The largest food company in existence, Nestlé, caused quite a stir in the food industry during late October when it announced its intention to leave the most powerful lobbying group in the food industry in Washington, otherwise known as the Grocery Manufacturers Association, in the middle of disputes on how to respond to the ever-changing tastes of the consumers.
This departure of a corporation which owns thousands of brands ranging from Hot Pockets to Deer Park water was considered as a clear sign that the food industry’s Washington rule is weakening owing to the fact that while some companies have rapidly begun the process of adaptation to the fast-changing consumer demands, other companies are struggling to keep up with the changing trends.
The fracturing of the food lobby is a result, in part, of the sudden change at the grocery stores, where some more prominent brands haven’t seen much progress simply because the millennials and mothers are looking for healthier and more conspicuous produce. Another reason for this fracture is the carelessness and lack of clear leadership at the Grocery Manufacturers Association, according to some interviews done with many present and past member companies, former employees and similar industry leaders over in Washington.
During the past year, the news regarding member companies which have decided to leave the GMA don’t appear to be a one-time thing, but a part of a larger, booming trend.
Just six months before Nestlé decided to leave the GMA, Campbell Soup Co., the maker of Golddfish crackers and V8 juices, made a public announcement that it was leaving the GMA, partly because the association led a bitter fight against mandatory food labeling for products that contain genetically modified ingredients, otherwise known as GMOs. In a rather surprising action, Campbell has decided to stop the fight on food labeling and openly embraced it in the early quarter of last year, with the belief that consumers want to know more about what their food contains and where said food has come from. Nestlé and Campbell are leaving the GMA in the last quarter of this year.
Some other major food companies are considering the same course of action and one of them is Dean Foods, the largest U.S.A. dairy company has made a quiet decision to leave the association as well. Others, like Mars – a private company that owns a broad number of global brands ranging from candies to pet food, have started considering this course of action as well.
Melissa Musiker, the vice president and director of food and nutrition policy at APCO Worldwide has said: Some of these companies have realized that being more progressive is a good place to be, from a marketing perspective, they get kudos for it.”
Musiker, who was employed at GMA as a science and nutrition policy director from 2009 to 2011 further elaborates this by saying: “In the past, there was protection in numbers — you kind of hunkered down, and to the extent that these companies stuck together, they could win.”
There has been no response from Nestlé and Mars regarding this story. Campbell Soup Co. has also been silent on its public split with GMA last summer. A representative for Dean Foods has said the company left GMA “so we can prioritize and allocate our limited time and resources elsewhere,” and said nothing more on the matter. There is some speculation in Washington that Dean Foods’ departure was due to fiscal reasons in the middle of financial troubles, not because of some ideological divisions with GMA.
A permanent shift in consumer tastes
The chaos of the food industry in Washington has been going on for quite a while.
The companies are under constant pressure for growth in a market where there is an increasing consumer demand for larger variety of healthy options, be it organic baby food, cereal without artificial coloring or antibiotic-free meat. The consumer tastes aren’t being considered a part of smaller high-income communities anymore. A recent analysis made by Credit Suisse has shown that the top U.S. food and beverage companies have lost approximately $18 billion in market shares in the period between 2011 and 2017.
As legacy brands fall behind, there are two options that are left for food companies – change if they want to stay competitive or buy out new brands that have shown a rapid growth. Over the past 10 years, many new brands have become a part of conglomerates, which has led to amplifying the culture clash in some cases between the old and new companies, i.e. Naked Juice got bought out by PepsiCo, Honest Tea has been bought out by Coca-Cola, Larabar by General Mills, Kashi by Kellogg’s, and the latest buyout by Nestlé, which bought out Blue Bottle, a cold brew coffee company that has its roots in California.
Nowadays, brands like Betty Crocker and Annie’s organic macaroni and cheese are owned by the largest food companies because they might have competing priorities and values.
A spokesman for GMA, Roger Lowe, has said that the association is reorganizing so as to keep up with these changes. He said: “It is not so much an industry divided as an industry that has been tremendously disrupted and is evolving at an unprecedented pace. There’s no question that companies — and GMA — are all different today than they were five years ago or three years ago — and that we all will continue to evolve and change at a faster pace.”
