The Foods that Make Billions

The Foods That Make Billions is the inside story

of how big business feeds us, told with exclusive access to the world's largest food companies.

Over the last 50, 60 years, there's been a radical

change from the time of very little availability to a time of plenty.

Looking at three products, the business has transformed

from novelty into necessity, cereals, bottled water

and yoghurt.

This is the story of how giant food companies

transform cheap commodities into hugely-profitable brands.

It's just a blank canvas for an artist to create products using

very cheap materials to create enormously-lucrative products.

And how they persuade us to fork out billions by selling us dreams.

Advertising is one of the foundations

of the modern food industry, there's no question.

It's also the story of an industry that exploits our health fears and courts controversy.

It's a trick that has been around for hundreds and hundreds of years.

Say it's going to prevent cancer, you can take

that ingredient that costs a few cents and then sell it for multiples.

This is the story of the foods that make billions.

Business success in the food industry

can be attributed to many different factors

but there is one

that stands head and shoulders above the rest in terms of its importance.

Added value is at the heart of the business

of every processed-food company and is the key to the huge fortunes generated by our best-known brands.

Transforming cheap commodities like grain into premium products

like breakfast cereals is THE ultimate recipe for success.

Processing, packaging, marketing and advertising are all part of this alchemy.

We take the kernel, we take out the germ cos the germ contains the most

oil and that will go rancid in cornflakes if we didn't take it out.

We also take off the skin

because that helps the flavours,

the sugar, the salt and the malt to penetrate.

We then cook it, dry it down, roll it out

and then we toast the finished product.

Breakfast cereals are the archetypal processed food.

You start with a whole grain,

but then you process it, you strip it of anything that slows down eating,

you add reinforcing substances, you add sugar to it, you add other stimuli to it.

You make it into a habit.

You add the emotional gloss of advertising. You add toys to it.

You make it part of the routine.

You make it something that is socially acceptable.

A kilo of corn costs around 15 pence.

On the High Street, a kilo of Kellogg's cornflakes comes to £3.

A 2,000% difference.

This process of buying low and selling high is known in the business as "adding value".

It's what the modern food industry does.

The way we make money is to process food as much as possible, add value to it,

add convenience, add packaging,

add health claims, whatever you can do,

complicate it, essentially,

and you get people to pay for other things besides the very cheap commodities

at the bottom of the food chain.

In simple terms, if you're selling something with added value,

it's something where

you have turned the raw material into something

that the consumer either couldn't or wouldn't do themselves

and they're therefore prepared to pay for it.

Breakfast cereals are at the heart of this equation.

We pay more because we believe we don't have any time.

The foods which have won out have been things like breakfast cereal

which require no cooking, no skills.

You don't even need a kitchen,

you just need a bowl, a spoon, a bit of milk and the packet.

And what appears to me is the fact that there's no messy washing-up or cooking to do.

Kellogg's can be served straight from the pack.

There is a limit to the amount that humans can eat, so in business,

finding ways of charging more for the same thing is an economic necessity.

There are many ways of adding value.

Promising dreams, lifestyle

and health are just some of the food industry's most effective,

whether selling the benefits of bottled water, cereals

or yoghurt pots. This equation offers consumers sometimes intangible benefits

but offers the food industry very real riches.

Without added value, there is no added profit for the food companies.

Understand this process and you will understand how the modern food business works.

Building a leading brand is complicated and expensive.

The money involved in investment, advertising and marketing

is reflected in the premium that customers pay.

This is the value of a brand.

It's something the consumer knows and trusts and that's why they keep buying it.

In the food business, branding is a particularly vital ingredient for success.

The growth of the supermarket own brand threatens the grip of the major food companies.

It calls into question both the idea and the value of brands.

Without the real costs of branding, supermarkets can undercut the competition.

Nowhere is this business battle more aggressively fought than in the cereal aisles of our supermarkets.

The years where own-label really grew, Sainsbury's brand,

came to the fore during the 1960s and early 1970s.

By the mid-1970s, around half of what we were selling was Sainsbury's brand.

The first product that we introduced, I think, was cornflakes followed by a sequence

of other slightly less-popular lines, but which amounted to quite considerable volume in total.

The role of own-label is a particular part of the competition in the UK marketplace.

It's not unique. There is own-label elsewhere in the world, but nowhere is own-label such a big part

of the mix and I would argue, therefore,

that nowhere does the consumer get a better deal because the big-branded companies

are kept on their toes in the UK in a way that they're not anywhere else in the world.

