Many years ago, as an active twenty-something, I spent very much more of my time pondering what volume of alcohol I could safely drink than I ever spent thinking what I should be eating. Sadly those days are long gone, and like a growing proportion of the population as a whole, I am increasingly obsessed with the health implications of my daily diet.
I am not alone in this. Between a quarter and half of the US adult population, approximately 45-108 million people, are on a diet at any one time . And like me, they are generally very bad at it. Obesity rates are still expanding at an alarming rate. Almost 20% of all premature deaths in the US are now associated with being overweight . The annual cost of obesity-related illness in the US now exceeds tobacco-related illness at US$190bn, nearly 21% of the country’s annual medical spending and over 3% of US GDP . The American Medical Association is so worried that it wants obesity to be seen as a distinct disease that now affects one in three US citizens. The UK is only just behind the US and is expected to draw level by 2030 when, on current trends, a staggering 50-60% of the population will be obese .
Of course my waistline is not the only thing that is making me think about healthy food. I am getting older – and where my twenty-year-old self would not have thought twice about buying monster-sized packs of pies, I am now more often to be found browsing the fruit and veg section in our local supermarket. We also have much more information on the impact of different foods on our health. Nutrition labelling, press coverage of research studies, government-led public awareness campaigns, and the occasional food safety scare have all done their bit to raise consumers’ consciousness about the relationship between diet and health.
But what constitutes healthy food, when so much of it seems to be unhealthy? The scientific basis on which nutritional supplements are sold is often very weak. Advertising campaigns sporting white-coated scientists are often akin to 1950s campaigns assuring us that nuclear power and DDT were safe. In fact, most nutritional supplements do not attract the support of the principal regulators such as the US Food and Drug Administration (FDA) and the European Food Safety Authority (EFSA).
Nutritional science is still evolving rapidly; almost every daily newspaper has a new study often contradicting yesterday’s study. Regulators quite rightly take a conservative position, looking for solid replicable evidence before allowing food and beverage products to make health-related claims.
We’ve taken a similar approach in our investment – only investing in companies that produce nutritional supplements that have received support from regulators. This may mean we miss out on some products that offer a genuine health benefit – but it is also means we avoid the riskier companies that may suffer if their products are ultimately found to have no benefit or, worse, a negative impact on health.
This still leaves a large variety of companies which fit into our ‘Well-being’ theme, ranging from supermarkets focused on fresh (and organic) fruit and vegetables, to companies producing food for allergy sufferers, diet management, and ‘better for you’ foods with reduced fat, salt or sugar content.
And all our angst about eating healthily means that the segment is growing at a very ‘healthy’ rate. Collectively the health and wellness industry is growing at over 5% per annum with some small segments such as in food intolerance (e.g. gluten-free foods) growing at up to 10% per annum. However, such exciting growth does not however come cheaply, with the sector enjoying price/earnings valuations in the mid to high 20s.
We particularly like US retailer Whole Foods Market and the Danish ingredients business Christian Hansen which both have very strong competitive positions and both benefit strongly from the increased focus on healthy eating. However, these sorts of companies are also highly related with price/earnings ratios of 21x and 30x 2014 earnings respectively. While we are enthusiastic about the prospects for these companies and other high quality businesses supplying healthy eating products, we believe these sorts of valuations are excessive and for the time-being we plan to remain on the side lines waiting for a better opportunity to buy into quality businesses in this exciting market.
 Gallup, Boston Medical Center  Bank of America Merrill Lynch, Globesity Primer, 23 August 2013  Institute of Medicine (IOM) of The National Academies  The Lancet