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THE JUNK FOOD ECONOMY IS BOOMING

Buffett’s appetite 

Warren Buffett says he’d give up an extra year of his life to be able to eat anything he wants. A big fan of junk food, the 92-year-old investor drinks five cans of Coke and eats McDonald’s daily.

“I always tell people: I found everything I like to eat by the time I was six,” he told CNBC this month. Once, the Oracle of Omaha stated: “I checked the actuarial tables, and the lowest death rate is among 6-year-olds. So I decided to eat like a 6-year-old. It’s the safest course I can take.”

Many Americans are right there with him. In a recent article, health writer Philip Pearlman pointed out that “junk food” companies benefit tremendously from the country’s love affair with fast food. Despite recent health-conscious pushes, their stocks are hitting new all-time highs.

It’s great for shareholders but not so great for the overall health of Americans. The higher the “junk food” companies’ share prices rise, the more Americans gain weight.

The behemoths 

Who said America is becoming more health conscious? It could be true amid the rise in veganism, health apps, gyms, and “fitness culture” on social media. But you wouldn’t know it by looking at the big brands making billions of dollars off (mostly) junk food and drinks.

McDonald’s: The original fast food giant has a $200 billion market cap. One Big Mac meal, including fries and soda, has 149 grams of carbs and 1,100 calories.

PepsiCo: Pepsi, Mountain Dew, Lays Potato Chips, Fritos, Cheetos, Doritos. The junk food behemoth has a $260 billion market cap, just made a new all-time high, and has been investing in A.I. for its daily operations, including developing new products, analyzing sales, and increasing safety at warehouses. Its stock rose this week on positive guidance.

General Mills: The large cereal producer makes Cheerios, Cinnamon Toast Crunch, Cocoa Puffs, etc. The stock has doubled in the past five years, outpacing the S&P 500.

Hershey: The $50 billion company makes candy such as KitKat, Mounds, Twizzlers, and Reese’s Peanut Butter Cups. The stock has jumped nearly 200% over the past five years to reach new all-time highs. The company said strong demand despite price increases had boosted profits, just like the other brands on this list.

Why?

Fast food and sugary breakfast cereal are relatively cheap options amid high inflation. While fast-food prices have risen since the pandemic, it’s still less expensive to feed a family of four at McDonald’s than at Sweetgreen or by loading a shopping cart with fresh vegetables and fish from Whole Foods.

Roughly a quarter of Americans eat fast food daily. It’s cheap, it’s fast, it’s easy. And it’s everywhere.

In addition to convenience and affordability, these brands spend billions of dollars annually on advertising and marketing, promoting their products as delicious, fun, and satisfying. They’re ubiquitous in the U.S., making them accessible to nearly every American.

Their food is engineered to be highly palatable, with high levels of fat, sugar, and salt, making it difficult for people to resist.

And then there are the cultural factors: Fast food has long been a key part of American culture.

Economies of scale

These chains operate on a large scale, which allows them to benefit from economies of scale. They produce and sell their products at a lower cost per unit than smaller businesses, boosting their profit margins.

They also benefit from standardization to streamline operations and reduce costs, large marketing budgets, and franchising, which allows them to expand rapidly without incurring the full costs of opening and operating new locations. Franchises pay fees and royalties to the parent company (say, McDonald’s), which provides a steady revenue stream.

Then there’s something more subtle but powerful: Fast food chains use menu engineering techniques to maximize profits. They might use “combo meals” to encourage customers to buy more items. It’s a prime example of the power of upselling as a sales strategy.

The problem

Fast food consumption has been linked to various health problems, including obesity, diabetes, and heart disease. There are unquestionably outliers, like Buffett, who is still as sharp as a tack.

But, according to Harvard’s School of Public Health, roughly one in three American adults is overweight. Obesity rates are higher in Black, Hispanic, and Mexican American adults than in  White adults.

If U.S. trends continue unabated, by 2030, estimates predict that roughly half of all men and women will be obese.

Additionally, there are concerns about the fast food industry’s social and environmental impact, including labor practices, animal welfare, and sustainability.

A Harvard study concluded: “Slowing the increases in obesity and turning around the epidemic will take large-scale, multifaceted efforts, within individual countries and across the globe, to improve people’s food choices and increase physical activity. These efforts cannot begin in earnest soon enough.”

Dive deeper

Here’s Harvard’s in-depth Obesity Prevention page with resources, research, and statistics. And here’s Our World In Data’s report on obesity.

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TRIVIA ANSWER

There are about 40,000 McDonald’s locations across the globe in over 100 countries. There are nearly 14,000 in the U.S. alone.