Advertising Of Food And Soft Drinks
Total marketing expenditures in 2006 for the food and beverage industry were highest in the carbonated beverages and restaurant foods categories, with $3.19 and $2.18 billion spent, respectively (Figure 2). Breakfast cereal ranked third in terms of marketing targeted at youth (ages 2–17), with $792 million spent. Overall, however, juice and non-carbonated beverages and snack foods ranked higher than breakfast cereal, with $1.25 billion and $852 million spent, respectively. The levels of concentration across food and soft drink industries vary, with carbonated soft drink, cereal, and snack foods relatively concentrated compared to other food categories (see Table 2).
Similar to the tobacco and alcohol industries, the soft drink industry is relatively concentrated, with a Herfindahl– Hirschman index of 1094.5 in 2007 (Table 2). There is evidence that the soft drink industry might be more cooperative than predatory in nature, which would render them more likely to capture demand that does not exist rather than capturing a competing company’s demand (Gasmi et al., 1992). The Coca-Cola and Pepsi companies are the leading advertisers in the carbonated drink industry, and when the sugar rationing that was implemented in 1942 ended, soft drinks advertising on television experienced a significant increase (Wilcox et al., 2009).
The breakfast cereal industry is characteristic of a very tight oligopoly, with a Herfindahl–Hirschman index of 2425.5 in 2007 (Table 2). There has been evidence that, within the cereal industry, incumbent firms often respond to the entry of new firms with advertising, in order to limit the sales of new entrants (Bagwell, 2007, p. 1729). This anticompetitive behavior may provide support for the persuasive view of advertising in this context, as opposed to the informative view. Yet Ippolito and Mathios (1990) suggested that, in response to growing evidence of fiber’s potential cancer preventing benefit, a ban on advertising health claims for food products was lifted in 1985. As a result, consumption of cereal increased. (Kellogg had already begun its advertising campaign highlighting the link between fiber and cancer in October 1984, in violation of FDA policy.) The authors suggested that this lowered the search costs of obtaining health information.
In the food industry, it is not always clear whether advertising is persuasive, informative, or whether it has elements of both. Glazer (1981), for example, examined the effect of an exogenous event on food prices: a newspaper strike in Queens and Long Island, NY, for 2 months in 1978. According to his study, the lack of information on prices during that time led to an increase in prices, perhaps indicating that in this context, advertising is informative (Bagwell, 2007). This may be because of the more competitive nature of the market analyzed. The marketing literature contends that informative advertising generally occurs in the early stages of a product’s life cycle (to build brand awareness and generate demand); persuasive advertising occurs in the growth and early maturity stages of the product life cycle (when a product has gained a certain level of brand awareness); and reminder advertising – used to remind or prompt purchases – are for products that have gained market acceptance and are in the maturity stage of their life cycle (Grewal and Levy, 2009).
Some trends in food and beverage consumption are noteworthy. For example, per capita consumption of total fat increased from 56.9 lb in 1980 to 85.2 lb in 2008. Per capita consumption of carbonated soft drinks increased from 35.1 gallons in 1980 to 46.4 gallons in 2003. Whether the link between consumption and advertising is causal is discussed in more detail below, in the context of advertising exposure by children.
Researchers have estimated that children’s exposure to advertising has increased from approximately 20 000 commercials in the late 1970s to over 40 000 commercials in the early 2000s (Kaiser Family Foundation, 2004). There is particular concern that food and beverage advertising targeted at children is harmful, as the nutritional content of these products is questionable, with most being high in fat, sugar, or sodium (Kaiser Family Foundation, 2004; Powell et al., 2011). Children may not be rational decision-makers or may not be able to appropriately differentiate between advertising and regular programming on television. The exposure to advertising may lead to increased consumption of these products – suggesting that advertising may be cooperative, leading to an overall increase in consumption, rather than predatory or combative – and ultimately contributing to increased rates of childhood obesity.
There is strong suggestive evidence of the link between advertising and consumption or obesity (see the comprehensive reports by the Institute of Medicine, 2006, and the Kaiser Family Foundation, 2004, for excellent reviews of these studies), yet the potential endogeneity of advertising is an issue. Endogeneity may arise because of a firm wanting to locate in areas where demand is already high, which may support the informative view, as advertising is simply an endogenous response to imperfect consumer information (Bagwell, 2007). Moreover, the advertising/sales ratio may be influenced by profit margins and other variables (Bagwell, 2007). Higher levels of advertising may also be more feasible for firms that are concentrated and profitable.
