Tesco faces investor backlash over ‘role in UK obesity crisis’

By Katy Askew contact

- Last updated on GMT

Reformulation of own label is one of the key actions activist shareholders want to see Tesco accelerate in efforts to promote healthy eating / Pic: Tesco
Reformulation of own label is one of the key actions activist shareholders want to see Tesco accelerate in efforts to promote healthy eating / Pic: Tesco

Related tags: Tesco, Obesity

Tesco has come under fire from a group of investors for what they characterise as the supermarket’s ‘role in the UK obesity crisis’. However, the retailer hit back, insisting it has ‘strong plans’ to make it ‘the easiest place to shop for healthy and sustainable food’.

A coalition of institutional and retail investors, coordinated by NGO ShareAction, have filed what they claim to be the first health-based shareholder resolution at a FTSE100 company. They are calling on Tesco, the UK’s largest food retailer, to set targets to increase the proportion of healthy products in its sales mix.

The resolution, filed by seven institutional investors managing over £140bn in assets, reflects ‘rapidly rising investor concerns’ over the health impact of companies, a topic that in the past has largely been seen as a fringe issue.

The weighty issue of obesity

ShareAction said that obesity – and more generally the health impact companies have on individuals and society as a whole – is moving up the agenda.

The UK government estimates that at least half of all grocery sales come from products that are high in fat, sugar or salt. This is a ‘key factor’ in rising levels of obesity in the UK, the NGO suggested.

“In the UK, excess weight already affects two in three adults and one in three children. This has a very significant impact on the nation’s health and society. It costs £54 billion each year in lost earnings and profit, and treating related disease represents about 10% of the national health budget,”​ Ignacio Vazquez, Senior Manager at ShareAction, told FoodNavigator.

The coronavirus crisis has also pushed the problem of obesity into the spotlight, with severely obese people three times more likely to be admitted to intensive care with COVID-19. As the UK government’s National Food Strategy noted: “In the age of COVID-19, a poor diet is almost as great a threat to life as cancer or old age.”

ShareAction insisted that it is the responsibility of supermarkets to play an integral role in the promotion of healthier food and beverages.

“We know that the majority of food purchased is from grocers like Tesco and that their store environments, and the way they market products shapes peoples’ diets. Given that at least half of the UK’s grocery sales, and over two thirds of all packaged food and drink products, are derived from less healthy varieties, it would be difficult to make any significant progress in this area through working on personal choice alone,​” Vazquez noted.

“Families are currently flooded with opportunities and incentives to consume unhealthy products, and struggle to afford healthy food that is also convenient. We want to change this so that the healthier option is always the easiest.”

GettyImages-Kwangmoozaa supermarket aisle
ShareAction says supermarkets have to play a role in combatting obesity / Pic: GettyImages-Kwangmoozaa

What should Tesco do differently?

The resolution, which will be put to a vote at Tesco’s AGM, calls on the company to disclose the share of total food and non-alcoholic beverage sales by volume made up of ‘healthier products’, as defined by the UK Department of Health. The supermarket should also develop a strategy to ‘significantly increase’ that share by 2030, the resolution argues. It also wants Tesco to begin publishing annual reviews of progress from 2022 onwards.

So, what could a strategy to increase sales of healthy foods look like?

Vazquez elaborated: “Ultimately, retailers will shift consumption by developing comprehensive health strategies that align the whole business around this goal, shifting retailers to a more holistic approach and away from an ad hoc or small scale or tokenistic one.”

Progress needs to be made on two fronts: efforts to reformulate own brand products and changes to marketing and labelling policies.

“As manufacturers of own-brand packaged food and drink products, retailers can reduce the saturated fat, sugar and salt content of their own-brand products while making them more nutritious overall (i.e. fruit & vegetable content, adding fibre, etc),”​ Vazquez said.

“They can also do more to increase consumers’ purchases towards healthier food and drink products by adopting clear front-of-pack nutritional labels on their products and using their marketing and advertising tools to make healthier products more available, accessible and affordable.

“Practical interventions include replacing unhealthy products with healthier alternatives at the end of aisles and check-out areas, ensuring packaging aimed to attract children with child-friendly characters is only used on healthier products and ensuring that there are healthy alternatives available in every category and that these are priced competitively with less healthy versions.”

GettyImages-Nadisja healthy food unhealthy obesity
Healthy food should be affordable, accessible and the easy choice, ShareAction argues / Pic: GettyImages-Nadisja

Current course a ‘risk’ to investors

ShareAction argues that, in its current approach to promoting healthy products, Tesco isn’t just failing to deliver on the moral responsibility it has to play a role in tackling obesity. The organisation also frames inaction as a serious risk to the business – and decisive strategic re-positioning an opportunity for growth.

