Salt Sugar Fat: How the Food Giants Hooked Us
Author:Moss, Michael

By 1990, Philip Morris had all but cornered the market for cigarettes. Its share of sales had grown to 42 percent, while the nearest rival, R. J. Reynolds, had slipped below 29 percent. With the purchase of General Foods and Kraft, it had also become a consumer goods goliath, posting $3.5 billion in annual profits on $51.2 billion in sales, with 157,000 employees worldwide. Half of its revenue now came from food, but tobacco, led by the Marlboro brand, was still the more lucrative enterprise, pulling in 70 percent of the profits. It was, as Hamish Maxwell said when he retired as the company’s CEO, “a lovely business, because it’s so relatively easy. Cigarettes have tremendous brand loyalty, you don’t have to bring out new products every five minutes.”

When they did make any changes at Philip Morris, the decisions were quick, almost instinctual. One Kraft executive recalled being in awe of the way the tobacco executives ran their Corporate Products Committee. At one of the monthly meetings, Marlboro’s manager for Australia had traveled to New York to ask for permission to change the iconic pack design. “Here is the old one,” he said, sliding it down the table. “And here is the new one.” Go for it, the committee said.

The new food division, however, injected some strain into their handling of the company’s affairs. Philip Morris had acquired the two food giants as a way to take the vast sums of cash the company was earning from cigarettes and put it to work making more money. General Foods (with its Jell-O and Post cereals), and Kraft (with its Velveeta cheese and Miracle Whip) were seen as ways to broaden the company’s portfolio to include brands that were less controversial but still powerful. But it had paid dearly for General Foods, shelling out some $5.7 billion to buy the food giant in November 1985, and three years later it paid even more handsomely for Kraft in a deal valued at $12.9 billion. The Kraft purchase especially drew complaints from Wall Street that they had overpaid. Though not overly anxious about this criticism, the Philip Morris executives were resolute: They would get their money’s worth.

This is how Geoffrey Bible ended up spending more than a year at Kraft’s headquarters north of Chicago, abandoning his family to sleep in a company apartment three-quarters of a mile down the road, and devoting his days to learning the food trade. “Hamish Maxwell was a brilliant guy, in my opinion the best CEO we ever had,” Bible told me. “He was the architect of all this buying of food companies and his attitude was, ‘If you gotta do it, do it big, don’t fiddle around.’ We had sort of screwed around with the smaller companies we acquired and hadn’t done well with any of them. He asked me if I’d go out there for a period of eighteen months or so to learn about the food business and, I suppose, maybe as a backup. A little bit of a safety valve.”

I asked Bible about his first impressions of Kraft, whose executives were decidedly more formal and yet less steadfast in their devotion to the company. They tended to build their careers by moving from company to company within the consumer goods and fast food industries, whereas the Philip Morris executives stayed put.

“I never really worried much about the culture there,” he said. “Cultures are cultures and you can’t change them. Believe me, I’ve been through too many acquisitions to think they’re going to change. They were different from us, and I sensed there was a certain … resentment isn’t the right word, but we were a tobacco company, and tobacco wasn’t highly thought of. We had had General Foods for a few years, and to some degree that was helpful, but there was a clash. The General Foods and the Kraft people didn’t really hit it off. They had different styles. But they both had terrific brands, and I’d say that’s what attracted Hamish, the great brands.”

One of Bible’s goals was to help smooth the merger by fostering a synergy between the food giants that could tie all of their expertise together, from the laboratories in Tarrytown, where people like Al Clausi, the chemist, labored to keep the brands fresh and attractive, to the sales force that roamed the country making sure that those products got the most prominent placement in the grocery store, to the advertising executives at the Leo Burnett agency who dreamed up the campaigns that convinced people to pick up those products and take them home. (The Burnett agency not only worked on food, such as Velveeta cheese for Kraft; in 1955 it created the cowboy known as the Marlboro Man.) To push this concept of synergy along, Philip Morris brought its far-flung staff to a Marriott hotel on the North Shore of Chicago, where they held a two-day retreat in December 1990 that was billed as the “Philip Morris Product Development Symposium.”

