Wednesday, April 26, 2006

Advertising Obesity

Parents concerned that television advertising is encouraging their children to eat unhealthy food can apparently rest easy.

On Monday, on ABC radio's The World Today, the Australian Association of National Advertisers let parents in on a secret: ads for food directed at children don't succeed in persuading them to eat more.

As the association's executive director, Collin Segelov, put it: "If consumption was as easy as advertising, then, my golly, everything would be easy. It doesn't work that way."

That surely can't be what advertising agencies tell their clients.

I can't imagine them saying: "Listen, this advertising campaign isn't going to grow the market, but if you merely want to fight over market share, who am I to stop you?"

Segelov said:

Most of the food advertising that you see is where you've got companies competing with products against one another. So they're trying to get their brand into the equation. They're trying to get people to look at their brand as against someone else's brand.

It's a familiar argument. In the early 1970s, when there were moves to ban cigarette advertising in Australia, the manufacturers insisted ads didn't encourage smoking; they merely encouraged brand switching. As it happened, once the ads were taken off TV, smoking rates began to slide.

Cigarette companies also claimed that without their ads and sponsorship Australian television and Australian sport might go broke.

It's an argument Segelov has echoed this week in his campaign against moves to stop food companies advertising to children and sponsoring junior sport. He told the Herald: "If someone pulls the plug, then the sport could disappear"...

Perhaps fortunately for the advertising industry, the most comprehensive study of the evidence to date suggests that promoting food to children does encourage them to eat more of it. The University of Strathclyde in Glasgow concluded, after examining more than 100 studies at the behest of the British Food Standards Agency in 2003, that there was "sufficient evidence" to suggest food promotion encouraged consumption.

One of the studies examined obesity in Quebec, which banned television advertising directed at children in 1978. It enjoys the lowest obesity rate of any Canadian state.

Another used detailed diaries to record children's TV viewing habits. It found that the more food advertisements they saw, the more snacks and calories they consumed.

Late last year a study conducted for the US National Bureau of Economic Research concluded that a ban on advertising fast food restaurants to young people would cut the number of overweight children by 10 per cent and the number of overweight teenagers by 12 per cent. It found that even the more modest step of removing tax deductions for such advertising would most likely cut obesity among children by between 3 and 5 per cent.

They are gains worth having, and there is a precedent for them in Australia. We ban the alcohol ads until after 9pm. But advertising bans by themselves would make only a dent in childhood obesity.

The latest economic research on the growth in obesity in Western nations suggests that its causes are complex and not easily reversed. Writing in the Journal of Economic Perspectives, David Cutler and two colleagues from Harvard University put a lot of the blame on technological progress. Forty years ago most of our food was prepared laboriously at home. In 1965 it took a married woman who was not in paid employment two hours a day to cook, and then clean up after, a family meal. After decades of innovations, including vacuum packaging, deep-freezing and microwave cooking, it now takes half the time.

And the food is more processed.

As an example, Cutler says that Americans ate large quantities of potatoes before World War II, but the potatoes were usually baked, boiled or mashed. Chips were too hard to make, even for most restaurants. Now french fries can be peeled, cut, cooked and frozen in a few central locations using sophisticated technologies. Today the french fry is the dominant form of potato and America's favourite vegetable. Since 1977 potato consumption in the US has climbed 30 per cent, almost exclusively in the form of potato chips.

Cutler reasons that if it takes less effort to do something we like, we will do more of it. Only about a third of Americans reported eating two or more snacks a day in 1977. By 1996 it was almost a half.

And food is a lot cheaper, relative to earnings, than it used to be. Cutler uses the Economist magazine's so-called Big Mac index to show that the more affordable a country's Big Macs are (and, by implication, the cheaper its processed foods, generally), the more obese are its citizens.

Other economists lay blame at the feet of working women. Kristin Butcher and a team from the Federal Reserve Bank of Chicago conclude that the more hours a week a mother works, the more likely are her children to be obese. A mother who works an extra 10 hours a week appears to increase her likelihood of having an obese child by 3 to 4 per cent.

Curiously, this appears to be the case only for well-off families. The number of hours worked a week makes little difference to obesity rates among low-income families, which are, in any event, far more likely to raise obese children than are high-income families.

Depressingly, the economic research offers little usable advice on how to reverse the sudden growth in obesity. Redistributing income and unwinding technological change hardly seem practical.

But banning the advertising of junk food would be. It would be a start.

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Wednesday, April 19, 2006

Cheaper Nescafe?

