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Salt in Food
Salt has been getting the trans fat treatment of late. Concerns about the health implications of excessive salt intake have led to recent calls from the scientific community, health officials, and politicians to reduce the public’s consumption of this ‘biblical’ food additive. In view of this heightened scrutiny, investors may begin to question whether salt could be hazardous to their portfolio returns.
According to some experts, the public consumes more than twice as much salt as it needs, contributing to various ailments, including stroke and heart disease. Notably, most of an individual’s daily intake doesn’t come from their household saltshakers, but from processed foods or restaurant meals. Not surprisingly, then, some of the biggest players in these fields have been working to lessen concerns about the salt content in their products.
Campbell Soup (CPB) unveiled a major initiative in 2006 to reduce the amount of salt in its products. More recently, there has been a flurry of similar announcements at other industry participants. Last fall, ConAgra Foods (CAG), which owns a variety of well-known food brands, including Healthy Choice and Chef Boyardee, set a target to cut the amount of salt in its offerings by 25% over the next five years. Others, including Kraft Foods (KFT) and PepsiCo (PEP), have made similar pledges.
Addressing public concerns about salt intake figures to result in some added expenses, such as those related to product development or new labeling. There is also the risk that smaller, more nimble food processors or restaurant chains could capture market share by developing products that better assuage the public’s health concerns about their diets. Unintended consequences, though difficult to quantify, may be the biggest concern. In the 1980s, Coca-Cola (KO) stumbled into a public relations crisis when it changed the recipe of its flagship drink.
Still, we don’t expect current efforts to reduce salt consumption to jeopardize the financial well-being of these companies. In fact, raising the costs of doing business may ultimately work to the advantage of the industry’s largest competitors, who are better able to leverage these expenses over a larger sales base. For instance, PepsiCo, which produces some of the world’s most popular salty snacks, spent over $400 million on R&D in 2009. This sum, which will help to support the development of ‘good-for-you’ products, including ‘designer salt,’ is greater than the annual revenues of many food-processing and restaurant companies.
Even within the medical community, there still debate about the efficacy of salt-reduction initiatives, with some contending that the focus should remain on other priorities. In particular, obesity likely presents a much greater health risk for most people. Likewise, despite the increasing public concern, we think investors should allocate their investment research resources, including their time, to more pressing concerns than reducing the salt in their portfolio.