Bible helped kick things off with a speech that was part war stories, part pep talk. He focused on the one thing that every one of the food managers needed to do if their products were to continue to dominate the processed food world. They had to understand, deeply, the mind of the consumer. “The simple beauty of the Kraft General Foods challenge is that everybody eats,” Bible told them. “This is part of the new job I’m especially enjoying: The potential is at once limitless and incredibly daunting. The fascinating challenge is to discover unmet needs surrounding this behavior that has been with mankind since day one. The needs are there, waiting in the detritus of modern life to be excavated and defined as likely today to center around time or convenience as they are around taste, value or nutrition, and as likely to involve the subtleties of how, when, why, or where people eat as much as what they eat. So that’s point number one. We don’t create demand. We excavate it. We prospect for it. We dig until we find it.”

For added inspiration, the food managers were treated to the inside story of how Philip Morris turned its own famous brand, Marlboro, from a loser nobody wanted into a cigarette that hooked more people than any other brand in the world, and how it added new brands and line extensions. Philip Morris didn’t accomplish this by being the smartest cigarette maker; it did it by being the fastest and most aggressive in spotting the consumer’s ever-changing vulnerabilities, as Philip Morris research and development official John Tindall explained. The company had gone from a 9 percent share of the cigarette market in 1954 to a 42 percent share in 1989 not by being the trendsetter but by quickly following its rivals when they came up with blockbuster innovations, like the slimmer cigarette called the 120s, which lent some needed glamour to smoking. It spun potentially devastating developments into gold by always keeping the mind of the consumer at the forefront of everything it did. Lesser companies might have panicked in 1964 when the Royal College of Physicians and Surgeons released its first report on smoking and health, but the Philip Morris managers seized upon it with a brilliant response. They began selling filtered cigarettes as a “healthier” alternative, which in turn broke open an entire new market for sales: women. “Suddenly, because of the smoking and health publicity, filter cigarettes became not only acceptable but necessary,” Tindall said. “Filter cigarettes offered what smokers perceived as a health benefit, and the rapidly growing demographic segment, smoking women, could smoke filter cigarettes without getting tobacco in their mouths, and with only one end of the cigarette leaking tobacco into their purses.”

One of the best examples of Philip Morris responding quickly to marketplace shifts was happening right at that moment, Tindall said. With the addictive properties of nicotine becoming more widely known, the company was working to create a low-nicotine cigarette, and in this endeavor it had the food scientists to thank. Philip Morris was borrowing the technology General Foods used to extract caffeine from coffee to pull the nicotine out of tobacco. “Obviously, there was concern that a low-nicotine cigarette might put the cigarette industry out of business,” Tindall said. “The long-term management philosophy prevailed, though; we would compete in any category that had a chance for success.”*

In the audience that day were 86 research and development officials from General Foods and another 125 from Kraft, who represented all the major brands, from boxed cereals to frozen desserts. But none of them would benefit more from all the talk about divining the consumer’s mind and chasing trends than the people from Oscar Mayer, who at that moment were poised to take their own product, the Lunchables, to new heights.

For a brief moment, when production costs were outstripping revenue, it looked like Philip Morris had made a bad bet on the Lunchables. Right after Hamish Maxwell signed off on giving the trays more development money, which kept the Kraft bankers from shutting the whole venture down, sales dropped, and Bob Drane’s team scrambled to slash production costs. Drane even gave up his most treasured part of the tray, the yellow napkin, “which I fought like crazy to hang on to. It was like one and a half cents, but every element was examined in detail to figure out how to reduce the costs without screwing up the quality.” Oscar Mayer also gradually learned how to accomplish high-tech assembly, in which workers were replaced by machinery that accelerated and automated the factory lines, further reducing costs. Projected to lose $6 million in 1991, the trays instead broke even; and the next year, they earned $8 million.