Companies may also target areas where demand is low to capture additional demand, maybe revealing their cooperative nature. At the same time, companies may be cooperative in areas where demand is high, as mentioned above, to further increase demand on the intensive margin. If industry behavior is combative in this context, ordinary least squares estimates are likely biased upward.
Research suggests that food marketing can have a significant impact on consumption among children in the short-term (Epstein et al., 2008; Halford et al., 2004, 2007; Harris et al., 2009) and the longer-term (Barr-Anderson et al., 2009). One study found that adiposity in children increased with exposure to fast food advertising and that banning those advertising practices could reduce the incidence of childhood overweight by 18% (Chou et al., 2008).
The Institute of Medicine (2006) report concluded that there was substantial evidence that ‘‘food and beverage marketing influences the preferences and purchase requests of children, influences consumption at least in the short term, is a likely contributor to less healthful diets, and may contribute to negative diet-related health outcomes and risks’’ (p. 307). The report goes on to say that ‘‘[n]ew research is needed on food and beverage marketing and its impact on diet and dietrelated health and on improving measurement strategies for factors involved centrally in this research’’ (p. 309). In contrast to research in the tobacco and alcohol industries on the effects of advertising on consumption, research in this area is still in its infancy.
Chou et al. (2008) used an instrumental variables approach to carefully address the potential endogeneity of advertising, and found significant effects of televised fast-food restaurant advertising on body mass index (BMI) and obesity in children and adolescents, using the National Longitudinal Survey of Youth (children of the 1979 cohort and the 1997 cohort). The price of an advertisement and the number of households with a television in the market area served as instruments for fast food advertising. These instruments were found to be valid in that they strongly predicted advertising yet were legitimately excludable from the BMI equation. The authors then analyzed potential effects of two types of regulation: (1) treating food advertising as an ordinary business expense (and thus eliminating the tax deductibility of advertising) and (2) a complete advertising ban on television. Because the corporate income tax rate was 35%, elimination of the tax deductibility of food advertising costs would be equivalent to increasing the price of advertising by approximately 54%, which in turn would reduce fast-food restaurant messages seen on television by 40% and 33% for children and adolescents, respectively, and would reduce the number of overweight children and adolescents by 7% and 5%, respectively. A ban would reduce the number of overweight children aged 3–11 by 18% and the number of adolescents aged 12–18 by 14%. Yet this may be an overestimate; as Saffer (2000) had correctly pointed out, bans on advertising were only effective if they were comprehensive – covering all media, not simply television. Otherwise, the industry would simply shift its advertising expenditures to other media outlets.
Andreyeva et al. (2011) used the Early Childhood Longitudinal Survey (Kindergarten cohort) to show that soft drink and fast food television advertising is associated with increased consumption of soft drinks and fast food among elementary school children. They perform several robustness checks to address the potential endogeneity of advertising. Little effect was found for cereal advertising, which may be because of the strong correlation between cereal consumption and having breakfast, which promotes reduced overall caloric intake.
In summary, most evidence points to advertising-induced expansion effects in the carbonated soft drink and fast-food restaurant industries, and to weak or nonexistent expansion effects in the cereal industry.
Compared to the cigarette and alcohol industries, the food and non-alcoholic beverage industries face relatively little regulation. In light of potential adverse effects of advertising on obesity, however, some self-regulatory efforts have been put forth. One such effort is the 2006 Children’s Food and Beverage Advertising Initiative (Council of Better Business Bureaus, 2009), whereby participating companies made efforts to improve the nutritional quality of foods marketed to children. Some question these self-regulatory efforts, though, arguing that a few nutritious products are introduced whereas the unhealthy products continued to be heavily marketed (Kunkel et al., 2009).
Several industrialized countries such as Sweden, Norway, and Finland have banned commercial sponsorship of children’s programs. Sweden also does not permit any television advertising targeting children under the age of 12 (Kaiser Family Foundation, 2004). There is no similar ban in the US. The FDA regulates and sets standards for the food industry in the US, and these standards vary by state. There has, however, been an increased focus on the potential effect of advertising on obesity in children. In the White House Task Force on Childhood Obesity Report to the President, the following recommendations related to marketing were made, suggesting that advertising in these industries affect childhood obesity:
- The food and beverage industry should extend its self-regulatory program to cover all forms of marketing to children, and food retailers should avoid in-store marketing that promotes unhealthy products to children (Recommendation 2.5).
