New York Mayor and public health crusader Michael Bloomberg struck another blow in the soda wars Thursday. Bloomberg, whose battle against smoking has gone as far as banning it from city parks, now seeks to limit the size of non-diet soda and other sugary drinks that can be sold in food-service establishments. All sweetened drinks including fountain soda, bottled soda, sweetened iced teas, and fruit drinks above 16 ounces would be banned at places such as restaurants, movie theaters, food carts, and sports events. The proposal awaits the approval of the City Board of Health, which is expected as all the members have been appointed by Bloomberg.
In the past, other municipalities have proposed "soda taxes," but this is the first outright ban or restriction on sales to be announced. Unsurprisingly, the New York City Beverage Association came out and condemned the decision. In a statement, the group said, "The New York City Health Dept.'s unhealthy obsession with soft drinks is again pushing them over the top. The city is not going to address the obesity issue by attacking soda because soda is not driving the obesity rates." Both McDonald's (NYS: MCD) and Coca-Cola released similar statements.
Though the decision only applies to New York City, Bloomberg's public health initiatives have caught on in other communities in the past, which include a ban on artificial trans fats in restaurants and a requirement that restaurant chains post calorie counts next to menu items.
The writing's on the wall
Mayor Bloomberg isn't the only prominent public figure on the front lines of the obesity battle. First Lady Michelle Obama has been a constant advocate for better public health by recruiting supermarkets to set up shop in "food deserts," planting a vegetable garden at the White House, about which she recently published a book, and her Let's Move campaign, which encourages kids to be more active.
Like smoking a generation ago, it appears the tide is mounting against the obesity epidemic in general and soda consumption in particular. In May, Richmond, Calif. became the latest municipality to propose a penny-per-ounce soda tax, which will go on November's ballot. Showing the trend is far from a stateside phenomenon, three health experts at Oxford University recently called for a 20% tax on soda in the U.K., Europe's fattest country.
Like indoor public smoking bans, which began in California in 1995 and now affects 80% of the American population, anti-soda legislation is only likely to spread.
It's not just soda
Healthier eating has been on the rise for some time now. Whole Foods Market (NAS: WFM) has been one of the great growth stories in the food industry in recent times. The stock has shot up about 1,000% since its recession-era bottom, and it shows little sign of abating.
Other figures point to the shift to organic and healthier eating. Demand for organic milk has exhausted supply at times, and sales of the high-priced substitute grew by 16% last year. Similarly, Greek yogurt, a healthier alternative to traditional yogurt, has come virtually out of nowhere as brands like Chobani take up more and more shelf space in supermarkets. Sales have soared 2,500% since 2006 and now claim 19% of the overall yogurt market share. The boom has even revamped the dairy industry and, in turn, the struggling local economy in upstate New York.
The rise of farmers markets in the U.S., which have more than doubled over the past decade, and Community Support Agriculture (CSAs), where participants pay for a share of a farm's harvest to be delivered directly to them, also speak to the healthy eating trend. Echoing Whole Foods success, The Fresh Market reached a new 52-week high Thursday on the back of an impressive earnings beat. Revenue grew 23% while net income jumped 43%, and same-store sales charged forward at a 8.2% clip.
Two fries short of a happy meal
The fallout from this trend is clear. Total domestic soda sales are down to 1996 levels, and per capita consumption has not been this low since 1987. Legislation such as Bloomberg's size restriction or the Richmond tax is only going to make the road ahead tougher on the big beverage companies like Coke and Pepsi (NYS: PEP) . Tropicana, a Pepsi subsidiary, now faces a lawsuit claiming it should not be able to call itself "natural" because it uses chemically engineered "flavor packs."
Fast food chains like McDonald's and other restaurants could also get squeezed by anti-soda legislation, especially since soda is one of the highest-margin products that restaurants sell, but at least they have the option to offer healthier items. The Golden Arches have already adopted this strategy, offering more salads over the years and, more recently, apples in happy meals.
The potential winners I'll be watching, along with the fresh grocers above include recent IPO Annie's (NAS: BNNY) , maker of organic packaged foods. Shares of the food-maker are up about 30% since trading began two months ago. I'm also interested to see how Starbucks' acquisition of Evolution Fresh plays out. The coffee king purchased the bottled juice maker last November and opened its first Evolution Fresh store in March, outside of Seattle. Fresh-squeezed juice is an obvious healthy substitute for soda, but the hefty price tag could scare off consumers. Finally, I think this shift will also drive healthy lifestyle brands outside of the food and beverage industry such as lululemon athletica (NAS: LULU) . The retailer of premium exercise gear is synonymous with yoga, and as people turn to healthier eating they'll be more likely to look for a way to stay active. The company's success is reflected by The Gap's decision to imitate it with its Athleta brand, which has sprouted up near several lululemon locations across the country.
As this trend is being driven primarily by young urbanites, it should only grow as that demographic settles down and starts families. Now is the time to get invested.
One more trend you should know about it
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At the time this article was published Fool contributor Jeremy Bowman holds no positions in the companies in this article. The Motley Fool owns shares of Starbucks, Coca-Cola, lululemon athletica, PepsiCo, and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of lululemon athletica, Coca-Cola, The Fresh Market, McDonald's, Whole Foods Market, PepsiCo, and Starbucks. Motley Fool newsletter services have recommended writing covered calls on Starbucks. Motley Fool newsletter services have recommended creating a diagonal call position in PepsiCo. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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