The threat from the supermarkets has been a wake-up call for the cereal giants.

I think the first thing

that Kellogg's recognised was that this was a huge threat.

They absolutely spotted that supermarkets

were building their own brands and building their own reputation.

We thought they were sort of parasites because they were copying

our products and riding, if you like, on the back of our advertising.

For the manufacturers behind the well-established brands, there were two possible responses.

Accept it or fight.

I felt it was incredibly important that we actually

got into the manufacture of own-label ourselves

because the only way that that business could go was up

and if it was going to go up then we needed to have a part of it and as long as we didn't have

a part of it, it was just cutting into our market, our share,

our profit and I just felt that it was vital

that we got into own-label as soon as we possibly could.

Within the business, that was not a very popular move.

My father particularly felt that we should not be in own-label.

It was felt sort of somewhat of a sacrilege

to start producing for the own-label when own-label

was our biggest enemy at the time.

But arch rivals Kellogg's chose not to touch own-label

arguing that their brand equals unrivalled quality.

We felt it was extremely important that we differentiated our products

as much as possible from the own-label brands

so we were sort of passionate about keeping a gap between our quality and their quality.

This trusted sign of quality still stands today so if you don't

see Kellogg's on the box, well, it won't be Kellogg's IN the box.

A kilo of Kellogg's cornflakes costs around £3 in the supermarket.

A kilo of own-brand costs around £2.

We were drawing our customers' attention to the fact that Sainsbury's own-label

was the same quality as the big brands

but much cheaper, at least 20% cheaper, because we don't have

those extra costs of advertising and marketing and we're able to pass that benefit on to customers.

But when consumers buy a Kellogg's product

they know what they're getting, they're getting high-quality food.

We have an amazing trust with consumers.

So they know what they're getting. They don't always know what they're getting with private label.

On matters of taste, the difference between own-label and branded

was harder to quantify, even for one of the people who made them.

There was never really much difference in the taste between the two

so I don't think the consumer would necessarily notice

and it certainly didn't worry me

that it wasn't something that was going to be detrimental to the sector as a whole.

You know, they were very well made and basically,

very similar ingredients so there was never really a problem.

Own-label is a fundamental threat to the entire philosophy of branding.

It's had a profound impact on all the big food manufacturers.

If you look at processed foods overall in Britain, the rise of own-brands was a major threat

but the cereal sector was interestingly resistant

to own brands, they didn't really encroach on the market very much.

Unlike other food sectors where own-label has taken

nearly half of the market, branded cereals have held onto an 80% share.

So why do people choose branded cereals?

Good question.

I think they trust, first of all, advertising.

They trust what you tell them and what you tell them is true.

-Nice save, Pat.

-Thanks, Tony, like to try your luck?

Why, sure, Pat...

The supreme advantage branded cereals have over own-brand is we all grew up with them.

They're among the first foods we engage with emotionally as children.

What a goal!

And the bonds we make in childhood are the hardest to break.

This is the trump card that has allowed the cereal superbrands to see off the own-label challenge.

We live in a consumer-driven age

where no stone is left unturned in the pursuit of sales,

be it through advertising or more subtle forms of marketing like product placement and sponsorship.

Once upon a time, stealthy methods of attracting customers were unknown on our shores.

When Kellogg's brought breakfast cereals to the UK from America...

They're gr-r-reat!

..they not only brought their experience of advertising, but also other innovative tricks

that would introduce us to the modern world of consumerism that we all inhabit today.

Take for example, the free gift in every box.

It's a real working model of the world's first atomic-powered sub which dives and surfaces in...

The one I remember, particularly, because I was still at school were the toy submarines.

I remember playing with those with my brother and see who could win

going to the bottom and getting to the top again.

The strategy was so successful for Kellogg's that the giveaways became evermore ambitious.

..70 Burns electric guitars to be won, each worth 80 guineas.

From the end of the Second World War to 1970, UK cereal sales tripled.

The things that we put in the packs, the back-panel promotions,

was really all part of building a relationship, a more detailed relationship with the consumer.

That's the first prize in Kellogg's Woman Dream House competition.

Today, countless strategies are employed in business to boost sales.

One of the most commonly used is sponsorship.

Sponsorship works where products are associated with someone or something

that benefits the image of the brand.

This is particularly common in the sporting world.

Here, cyclist Victoria Pendleton is sponsored by PepsiCo's energy drink, Gatorade.

