All else equal, if Kraft Foods wants to make money selling Oreos, then the retail cost of that box of Oreos must equal the sum of all the various costs in that cost stack, plus a profit margin.
Okay. With that as a starting point, let me ask readers a question: What is, by far, the single biggest cost in the cost stack of almost all processed foods?
I'll give you a ginormous hint: It's advertising and marketing.
In fact, when selling processed foods, almost all major food companies use a transparently simple, three-step business model based almost totally on advertising. Here's how it goes:
1) Spend tons of money drowning consumers with repeated advertising and branding messages,
2) Charge those consumers a premium price when they shuffle mindlessly and zombie-like to the store to buy food products,
3) Repeat.
Yes, it's simple. In fact, it's insultingly simple. But this business model works incredibly well. Many of the most successful and long-lived companies in modern economic history (Proctor & Gamble, Colgate-Palmolive, General Mills, Kellogg, Pepsi, etc., just to name a few) use this model to earn juicy profit margins across recessions, depressions, booms and busts.
Here's the thing though. This advertising-consumption cycle works for one reason and one reason only: because we as consumers enable it. Sure, the companies make the foods and run the ads--they're the first part of this equation, obviously. But we complete this advertising-consumption cycle when we go to the supermarket shelves, pick up these products, take them to the checkout counter, fish money out of our pockets... and willingly buy them.
That's why assuming that consumers are helpless victims under the boot of the food industry is not only inaccurate, it's deeply condescending. It presumes that we are mindless zombies who can't resist advertising. Despite the semi-facetious title of this post, most human beings are not zombies. I hope.
Here's the conclusion. Now that we're totally familiar with the hilariously simplistic, three-step business model above, we consumers know exactly what to do. We know food companies will run lots of ads and spend lots of money on branding, and we know they'll try to sell processed foods to us at prices high enough to cover those advertising costs--and still earn generous profits. We the consumers end up paying for everything, including the ads, and often end up getting unhealthy food products in return.
That's why we must adopt an entirely new philosophy of consumption. When you see products advertised, don't be a zombie and passively ingest the message of the ad. Instead, develop the opposite instinct and avoid those products.
When you see an ad for cookies or branded boxed cereal on national TV, or hear a processed food jingle played on the radio, think of the enormous cost of running those ads. Think of yourself paying for that ad--which is exactly what you do when you buy that product.
When you see a product or company sponsoring a major sporting event, or buying naming rights for a stadium, think about the enormous cost. You pay for that. A saturation print ad campaign? You pay. Billboards? You pay. Super Bowl ads? Yep, you pay.
You pay for everything!
As consumers, we need to change our response. Don't let the food industry condescendingly assume you're a zombie, groaning and dragging yourself to the grocery store to complete the advertising-consumption cycle. Change your mindset so that seeing ads makes you not want to buy.
Before long, you'll start to see heavily advertised foods for what they really are: destroyers of consumer value. You'll have no problem instinctively avoiding them, and instead you'll instinctively seek out lower-priced, less-processed and healthier foods instead.
If there's one idea I'd like you take away from this post, it's this: advertising destroys value. Rethink how you react to advertising, and you'll get far more value for the food you buy.
A different version of this post ran last year at Eating Rules.
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