All over Sydney we're getting our Nescafe out of different, cheaper, jars. Blend 43 costs somewhere between $6 and $7 for a 150-gram jar. But for the past few months it has been possible to buy instead a 200-gram jar of Nescafe Matinal or Classic Deluxe for only $4.69.

These Nescafes are in similarly coloured (although different-shaped) jars to Blend 43 and they taste much the same, if not better. They're available at Aldi and at small supermarkets in Chinatown.

The only disconcerting thing, as you unscrew the lid, are the words on the jar reading: "For sale in Indonesia only." At Aldi there is also an extra sign saying: "Whilst the blend is different to the locally sourced product we believe that the quality of the product is as good."

The company that makes Nescafe in Australia is upset. It has cut off supplies of products such as Milo to Aldi in retaliation. Which is odd because it is also the company that makes the product that it doesn't want Aldi putting on its shelves...

Nestle Australia and Nestle Indonesia (and also Nestle Brazil, from whom some of the coffee is sourced) are all subsidiaries of Nestle SA in Switzerland.

Nestle's official line is that it doesn't object to Aldi selling coffee from its Indonesian subsidiary, as such. (This sits oddly with the injunction it has printed on its jars of Indonesian coffee.)

It says what it does object to is the "confusion among consumers" that will result from an extra two varieties of Nescafe being on display on the supermarket shelves. This from a company that, when it can, displays about a dozen varieties of Nescafe on supermarket shelves.

In seeking approval from the Australian Competition and Consumer Commission to maintain its ban on supplying to Aldi, Nestle Australia says it has received a number of consumer complaints about the imported Nestle coffee.

It is reasonable to ask, what could possibly be wrong with imported Nestle coffee? Nestle Australia's answer - delivered, deadpan, in its letter to Aldi - is that the imported Nestle coffee "has not been blended specifically for Australian tastes".

It's the sort of explanation we are used to hearing from multinationals that want to stop the movement of their product between nations. Remember the fuss made by the record companies that managed for years to ban imports of records they had made for sale overseas? They said it was about piracy and copyright, nothing to do with price.

DVDs and computer games are region-coded, making it difficult to play those bought in the US in Australian machines. According to the film companies, it is done to ensure a money-saving staged release of films to cinemas. They say if the films are shown in the US first, the same copies can later be flown to projectors in other parts of the world.

But this doesn't explain why they also region-code classic and direct-to-DVD movies. Nor does it explain the ferocity with which software companies have used the courts in an attempt to stop Australians modifying their games machines so they can play games purchased overseas.

An economist would guess the surprising xenophobia of multinational corporations such as Nestle, Universal Music and Sony is really all about price - in particular, a practice known as "price discrimination".

In business it rarely makes sense to charge all of your customers the same price. If you set that price high and charge the most that an eager customer will bear, you will miss out on sales to a larger number of not-so-keen, or poor, customers.

If you set the price low in order to maximise your sales, you'll be giving away your product to the keen customers for much less than they would be prepared to pay for it.

Companies such as Nestle and Arnott's get around this by making two sets of products: one for people who are prepared to pay a lot, and the other for buyers who are canny or short of funds. They make the cheaper product less attractive in order to encourage buyers who can afford it to buy the higher-priced product and not the cheap one.

It is no accident that the packaging on International Roast coffee and Sunshine Biscuits is particularly ugly. International Roast is Nestle's second, cheaper brand (nothing on the packet tells you that - even the manufacturer's address is different). Arnott's makes Sunshine Biscuits, although it tries to keep that fact to itself.

The more you think about it, the more examples of price discrimination you find. Banks do it by offering discounted loans to new customers but not to the ones they've already got: new customers are looking for a good price; existing customers usually can't be bothered.

Cinemas do it by offering special prices to students - not because they have a love of education, but so they can move tickets they would not have been able to sell to these regular customers at a higher price.

Price discrimination works best when the people who are prepared to pay more don't get to find out about the cheaper price being offered to others.

In his book Retail Pricing Strategies and Market Power, Gordon Mills notes that in April 2000 a Sydney supermarket was selling special three-kilogram "budget bags" of apples for less than $3. The packaging made it hard to see what was inside. The apples were as good as those that were selling, loose, for up to $6 a kilogram. For the strategy to work, it was essential that the customers who were prepared to pay the high price could not find out.

That might be the real reason Nestle is so keen to discourage chains such as Aldi from displaying jars of its products at something approaching Indonesian prices: we might think we're being overcharged.

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