Do we ever stop and think about how big the food companies in the United States have become?
For example, ConAgra—the maker of Peter Pan peanut butter, Slim Jims, Banquet frozen dinners, PAM, among many other brands—had sales totaling approximately $13.3 billion.
An argument made about big food is that these companies spend a lot of money on research and development. I would counter that the research and development being done is how to make crappy food last monger on the shelves or how to make Slim Jims out of even more questionable meat. I digress. In 2012, ConAgra spent $86 million on research and development. In isolation that number sounds like a lot, but remember that this is a company with over $13 billion in annual sales.
How do you know that a company is not truly research and development driven? Look at the amount spent on research and development versus the amount spent on advertising and promotion. In 2012, ConAgra spent $365 million on advertising and promotion. For those of you keeping score at home, that is more than four times the amount spent on research and development.
Never mind that in 2012 ConAgra divested its fresh vegetable operations. Fresh vegetables just do not make the world go round.
I pick on ConAgra because a peer of mine in business school had an internship with the packaged food giant. One of the projects for the interns was to figure out a solution to a particular problem. The problem that summer was what to do with the ends of Slim Jims leftover from the production process. Apparently, Slim Jims are made into long sticks and cut to length for various packaging options. Leftover are a series of random sized ends and nibs. Can you imagine being asked to come up with a product for Slim Jim ends and nibs? It makes me shudder.
What’s for dinner tonight? The new Banquet Slim Jim casserole! Delicious.
What about Dole? Here is a company that actually produces and distributes fresh, minimally processed foods. In 2011 Dole had sales of approximately $7.2 billion. So, there is money in fresh fruit and vegetables. What does that equate to in real terms? According to Dole, the company sold 154 million boxes of bananas in 2011. Wow!
A company with that much money on the line depending on agriculture would be bound to spend heavily on research and development. In the 2011 annual report the verbiage sounded right:
Our research and development programs concentrate on sustaining the productivity of our agricultural lands, food safety, nutrition science, product quality, value-added product development, and packaging design. Agricultural research is directed toward sustaining and improving product yields and product quality by examining and improving agricultural practices in all phases of production (such as development of specifically adapted plant varieties, land preparation, fertilization, cultural practices, pest and disease control, post-harvesting, handling, packing and shipping procedures), and includes on-site technical services and the implementation and monitoring of recommended agricultural practices. Research efforts are also directed towards integrated pest management and biological pest control. We develop specialized machinery for various phases of agricultural production and packaging that reduce labor costs, increase efficiency and improve product quality. We conduct agricultural research at field facilities primarily in California, Hawaii, Latin America and Asia. Our research at the Dole Nutrition Research Lab in Kannapolis, North Carolina, investigates both basic science as well as the next frontier in phytochemical research. We also sponsor research related to environmental improvements and the protection of worker and community health. The aggregate amounts we spent on research and development in each of the last three years have not been material in any of such years.
Sounds like an ag school’s prospectus to future students. Yet, on page 65 of the annual report the company states that “research and development costs were not material for the years ended December 31, 2011, January 1, 2011, and January 2, 2010.”
However, marketing and advertising costs in 2011 were apparently material totaling over $100 million. You have to advertise those pineapples!
No matter what the verbiage says, these companies are in the business of selling us packaged and processed food.