How will healthy sales targets and fines be applied?

It’s less than six weeks since Tesco CEO Ken Murphy made his surprise call for healthier food sales reporting to be mandated, quickly drawing backing from Sainsbury’s, Asda, Morrisons, Aldi and Lidl. Now they’re all getting what they want – and a bit more.

Health secretary Wes Streeting and Defra secretary Steve Reed’s 10 Year Health Plan will not only require healthier food sales reporting, but also set targets for retailers to do better – and fines if they don’t.

The annual requirement to report healthier food sales data will apply to “all large food businesses”, Streeting and Reed said in an exclusive comment piece for The Grocer on Sunday, as the new ‘healthy food standard’ was announced.

“And in the future, we will be setting realistic targets,” they said.

No sooner had the announcement been made than the influential charity Nesta issued a statement welcoming the plan, while noting the mandatory targets system was “based on a policy developed by Nesta”.

So, how do targets in Nesta’s model work? Should some retailers be more worried than others? And what is the timeline for implementation?

Nesta developed its targets model, which was first published in February last year, to apply to retailers bound by the Groceries Supply Code of Practice. Of these, it narrowed it down to “the 11 largest UK grocery retailers”.

Based on UK grocery sales, that’s Tesco, Sainsbury’s, Asda, Aldi, Morrisons, Lidl, Co-op, M&S, Waitrose, Iceland and Ocado.

Out-of-home will come in the “next phase” of Nesta’s work.

The target should be “at levels similar to those already achieved by today’s ‘best’ players”, it says. In other words, some will have much more work to do than others.

Using Kantar Worldpanel data from 2021, a Nesta table gives the 11 a score relating to their sales-weighted average calorie density across the whole food product portfolio, not including drinks. It also sets a target, which is the same for all.

Using a formula developed by the University of Oxford, the scores are a “converted” form of those applied under the government’s nutrient profiling model.

Target 69

In short, everyone must get to a score of 69 or more. At the top of the class, in the anonymised table, is a retailer that’s nearly there already, on 68.4. But at the bottom is “an outlier, currently having a significantly lower NPM score than others”, at 62.9 (see above).

Nesta says: “Other things being equal, the closer a retailer’s current NPM score is to the target, the less the expected effect on their business. On the other hand, if the NPM score of a retailer’s current sales are substantially below the planned target, then it is more likely to need to make more significant changes in order to comply.”

That should be concerning for the unnamed laggard, since Nesta’s policy includes fines of up to 1% of annual turnover for failing to meet the target.

Subject to consultation, there should be a “proportional penalty framework”, meaning the more retailers fall short, the closer the fine to maximum.

“For example”, if a retailer gets 60% of the way to their target “the penalty could be reduced 60%, to 0.4% of annual turnover”, says Nesta.

The body that will hold the powers to enforce the targets and impose fines is the FSA.

It’s up to retailers to “choose how they meet this target”.

“This could be through reformulation, stock purchasing, product placement or promotions,” says Nesta (and the government’s announcement made identical suggestions).

As for suppliers, the targets will “drive shifts in manufacturer behaviour as they respond to increased demands for healthier products from retailers, where most of their products are sold”, posits Nesta.

Nesta’s policy also sets a timeline for implementation. Mandatory reporting begins in year two from the health secretary’s announcement, and targets and fines in year four.

Health minister Ashley Dalton said on Sunday that healthier food sales reporting “against standardised metrics” would be mandated “by the end of this parliament”.

“We will engage with industry closely as we develop and consult on these proposals,” Dalton added.

An economic assessment by Nesta argues that even for the outlier at the bottom, the phased implementation allows “time for more substantial changes to their business model to be introduced gradually, in a way that minimises the effect on costs”.

Retailers can provide evidence to the contrary in the consultation, it adds.

Read more:

• Grocery and food to play major role in NHS 10 Year Health Plan

• Alcohol advertising ban scrapped following industry backlash

• How supermarkets have been nudging healthier choices for years

• Sainsbury’s welcomes NHS obesity plan as ‘opportunity’ for supermarkets to ‘raise the bar’

Ged Futter, founder of The Retail Mind, has some misgivings. “If you’ve got a branded manufacturer whose products are sold globally to the same recipe, are you going to say we need a recipe for the UK? If you’re producing it just for the UK, your costs will go up significantly. So that product becomes a healthier product which is substantially more expensive.”

It could also be to the advantage of retailers whose range split is biased to private label, because supermarkets have been pressing own-label suppliers to make healthier products for years.

“If you overtrade on private label, the likelihood is you’re closer to your target,” Futter says. “That might mean Aldi and Lidl have to do less.”

Nesta says getting retailers to the target “could reduce calorie purchases by around 80 kcal per person per day among the population with excess weight, and obesity prevalence by approximately 23%”.

“This would translate to around three million fewer people living with obesity in the UK and around £17bn in annual cost savings to society.”

Futter says “those on the unhealthiest diets will be penalised most” by price rises.

And he argues the policy ignores a human tendency to compensate by finding sugary calories somewhere else, such as a fast food chain.

But Obesity Health Alliance director Katharine Jenner says: “This is a fair and evidence-based prescription for better health. Businesses urgently need the government to level the playing field to help them focus on selling products that help people live well.

“Crucially, it puts the spotlight on the food industry and commits to holding it accountable for providing healthier options.”

Nesta CEO Ravi Gurumurthy says: “This new standard focuses on lots of small changes that make it easier to buy food that’s a little bit healthier. Nationally, it could send obesity rates down by a fifth – through business and government working together.”

There can be no doubt of support from big supermarkets too, with Tesco, Sainsbury’s, Aldi and Lidl among those welcoming moves this week.

In time, it may be clear who’s at the bottom of the table. But there are no prizes for guessing who’s nearer the top.