An October 2020 report from ShareAction noted that 85% of UK shoppers now report actively trying to improve their diet when shopping, while the UK government’s new Better Health campaign includes new policy measures to restrict marketing of high fat, salt and sugar foods. These add to existing measures such as the Soft Drinks Industry Levy (SDIL) on soft drinks and Public Health England’s sugar, salt and calorie reduction programmes for processed foods.

“Regulation being introduced in April 2022 will place restrictions on the ability of retailers to promote less healthy food and drink products by conducting volume promotions or placing them in prominent store locations. The Department of Health’s impact assessment estimates that retailers will be able to offset a reduction of their sales of such products by shifting to healthier alternatives. As such, it is important that we understand in more detail how each retailer is planning to adapt to such changes. If they’re slow to adopt these changes and continue to be over-reliant on the sale of unhealthy products they’re more likely to suffer losses from new regulation, and less likely to capitalise on the opportunities of greater growth in healthy product categories,”​ Vazquez told this publication.

On a ‘small-scale’, ShareAction noted Tesco has trialled health-based interventions, which found price promotions on fruit and veg raised sales by 13% while moving chocolate out of ‘prominent displays’ cut sales by 22%. “But Tesco has not yet implemented these on a broader scale.”

“When well-thought through, shifting sales toward healthier options can be cost neutral or even positive from a financial perspective. There is market growth in healthier categories and Tesco has an opportunity to capitalise on this,”​ Vazquez said.

Tesco ‘lagging’ Sainsbury’s, M&S

Highlighting the business case for developing a more comprehensive healthy eating strategy, ShareAction also warned that Tesco is falling behind some of its competitive set in exploiting the opportunity behind healthy foods.

A recent review by the Access to Nutrition Initiative found that Tesco reported on just 30% of indicators of good health practice. Similarly, an October 2020 report from The Food Foundation found that ‘encouraging healthy diets’ was Tesco’s weakest area of performance across 10 environmental and social topics.

While Tesco says it monitors the health profile of its sales through its ‘Healthy Little Differences’ tracker, ShareAction highlighted that the company doesn’t disclose this information, or targets to shift to healthier products, publicly.

In contrast, the shareholder association stressed, Marks & Spencer includes annual progress updates towards an own-brand target of 50% healthier product sales by 2022 under its ‘Plan A’ strategy. The company reached 40% better-for-you sales in 2019.

Meanwhile, supermarket operator Sainsbury’s has targeted its proportion of healthier sales to reach 45% by 2020 and has committed to set targets for 2040 and report biannually from 2021.

Tesco: ‘Strong plans’ to be ‘the easiest place’ to shop healthily

Tesco produce
Tesco says it has taken action to boost sales of healthy foods / Pic: Tesco

Responding to the criticism, a spokesperson for Tesco was quick to defend the company’s record on nutrition and health.

“We are working hard to make it easy for our customers to make healthy choices, and we have set very clear targets on health and sustainability, published in our Little Helps Plan.

“Our reformulation programme has already removed more than 50 billion calories from our products since 2018; our ‘helpful little swaps’ events offer healthier alternatives to family favourites at the same price; and, we have given away more than 100 million pieces of free fruit to children. We have also announced a target to increase sales of plant-based meat alternatives by 300% by 2025, and were the first retailer to set a target of this kind.”

Other action from the retailer has included upping the vegetable content of its own brand chilled and frozen ready meals, with 50% of ready meals now containing at least one of your 5 a day, compared to 26% in 2018.

The company also reduced sugar levels in own brand soft drinks to below the soft drinks industry levy limit of 5g per 100ml. This was achieved 17 months before the SDIL legislation came in.

With regards to the positioning of confectionery and other high sugar items in store, Tesco removed sweets, chocolates and fizzy drinks from checkouts at its large stores in 1994, a move that was extended to all of its UK retail outlets in 2015.

Looking to the future, the Tesco spokesperson insisted that the company continues to review and update its targets to ensure they are ‘stretching’ enough.

“We keep our targets under review to ensure they are sufficiently stretching, reflecting feedback from a wide range of stakeholders, and will share our latest health ambitions ahead of publishing our next Little Helps Plan update.

“We have strong plans to make Tesco the easiest place to shop for healthy and sustainable food, to encourage increased consumption of fruit and vegetables, and to raise awareness of healthier choices.”

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