She's an Olympic champion, so by proxy, it is hoped that the drink will be seen as a winning brand.

The strategy of product placement is also highly effective for big business.

It's been used by home-grown bottled water company Highland Spring to enhance the image of the brand.

The worlds of British fashion, British motorcar racing and British snooker have all been targeted.

But Highland Spring's most effective example of product placement was orchestrated

by former Formula One racing car driver Sir Jackie Stewart.

The Scotsman was travelling on Britain's flagship airline, BA, when he was offered Evian mineral water.

I was travelling in a BA plane and I got a foreign mineral water.

I thought that it should have been a British mineral water.

I got off the plane and I phoned Lord King

who was at that time chairman and CEO

and I said "Why are we drinking foreign water?

"You should have a British one."

And he said "Let me talk to somebody about it and I'll call you back."

I don't think it took him too long to convince British Airways

that it would be much more fitting

for a quintessentially British brand

to have a quintessentially British brand bottled water alongside.

In the slipstream of the world's favourite airline,

Highland Spring became a major player in the rapidly-growing bottled water industry.

It sat proudly next to the industry leaders Evian, Volvic and Vittel.

For all modern business, embracing new strategies and marketing is essential for survival and growth.

Where industry looks beyond the obvious lure

of straightforward advertising, the opportunity to connect emotionally with consumers is huge.

The importance of advertising is seldom underestimated in the food business,

but the role of packaging

rarely gets the credit that it deserves.

Packaging can be used to unlock new markets, strengthen marketing messages and add value to products.

It begins with convenience, but the role of packaging is far more sophisticated than just that.

The bottled water industry arguably owes its huge growth to the bottles

and the success of the yoghurt sector in the UK is also down in part to the pots.

The pots are crucial because these small, little packages give you

the idea that you can help yourself

any time, it's incredibly convenient

and you can sort of eat in an individual way on the move, whatever.

Right from the start, yoghurt is something that you give

to an individual, it's your complete little pudding that you can have, just one person, one portion.

Clever packaging lies behind one of the biggest success stories

in dairy history, the twin pot from German dairy giant Muller.

In 1986, armed with their twin-pot Fruit Corner,

the company secretly approached a British dairy businessman.

The then managing director came over with this Fruit Corner

in his suitcase, not even chilled, but in his suitcase,

and he thrust it at me

and he said "What do you think of that?"

And it was absolutely fantastic.

It was like nothing I'd ever tasted.

One pot good, two pots better.

Ken Wood thought that the product and its packaging were so innovative

that he was prepared to take a risk.

It would prove to be a textbook case in how to expand a market

and would leave the home-grown companies in tatters.

While Ken Wood began preparations for Muller's UK launch, the competition

had sniffed around, but decided the product had one fatal flaw, the price.

I went to Germany and we were actually taken round the Muller factory and shown

the twin pot being produced

and I rushed back to the UK

saying I've seen this really, really exciting product

and we took it out to market research

and the response from customers was twofold.

Some of them loved it, but when we then showed consumers the price at which it would need to be retailed,

most of them held up their hands and said "Look, really, that is too expensive."

So we did nothing.

At the time, a pot of Shape cost 22p while the Muller Fruit Corner

was to retail at 35p, over 50% more expensive.

There was only one thing that could justify this difference, the price of luxury.

It was undoubtedly a risk for Muller

to come in at a significantly higher price point

but there were extra costs involved

and the success of brands is to price at the point you think consumers will value

what you're offering and a premium price can be justified

if there is an added benefit to consumers and in this case,

they added theatre to the experience of eating a yoghurt in a way that hadn't been seen before.

Muller Fruit Corner is of course a masterpiece.

Part of the appeal of yoghurt had always been these little individual pots,

but Muller, by adding that corner of something jammy in the corner had taken it a stage further.

Muller were packaging it as something that was an outright treat and it really just opened up

the market to a whole lot of consumers

who wouldn't otherwise have seen themselves as yoghurt eaters.

The Muller Fruit Corner so appealed to Britain's taste buds

that within four years it was the biggest-selling yoghurt in the UK.

Keep your body at its peak.

In the 1990s, new packaging revolutionised the bottled water industry

by getting the product out of glass bottles and off restaurant tables.

In an age of instant gratification, still bottled water

provided what people wanted exactly when they wanted it.

People, in general, are more and more time-pressed.

We don't cook our own meals any more.

We eat prepared foods of all kinds and there's nothing more appealing

than a bottle of cold water at a moment when you're really thirsty.