Having extinguished this fire, the Lunchables team could focus its attention, once again, on boosting sales. And it did this by turning to one of the cardinal rules in processed food: When in doubt, add sugar. “Lunchables with Dessert is a logical extension,” an Oscar Mayer official reported to Philip Morris executives in early 1991. To accomplish this, they would have to spend $1.2 million to retool the production lines yet again. But the “target” remained the same as it was for regular Lunchables—“busy mothers” and “working women” aged twenty-five to forty-nine, he said—and adding cookies and puddings would bring several advantages. The “enhanced taste” would attract shoppers who had grown bored with the current trays; the added sweets would let the company charge thirty cents more per unit; and the dessert line would keep Oscar Mayer a step ahead of competitors who were reacting to the Lunchables success by putting out their own versions of cold, ready-to-eat lunch.

A year later, with the trays increasingly being eaten by kids, the dessert Lunchable morphed into the Fun Pack, which came with a Snickers bar, a package of M&Ms, or a Reese’s Peanut Butter Cup as well as a sugary drink. The Lunchables team started by using Kool-Aid and Cola but switched to Capri Sun in 2000 when Philip Morris added that drink to its stable of brands.

By 1995, six years after their launch, the Lunchables were giving the tobacco executives some of the only good cheer in the financial reports from Oscar Mayer. In appearing before the Corporate Products Committee that fall, Bob Eckert, president of the Oscar Mayer unit, went through all the bad news in red meat: Bologna sales were down; bacon was down; even hot dogs had sunk 4 percent. “Our processed meat categories get more than their fair share of negative stories about fat, leukemia, nitrates and the like,” Eckert lamented. In response, Oscar Mayer had begun making a new line of fat-free meats—hot dogs, bologna, sliced ham—that were projected to reach $100 million in sales.

The Lunchables, however, used the regular products and were already a superstar in the Oscar Mayer lineup. It had gone from being a money loser—or, as Eckert put it, “a bleeder”—to being “a growth engine,” a foundation of the company’s profits. “We’re leading the hottest segment of the supermarket’s refrigerated case,” he said. That year, the Lunchables hit a string of milestones: 100 million pounds in trays sold, half a billion dollars in revenue earned, and $36 million in profits. Lunchables had come so far, so fast that Oscar Mayer was scrambling to find more places to make the trays. “We must expand manufacturing capacity,” Eckert told the tobacco executives.

Sugar wasn’t the only catalyst being used to advance the Lunchables sales. All three components—salt, sugar, and fat—would get hefty boosts. A line of the trays, appropriately called Maxed Out, was released that scoffed at the federal government’s guidance on nutrition. These and other permutations had as many as 9 grams of saturated fat, or nearly an entire day’s recommended maximum for kids, with two-thirds of the max for sodium salt, and 13 teaspoons of sugar.

When I asked Geoffrey Bible, former CEO of Philip Morris, about this shift toward more salt, sugar, and fat in meals for kids, he did not dismiss the nutritional concerns that this raised. Indeed, he said, even in their earliest incarnation, Lunchables were held up for criticism. “One article said something like, ‘If you take Lunchables apart, the most healthy item in it is the napkin.’ ”

Well, they did have a good bit of fat, I offered.

“You bet,” he said. “Plus cookies.”

But speaking in general about the nutritional aspects of the products that Philip Morris sold through its food division, Bible said the company was in a tough spot. The prevailing attitude among the company’s food managers—through the 1990s, at least, before obesity became a more pressing concern—was one of supply and demand. “People could point to these things and say, ‘They’ve got too much sugar, they’ve got too much salt,’ ” he said. “Well, that’s what the consumer wants, and we’re not putting a gun to their head to eat it. That’s what they want. If we give them less, they’ll buy less, and the competitor will get our market. So you’re sort of trapped.”

