By continuing to use this site, you agree to use of cookies. You can change this and find out more by following this link Accept cookies

Obese-Sized Opportunities

The global obesity epidemic presents an opportunity for companies in the healthcare, weight-loss and retail sectors

Mauro F. Guillén 14 November, 2012 | 6:00AM

This article is part of Morningstar's 'Perspectives' series, which features contributions from third parties such as asset managers, academics and investment professionals.

As far as epidemics go, the sharp increase in obesity rates around the world has been in the making for several decades. Unlike SARS or the swine flu, it is not the kind of unforeseen phenomenon manifesting itself suddenly and unannounced. What’s shocking about it is the sheer magnitude. According to official World Health Organization statistics, approximately one billion people suffer from this terrible condition, and it is one that affects women to a greater extent than men. In the United States, 44% of males and 48% of women over the age of 15 have officially crossed the threshold of a body mass index above 30, which is the official definition of obesity. In the UK, the figures are 24% and 26%, respectively. A large number of European and Latin American countries have witnessed obesity rates soar in recent years to reach 30% or even 40% of the population. The figures are similar across the Middle East, from Egypt to Saudi Arabia, and even Iraq and Iran. So far, only Asia seems immune, with rates as low as 2% in Japan, although they are rising fast in South Korea and China.

Rising Obesity Rates Affecting Our Global Economy
The economic consequences of obesity are likely to exceed those of tobacco smoking and AIDS, combined. Being obese is a major risk factor for a number of chronic conditions such as diabetes, cardiovascular diseases, cancer, and arthritis. Estimates indicate that as much as 30-40% of total healthcare expenditures in the United States go towards treating obesity-related health problems. Given that healthcare accounts for about 15% of Gross Domestic Product (GDP) in the US, that means a whopping 5% of GDP in the world’s largest economy is consumed by treating ailments associated with obesity.

The economic impact of obesity does not end with healthcare. The consequences are likely to be felt across the economy, from clothing, personal care, and consumer electronics to automobiles, entertainment, and air transportation. We will need to redesign many goods and services so that this increasingly important segment of the population can live relatively normal lives.

And yet, we are woefully ill-prepared to cope with the challenge. For starters, politicians and policymakers have not yet managed to persuade the public that drastic action is needed. It took decades for countries around the world to adopt the kinds of anti-tobacco policies that have finally brought smoking rates under control. Most people still believe that obesity affects a tiny segment of the population. Therefore, action must start by enhancing awareness.

Coca-Cola and Pepsi have pushed hard to market healthier beverages and snacks, but they haven’t done enough to reduce the public’s continuing taste for carbonated soft drinks

Governments, however, cannot be expected to fix this problem alone, especially at a time when they are beset by rising deficits, mounting debt, and decreased legitimacy. Business must step in—and in some cases, get out of the way. Food and beverage companies are almost as guilty of accelerating and aggravating the obesity epidemic as tobacco companies were of bringing about the worst public health problem of the second half of the 20th century. It is encouraging to see that companies such as Coca-Cola (KO) and Pepsi (PEP) have pushed hard to market healthier beverages and snacks, but they haven’t done enough to reduce the public’s continuing taste for carbonated soft drinks.

Obese-Sized Opportunities
Entrepreneurs have long realised that lifestyle issues have become fertile ground for launching new ventures. The global weight loss and diet control market is worth perhaps $200 billion, and it has attracted companies offering everything from low-calorie foods to weight-loss and exercise programmes. The widespread availability of mobile phones has spurred a small boom in lifestyle apps intended to help people stay on course with their diet and their exercise pattern.

A large number of companies are already well-positioned to serve customers with obesity issues. Diabetes and cholesterol drug-making companies figure prominently among them (Merck (MRK), Pfizer (PFE), and the generics), as do makers of weight-loss pills (Arena Pharmaceuticals (ARNA) and Medifast (MED)). Given that many diet pills are not regulated, the market is growing fast. Companies that help with diet and exercise are also expanding quickly, such as Beachbody. New apps have been written to encourage healthier eating habits and exercise, and provide users with social support groups. Popular apps include Retrofitme, LoseIt, ShapeUp and GymPact.

One of the greatest opportunities for entrepreneurs lies hidden in the clothing industry. Existing companies do not cater well to the overweight and obese. In the United States, for instance, the clothing market is worth $300 billion annually, but obese consumers account for less than 20% of spending. When you look at the numbers, obese customers spend less than non-obese customers. If obese people were to buy clothes at the same rate as the rest of the American population, their overall clothing spending would increase from $60 billion to $180 billion each year.

Yet established clothing labels and retailers are reluctant to add special larger shapes and sizes to their standard collections for fear of tarnishing their brand and positioning in a market driven by image and the concept of self. Right now, only large companies that sell cheap, imported clothing mainly through mailing lists or small specialty firms cater to the needs of the obese population. Few of them have children in mind. Mass-market firms include Roaman’s and Woman Within, which are part of the French conglomerate, PPR (PP). The growing number of specialty clothing companies that cater to this demographic include Juno Active by Junonia, Plus  Woman, and Making It Big. For smart entrepreneurs, this market represents a truly plus-sized opportunity.

Mauro is co-author of the book Global Turning Points: Understanding the Challenges for Business in the 21st Century.

Morningstar Disclaimer
The views contained herein are those of the author(s) and not necessarily those of Morningstar. If you are interested in Morningstar featuring your content on our website, please email submissions to UKEditorial@morningstar.com.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article
Security NamePriceChange (%)Morningstar
Rating
Arena Pharmaceuticals, Inc.4.16 USD-2.58-
Coca-Cola Co42.05 USD0.62
Merck & Co Inc60.49 USD0.30
PepsiCo Inc93.79 USD0.45
Pfizer Inc30.40 USD-0.59
About Author Mauro F. Guillén

Mauro F. Guillén  is the director of the Lauder Institute and a professor of international management at the Wharton School at the University of Pennsylvania.