Cold water is, in fact, deeply satisfying when you're thirsty,

but I think bottled water is one of those products

that on many occasions when people buy it, what they're buying

isn't the water so much as the bottle, that is the package and the convenience at that moment.

And when we bought this convenience, what we were really buying was PET for polyethyle terephthalate,

the single most important innovation in the industry's history, strong, shatterproof

and a highly-valued form of polyester, PET is a by-product of the oil industry.

It is now utilised in the packaging of everything, from pharmaceuticals and soap to ready meals.

In years to come, the environmental impact of PET would haunt the industry and raise questions

about its very survival, but in the 1990s, this was a revolution.

Starting with the introduction of the PET waters, the category started to explode.

The bottled water industry before PET

was essentially on the list of all beverage categories was number seven.

With the advent of PET, bottled water jumped from the number seven

to the number two spot, behind carbonated soft drinks.

It started to grow into the two billion, three billion range every year, phenomenally high growth rates.

Without this revolutionary bottling material, none of this growth

could have been achieved. Across business, packaging's role in unlocking new markets

and building on existing success is not to be underestimated.

After decades of unhindered growth in the food industry,

the late 20th and early 21st centuries

brought a step change in the way the large multinationals operate.

Today, corporate social responsibility and business ethics

are at the top of every agenda in every boardroom.

The increasing global awareness of the western consumer has led to huge questions

about the power of branding,

the power of multinationals and the power of the globalised market itself.

In this new environment, the traditional money-making model

enjoyed by so much of big business for so long has disappeared.

There are now other considerations beyond responsibility to shareholders.

In few places is this more acute than in the food business.

Whether selling cereals, yoghurt or water, the future of this

industry depends on its ability to adapt in this new environment

and no sector finds itself in the dock as often as the bottled water industry.

Bottled water is the most revealing substance for showing us

how the global, capitalist market works today.

It tells us that we're no longer buying things for their use value,

that in a sense, we're buying choice, we're buying freedom,

we're buying all kinds of insubstantial things.

For some of us, choice and freedom is worth the price we pay, but for others,

it represents the excess, and inequality of the modern world,

a world where nearly a billion people have no access to clean water at all.

One thing we cannot lose sight of is the ultimate absurdity of the bottled water industry.

Here we have a world where people are dying of thirst,

where people lack clean water to feed their children...

..and we're spending billions of dollars and huge amounts of energy, moving water

from people who already have it to other people who already have it.

Recognising this inequality was a small group of businessmen who saw an opportunity.

If they could create a completely new brand of bottled water,

they could subvert the industry from the inside.

This they did with a brand they called One Water.

Its success was to have a major influence on the industry as a whole.

The bottled water market in the UK is incredibly ingested.

There are some really big brand leaders out there,

the Nestles, the Danones of this world.

But from our perspective I didn't look at them as competitors.

They don't sit in the same area that we do.

I just wanted to go out and take a small percentage share

of a bigger market that they happen to be sitting in as well.

Where one water differed from other brands

was in its simple proposition, there were to be no shareholders and no dividends, but instead,

100% of their profits would go directly to African water projects.

We can't necessarily affect an industry,

but we're trying very hard, but perhaps, what we can do,

is repurpose some of the outcome of that industry for a better cause.

What the One Water brand was tapping into was a concept they called positive brand choice.

Positive brand choice is something, I think, that consumers have a real appetite for now.

We're trying to tell them

that by choosing our bottle of water

they could personally be responsible

for bringing water to ten African school kids for a day,

and I think that's a really, really powerful proposition.

The consumers' positive brand choice was then turned directly into water projects for Africa.

The idea of play pumps came from something I read

in one of the national newspapers

which celebrated this amazing invention,

a pump powered by children's play that could pump water industrially

into tanks and provide enough water for a whole community and I thought that was ingenious.

The play pumps gave the consumers of One Water a reason for their

positive brand choice, but they also benefited the major retailers.

Our proposition in a business sense provides British retailers with brilliant corporate social

responsibility stories,

but it doesn't cost them anything because all I am asking them to do is to take

our range of One products for the same price

that they would have bought those products from other suppliers.

With the help of major retailers, One Water has now provided clean water

to over 1.4 million people,

but they have also influenced the wider industry.

Similar programmes have been adopted by many of the major brands

with projects with similar models and others addressing the industry's environmental impact.

The future success of industry will be measured as much

by how globally responsible it is as by how much profit it generates.

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