Bible said the nutritional aspects of the company’s products were typically left in the hands of brand managers, who faced an uphill battle whenever they sought to introduce a new product. But given the consumer’s fickleness, the risks of failure were even greater if they tried to pull back on the keystones of their formulations, the salt, sugar, and fat. Bible said the most vivid example of this that he could recall involved Robert McVicker, a Kraft vice president for technology who died in 2001, and Michael Miles, the company’s former CEO. “Bob was very keen to get a low-fat peanut butter,” Bible said. “Peanut butter wasn’t a big business for us, but it was big in the country, so if you find one it could pay. But it was going to cost a lot of money. So Mike had a rule, which I thought was a pretty sensible rule. He said to Bob, ‘If you can find a brand manager who’s prepared to absorb the R&D cost, go for it.’ Now, if I’m the brand manager, and they say, ‘Geoff, this is probably going to cost you $5 million and if you want to put it in a test market, another $10 million, and then if we roll it out to a bigger test market, this thing will cost you $30, $40 million.’ And I say, well, ‘No thanks.’ You see your bonus disappearing. So it doesn’t work, unless you can find somebody who’s prepared to say, ‘Okay, I’ll take the punt. If it doesn’t work, I’ll eat the money, and I may lose my job, because that’s what I’m paid to do, pick winners not losers.’ A lot of these initiatives didn’t really get out of the box because it’s hard to find the funding, the champion who will get behind them. I think everybody did their best, but again, it’s what the consumer wants that we tend to make.”

When it came to Lunchables, they did try to add healthier ingredients. Back at the start, Drane had experimented with fresh carrots and sliced apples but quickly gave up on that; these fresh components didn’t work within the constraints of the processed food system, which typically required weeks or months of transport and storage before the food arrived at the grocery store. The carrots and apple slices wilted or turned brown within days. Later, a low-fat version of the trays was developed, using meats and cheese and crackers that were formulated with less fat, but, like the low-nicotine cigarette, it tasted inferior, sold poorly, and was quickly scrapped.

When I met with Kraft officials in 2011 to discuss their products and policies on nutrition, they said that they were trying to improve the nutritional profile of Lunchables through smaller, incremental changes that were less noticeable to consumers. Across the Lunchables line, they said they had reduced the salt, sugar, and fat by about 10 percent, and new versions, featuring mandarin orange and pineapple slices, were in development. These would be promoted as healthier versions, with “fresh fruit,” but their list of ingredients—containing upwards of seventy items, with sucrose, corn syrup, high-fructose corn syrup, fructose, and fruit concentrate all in the same tray—have compelled some reviewers to attack. “Snack Girl makes frequent visits to her local supermarket to check up on the latest,” Lisa Cain, a biologist and mother of two, wrote in November 2011, on the website she calls Snack Girl. “Guess what I found in the shampoo aisle? Peanut Butter and Jelly Sandwich Lunchables! Right there next to shaving cream, toothpaste, and assorted hair products was Oscar Mayer’s kid friendly MRE (meal ready to eat) for our children. Now, if we were in a hurricane situation—I would say, ‘Stock up on those bad boys. They will last forever!’ ”

She added five “reasons to avoid” the new Lunchable: The sugar, at 37 grams, nearly matched that in a 12-ounce can of Coke; the $3 price tag far exceeded the cost of her homemade PB&J and fresh fruit; the packaging was not reusable; the bread was not 100 percent whole-grain; and the ingredients included “artificial colors, flavors and something called ‘carnauba wax’—I use wax on my floors and car—not for food for my children.”

Kraft has been deftly defusing criticism like this since the earliest days of the Lunchables, of course. One of the company’s counterarguments was that kids don’t eat the Lunchables every day, so even the versions with the heaviest loads of salt, sugar, and fat were just part of their overall diet that parents could supplement with healthier foods. They also pointed out that there was nothing automatically healthy about the brown-bag lunch, if parents loaded them up with their own brownies and cookies and soft drinks. As for the kids, the company pointed out that they were unreliable—even when their parents packed fresh carrots, apples, and water, they couldn’t be trusted to eat it. Once in school, they often trashed the healthy stuff in their brown bags to get right to the sweets.

Kraft’s use of this notion that kids are in control of their eating dates back to the earliest days of the Lunchables. In 1994, when a pediatric cardiologist called the trays a “nutritional disaster,” a Kraft spokeswoman, Jean Cowden, shot back, “This is not some big corporate plot to fatten up kids. This is what kids want. There are very few kids out there who will eat rice cakes and tofu.”

This idea would become a key concept in the evolving marketing campaigns for the trays. In what would prove to be their greatest achievement of all, the Lunchables team would delve into adolescent psychology to discover that it wasn’t the food in the trays that excited the kids; it was the fun, the cool, and most of all, the feeling of power it brought to their lives.