyists, politicians and public-interest lawyers.

It's enough to worry analysts at investment firm UBS Warburg. In a recent report, they said all the pressure on manufacturers is creating ''a clear long-term risk ... that anti-obesity measures will curb their ability to grow revenues in the future.''

It's not that the bottom is about to drop out, but serious challenges do lie ahead that could hurt their businesses, the analysts said.

The most public problem has been the lawsuits.

The lawyers are arguing to the courts that fast food is addictive, especially to children, and they claim the restaurants aren't doing their part to tell customers of the nutritional content in their food.

And while the public may discount the merits of these cases, they still are expensive to fight, regardless of the outcome.

Then there are mounting pressures from health groups.

The Center for Science in the Public Interest, a Washington-based health lobby, has publicly attacked junk-food makers for their aggressive marketing tactics and has suggested they should pay higher taxes on their products to fund public-health campaigns.

The World Health Organization, in a report last spring, also suggested implementing more stringent regulation on marketing, especially to children.

And U.S. Surgeon General David Satcher has been very public about his concern over obesity.

''Overweight and obesity may soon cause as much preventable disease and death as cigarette smoking,'' Satcher said when issuing his report on obesity late last year.

Schools already have taken their own initiative to cut down the consumption of fattening foods.

Starting in 2004, more than 700,000 students in Los Angeles public schools, the second-largest public school system in the nation, no longer will be able to purchase soda or other sugary drinks during school hours.

All this is putting the heat on junk-food makers to change their ways, and some already are.

Both McDonald's and Frito-Lay recently announced they would start cooking with healthier oils. Other brands are diversifying into healthier options, and some are already seeing strong results.

UBS analyst Caroline Levy said Frito-Lay's low-fat and fat-free products, including Baked Lay's potato chips and reduced-fat Doritos, now account for 30 percent of North America volume growth, while making up only 12 percent of total volume.

Still, there are costs to come up with these new products, and not every one will be a success. And each miss puts a drag on profits.

No one is saying Americans will stop eating McDonald's hamburgers, Oreo cookies or Mountain Dew anytime soon.

But there is a big push to get them on a healthier path. And that could affect the economic health of junk-food manufacturers.

------

Rachel Beck is the national business columnist for The Associated Press. Write to her at rbeck(at)ap.org



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