Even though unity among the companies has been wearing thin for a while, the real change has started to become evident during the Obama administration, during which the nutrition agenda has been moving apart from the status quo, which lasted for several decades. Another reason for this was Michelle Obama’s signature issue – childhood obesity, which put a great amount of pressure on the industry.
During the unveiling of the Food and Drug Administration’s update for the Nutrition Facts label in 2014, came the new requirement – listing “added sugars” label. This made many food companies uneasy, and their argument being it’s not science-based and would lead to consumer confusion, but other companies like Nestlé and Mars accepted the change without argument, coming with the conclusion that this was what the customers wanted and it will be good for their business.
There was a significant division of members within GMA over this policy that led to the association submitting opposing comments to the regulator, which included minority and majority opinions that covered the pros and cons of the new requirement, something that has never happened in the past before.
Nowadays, there is another division among companies with regards to when should this label take place. Following the GMA’s and several other leading food companies request for more time, the Trump administration announced it would extend the Nutrition Facts compliance deadline to 18 months which means the new labels will become mandatory in January 2020. However, with Coca-Cola’s departure from GMA, they told the FDA that the labels should become mandatory much sooner, since consumers wanted more information.
The GMA spokesman, Roger Lowe, made it clear that the food industry stands united on the other issues which include the push for the Food Safety Modernization Act, a significant update to the food safety law which was passed by Congress in 2010. There’s also work in progress to reduce food waste, along with commitments to make less confusing expiration dates.
However, with each public and internal talk taking place, more and more members of the GMA are becoming harder to convince to pay fees for an association that is clearly divided and which sometimes fights issues that they don’t have or don’t want to be associated with.
Jeff Nedelman, founder of the public relations firm Strategic Communications (health and wellness brands firm), and CP of communications at GMA during the 80s and 90s has stated: “Companies that get it have said, ‘Why are we paying GMA more than $1 million a year to lobby for things that our brands don’t support?’,” concluding that “To me, it looks like GMA is the dinosaur just waiting to die.”
The GMA (which claims that has over 250 members), gets its membership fees from U.S. sales volume, which means larger companies have the highest fees. According to people that know the goings-on over at GMA, Nestlé was one of the top paying members, and its exit from the association will prove to be a large blow to the association’s budget.
GMA loses its grip on swaying policy
Just last month, Campbell upset the status quo again by joining the upstart Plant Based Foods Association, a group representing many meat makers and other companies that have seen rapid recent growth. PDFA’s membership fees for companies such as Campbell are approximately $25,000, a sum that is significantly lower than the one Campbell has been paying GMA (more than 317,000), as seen by financial disclosures.
During the Institutional Investor Day last summer of Campbell Soup Co. Denise Morrison, the company’s CEO, said: “At times, we find ourselves with philosophical differences with many of our peers in the food industry on important issues … and our trade association,” which was coincidentally the time when the company announced its departure from GMA at the end of the fiscal year.
Scott Faber, the vice president of government affairs at the Environmental Working Group (2007 to 2012) said: “More than one food industry lobbyist has told me that they spend more time lobbying their industry association than they do Capitol Hill. It begs the question about whether associations like GMA are obsolete.”
According to Lowe, the association has gained a few new members during the past year, without saying which those companies were. The list of membership was posted on GMA’s website, but that list has since been taken down, due to some serious backlash over GMO labeling in California, during which several GMA members were shunned due to their lobbying to defeat a ballot initiative in California.
However, policy disagreements aren’t the only thing that has brought bitterness among the member companies. GMA has continued with its expenditure even though several of its members have begun cutting costs and laying off workers so as to meet their quarterly targets. The president and CEO of GMA, Pam Bailey, reported more than $2 million in earnings in 2016. Still, members of the GMA have blamed the association for its slow adaptation to the ever-changing consumer demands or the disruption in the marketplace.
Nedelman, a former GMA executive said: “Senior management is making fortunes in salaries. Nestlé and other companies are looking at that and saying, ‘What in the hell is going on? Why are we paying these people all this money, and getting nothing?”
Labeling battle drives a wedge
A long-standing battle over GMO labeling has revealed the need for help from other industries, if the food lobbying group wants to get their plan through Congress.
