Saputo’s struggle signals power of healthy food movement

Eighty years ago, Quebec J.A. Vachon created a little cake with his boys Joseph and Louis in mind. Named Jos. Louis, the plastic-wrapped pastry would grow to iconic status, becoming a staple almost every grocery and corner store and in lunch bags across the province.

The link between the cakes and kids was so close that when Saputo, the company that now owns Vachon, launched a new line of chocolate-filled pastries in 2007, they sent them to daycares across Quebec. The campaign earned them a $44,000 fine for targeting kids.

That penalty was mere pennies compared to yesterday's news that the company was taking a $125-million write down on sales of its snack cakes. As Bertrand Marotte reported in the Globe and Mail, Saputo's hit reflects the difficult times ahead for the sweet-tooth sector.

In January, Twinkies and Ding Dongs-maker Hostess Brands announced it was it was $860-million in debt and would be declaring bankruptcy after 82 years in business.

If things look bleak in the confectionary space, they're downright dire for soft drinks, particularly after New York Mayor Michael Bloomberg launched his much-publicized plan to restrict sales on serving sizes over 16 ounces across the city.

The move follows a ban on soft drinks in schools and city-owned vending machines, as well as a public education campaign in New York's subways, discouraging people from "pouring on the pounds".

By themselves, neither those ads or the super-size ban will have much impact on the $74 billion U.S. soft drink industry, much less on the approximately $5 billion industry in Canada, but they stand to inspire similiar moves by politicians and executives who may be equally concerned about the public health issues.

Indeed, within days of Bloomberg's announcement, Walt Disney CEO Bob Iger said he was banning junk food ads on all of Disney's websites, radio stations and TV shows aimed at kids. The move follows similar measures instituted earlier by Nickelodeon and the Cartoon Network.

U.S. First Lady Michelle Obama joined Iger on stage, calling the decision a "game changer for the health of our children" and encouraged others to follow suit.

The soft-drink industry is fighting back with a vengeance. Bloomberg news reported last week that Coca-Cola, PepsiCo and others have spent roughly US$70 million since 2009 on lobbying and ads against levies or restrictions on their sales.

In Canada, the Canadian Beverage Association is joining the fight, but looking to play nice. In February it launched the Clear on Calories campaign, promising to making nutritional information front and centre on cans, bottles and on vending machines. In a release explaining the move, CBA president Justin Sherwood noted that it reflects the beverage sector's "long track record of promoting a balanced healthy lifestyle and for helping parents make informed beverage decisions for their family."

It also reflects the increasing concern from public health officials and advocacy groups on growing rates of obesity in children and adults, costing Canadians as much as $5 billion a year in medical costs and lost productivity, according to a recent report by U.N. Special Rapporteur Olivier De Schutter.

Soft drink consumption has fallen by 30 per cent in the last 10 years according to Statistics Canada, echoing similar declines in the U.S ., where soft drink sales have fallen for seven years straight.

For now, neither Coke nor Pepsi appears likely to go the way of the Ding Dong or to suffer any Jos. Louis-like losses. The two own 34 per cent and 27 per cent of the soft drink market in the U.S. However, as obesity concerns and health care costs continue to soar, their growth prospects look anything but sweet.