- All media and entertainment companies should limit the licensing of their popular characters to food and beverage products that are healthy and consistent with science-based nutrition standards (Recommendation 2.6).
- The food and beverage industry and the media and entertainment industry should jointly adopt meaningful, uniform nutrition standards for marketing food and beverages to children, as well as a uniform standard for what constitutes marketing to children (Recommendation 2.7).
- Industry should provide technology to help consumers distinguish between advertisements for healthy and unhealthy foods and to limit their children’s exposure to unhealthy food advertisements (Recommendation 2.8). (Solving the Problem of Childhood Obesity within a Generation, 2010).
The FCC has acknowledged the problem and has partnered with the FTC and the Task Force on Childhood Obesity. Yet it generally remains the case that an advertisement must clearly misinform the consumer in order to be regulated. Increased government involvement in this context is an ongoing debate, with recent studies suggesting that Congress should become more involved by enforcing corporate accountability, changing how advertising is treated for tax purposes, encouraging alternative solutions to regulation, and utilizing the Interagency Working Group Proposal on Food Marketing to Children (Termini et al., 2011).
Another issue that has been raised is the Federal government’s role as advertiser: Beef. It’s What’s for Dinner; Pork. The Other White Meat; Got Milk?. Most of us have heard these slogans in advertisements for beef, pork, and milk. Yet many of us are unaware that they are sponsored by the Federal government, through its ‘checkoff’ programs (Wilde, 2007), overseen by the United States Department of Agriculture (USDA) starting 1996. Researchers such as Wilde question the government’s well-funded federally sponsored checkoff programs, which ‘‘promote increased total consumption of beef, pork, and dairy products, including energy-dense foods such as bacon cheeseburgers, barbecue pork ribs, pizza, and butter’’ (Wilde, 2006). At the same time, the USDA’s Dietary Guidelines recommend a balanced diet with higher levels of whole grains, fruits, vegetables, fish, and low-fat dairy products consumption, which are not advertised by the government to the same degree.
Although weight loss products (discussed in the next section) go relatively unregulated, nutritional claims for food and beverages have been addressed with regulations on food labels, which can be viewed as an indirect form of advertising. Using the National Health Interview Survey, Variyam and Cawley (2006) showed that the implementation of new nutritional labels as a result of the Nutrition Labeling and Education Act of 1990 (effective in 1994) was associated with a decrease in body weight and the probability of obesity.
More recently, calorie posting for chain restaurants (with 20 or more stores in a state) was mandated, starting with New York City in 2008 and eventually becoming a requirement for all states as part of the new health care law (Adamy, 2010; Bollinger et al., 2011). Approximately 20 cities or states mandated calorie postings on menus after New York City (Adamy, 2010). Preliminary studies for New York have shown mixed effects on consumption: Bollinger et al. (2011) used data from Starbucks to find that the average number of calories per transaction falls, while Elbel et al. (2009) compared New York to New Jersey to find no significant difference.
Advertising Of Weight Loss Products
Perhaps one of the most striking examples of deceptive (and yet acceptable) advertising is in the OTC weight loss drug industry. Using magazine and television ads to determine effects on consumption, Cawley et al. (2010) showed that people are not as responsive to clearly deceptive advertising compared with nondeceptive advertising. They concluded that although nondeceptive advertising may be more cooperative in nature, deceptive advertising may be more combative in nature, or have no apparent effect.
Research in this area is new, and yet a striking 20.6% of women and 9.7% of men have used OTC weight loss products (Cawley et al., 2010) at some point in their lives. As mentioned in Section ‘Overview,’ consumers are also ill-informed about government regulation, with half of all consumers under the impression that these weight loss products are approved for safety and efficacy by the FDA before being sold to the public (Cawley et al., 2010). These OTC weight loss products may accurately be placed in the aforementioned third category of goods that have ‘credence’ attributes (Darby and Karni, 1973), for which the consumer is unable to accurately evaluate quality even after consuming the good. For instance, since medications have person-specific effects, a consumer may not be able to judge their true effectiveness even after consuming them. These attributes, combined with high turnover of firms in this industry, makes deceptive advertising possible.
Although the FTC Act prohibits ‘unfair or deceptive acts or practices,’ including both misstatement of facts and failure to disclose important information that consumers should know, it does not prohibit ‘puffery’ – claims that are so exaggerated that they are clearly incorrect, and no reasonable person would truly believe them. Puffery is defined as ‘‘the legal exaggeration of praise, stopping just short of deception, lavished on a product’’ (Grewal and Levy, 2009).