Ever since 2012, GMA has spent tens of millions of dollars in the fight against state laws that require labels for GMO ingredients used in food. With the defeat of the ballot initiatives in California and Washington, there was a significant progress made by the association, but that was halted by a loss in Connecticut and Maine. In May 2014, Vermont spearheaded the mandatory labeling laws by approving the ballots that brought on firm effective date.
There was a surge of arguments in the Capitol Hill offices by the food industry, whose argument was that the mishmash of state labeling laws would prove to be detrimental to the companies’ bottom lines. Simultaneously, some congress offices have also reported a surge of calls in favor of GMO labeling, a number larger than any other policy issue.
According to the Center for Responsive Politics, GMA has been reported spending approximately $37 million in Congress and federal agencies lobby groups since 2012, with the GMO labeling being the top priority for the duration of those years. However, just before closing the deal, the association asked for help from the agriculture and biotechnology sectors, which were concerned that GMO labeling would send a bad message to its consumers i.e. that GMO corn, soybeans and sugar 75% of processed foods contain are not safe to eat, despite the assurance of the scientific community that has continued its support of GMO safety.
Last summer, Congress passed a legislation that acted as a preemptive strike on state laws and made GMO labeling mandatory, but still left some wiggle room as to how food companies choose to present the information, be it on the packaging itself or digitally.
GMA and the agriculture/biotech groups stand united behind the final bill being a win for their industry.
Lowe of GMA said: “You would’ve had a patchwork of different state laws. Stopping that and establishing a uniform standard was the No. 1 priority of the food and beverage industry.”
Despite this, some people in GMA’s campaign against GMO labeling remain unconvinced that the fight was worth it as the funds that have been funneled into lobbying began adding up. Additionally, consumers have began doubting the will for transparency within the food industry.
A longtime industry consultant said: “We missed an inflection point with consumers. When consumers had access to the internet, we denied them access to information. What the hell?”
According to Lowe, GMA has opened a new leaf with the intention of transparency and gaining consumer trust in them. He supported his claims by promoting SmartLabel, an online database by GMA, which is a new service that represents grocery retailers. During the few weeks after its release, it contained information of over 16,000 products by 40 companies such as Nestlé, Hershey’s, general Mills, Kellog’s ConAgra and Kraft Heinz. Their plan is to increase the database to over 34,000 products by the end of the year.
However, this statement is undercut by the fine GMA was hit with ($18 million) by the Washington state, which claimed the association intentionally hid the source of its donations to the campaign that opposed the 2013 ballot initiative on GMO labeling. This was a record fine for state campaign finance laws violation.
According to Washington state, GMA raised more than $14 million contributions from Pepsi, Nestlé, Coke, General Mills, ConAgra, Campbell and other companies, $11 million of which were contributed to the Washington state campaign so as to protect individual companies from any association with said effort.
GMA President Bailey’s testimony was described by the court as “combative at times,” adding the observation that she often avoided answering questions directly and asking her own questions. The court then gave the same criticism to Louis Finkel, who was serving as the GMA’s executive vice president of government affairs at the time. He left in 2014 and started lobbying for the oil industry instead.
The association has since denied any wrongdoing and accused Washington state Attorney General Bob Ferguson of pursuing the food industry so as to promote his political career. GMA has since appealed the decision and is waiting for its case to be heard.
After the turbulence over the past decade, it is still unclear whether the new companies in the food industry will flock to GMA. Some new brands with rapid growth seem to avoid the GMA, including Washington, D.C., staying out of the policy engagement while putting their best effort on maximizing growth.
John Foraker, the founder and former CEO of Annie’s (a natural macaroni and cheese and snack company that General Mills bought for $820 million in 2014) said: “I don’t know a single challenger brand that’s said ‘Hey, I need to join GMA.’” He left the industry in the pursuit to start a cold-pressed baby food company along with actress Jennifer Garner and other people.
According to Foraker, as millennials get older and start forming families of their own, the food industry will have to change accordingly so as to accommodate the growing trends, since most shoppers will start looking for brands and companies whose values are like their own.
He finishes off by saying: “Just wait. The next decade is going to be insane. Nestlé and GMA — it’s just the chop in the water. It’s going to get worse.”