Tesco faces shareholder vote to increase healthy food sales in bid to tackle obesity

10 Feb 2021 --- Tesco is set to become the first FTSE100 company to be hit with a shareholder resolution on health grounds.

The resolution – co-filed by seven institutional investors managing over £140 billion (US$194 billion) in assets, along with 101 retail investors – is expected to be voted on at Tesco’s Annual General Meeting in June.

It calls on the retailer to set targets to increase the proportion of healthy products in its sales and, if passed, the company would be forced to adopt the proposals.

The investors argue that consumer trends and new regulations to combat obesity present a financial risk to the business if Tesco fails to take action.

However, the retailer is defending its health and sustainability track record, insisting it’s “working hard to make it easy for customers to make healthy choices.”

Taking action on consumer diets
Tesco’s Little Help Plan is part of this. The supermarket’s reformulation program has also removed more than 50 billion calories from Tesco products since 2018.

Tesco’s reformulation program has removed more than 50 billion calories from Tesco products since 2018.

Tesco points out that its “helpful little swaps” events offer healthier alternatives to family favorites at the same price. It has also given away more than 100 million pieces of free fruit to children.

Additionally, Tesco has set a target to increase sales of plant-based meat alternatives by 300 percent by 2025 and was the first retailer to set a target of this kind.

But NGO ShareAction and the investor coalition are calling for more, evidenced in the shareholders’ resolution.

“We aren’t just talking about fruit and vegetables, our task includes healthier options within all food and drink categories” Ignacio Vazquez, Senior Manager at ShareAction, tells FoodIngredientsFirst.

“Excess weight has emerged as a key risk factor in terms of severity of symptoms, and ultimately death, of COVID-19 patients,” he explains.

“In addition to the existing fiscal and regulatory measures on the least healthy food and drink products, this is prompting regulators to go further by imposing restrictions on the promotion and placement of such products at retail level from next year onwards.”

“Investors recognize this poses material financial risks to companies not addressing health appropriately and whose profits are overly reliant on the sale of unhealthy products.”

“As such, investors are calling on companies to set and disclose targets to grow the proportion of their sales from healthier products,” he says.

Rising investor concerns
Tackling rising obesity at retail level is at the core of this shareholder resolution, which has the backing of some strong players with the retail space.

The UK government estimates that at least half of all grocery sales come from high fat, sugar or salt products.A shareholder resolution is a non-binding recommendation to the board of directors of a public corporation. Proposed by shareholders, resolutions are presented and voted upon at the corporation’s annual meeting and through the annual proxy vote.

This case reflects rapidly rising investor concerns with companies’ health impacts, seen until recently as a fringe issue even by many advocates of environmental, social and corporate governance (ESG) investing.

Targeting Tesco
Tesco is the largest food retailer in the UK, with 27 percent of the market. But it has made few efforts to encourage healthy eating compared with its peers M&S and Sainsbury’s, according to ShareAction – this is why it is facing a shareholder challenge.

“We keep our targets under review to ensure they are sufficiently stretching, reflecting feedback from a wide range of stakeholders, and will share our latest health ambitions ahead of publishing our next Little Helps Plan update,” the Tesco statement continues.

“Looking forward, we have strong plans to make Tesco the easiest place to shop for healthy and sustainable food, to encourage increased consumption of fruit and vegetables, and to raise awareness of healthier choices.”

Not the first time
“Last year, we were joined by investors in asking such questions to Tesco’s board at their AGM. Given the lack of significant progress made since the resolution will escalate this issue by putting the matter to a formal vote at this year’s AGM,” Vazquez continues.

“We encourage Tesco’s board to endorse the resolution, recommending a vote in favor to its shareholders. There are good reasons for Tesco to do so,” he notes.

“While the resolution requires Tesco to step up its ambition in this area – to disclose the percentage of current sales, set 2030 targets and report against them – it gives Tesco flexibility to set the level those targets should be at and develop a program of work to get there. This would address a major gap in the company’s corporate strategy.”

The resolution is co-filed by institutional investors including Robeco, JO Hambro, and Guys and St. Thomas’ Charity.

What should be on the shelves?
In terms of the specifics of what Tesco could be doing to tackle obesity, the shareholder resolution argues “there are many actions Tesco can put in place to increase the percentage of its sales derived from healthier products.”

Tesco has expressed plans to accelerate its own-brand products’ reformulation plans to reduce levels of salt, sugar and fat present in them.These include accelerating own-brand products’ reformulation plans to reduce levels of salt, sugar and fat present in them, says Vazquez.

“It can also shift the focus of its marketing tools, from placing products in prominent store locations and offering discounts or conducting multi-buys, to fresh fruit and vegetables and healthier packaged food and drink varieties.”

What would happen if Tesco complies?
Tesco would be required to align its long-term growth business strategy with health considerations and do more to make the healthy choice the easy one for its shoppers.

“By setting targets linked to sales of healthier products, it would also be possible to track and quantify progress being made in this area,” adds Vazquez.

“Given Tesco’s market leadership position, over a quarter of the grocery market, progress in this area would be expected to have profound impacts on public health.”

If passed, the resolution will require the company to disclose the share of total food and non-alcoholic drink annual sales by volume made up of healthier products (as defined by the UK Department of Health) and develop a strategy to significantly increase that share by 2030.

The retailer would also be obliged to publish a review of its progress each year in its annual report, from 2022 onwards.

COVID-19 puts obesity in the spotlight
The UK government estimates that at least half of all grocery sales come from high fat, sugar or salt products. This is a key factor in rising levels of obesity in the UK, which accounts for almost 10 percent of national health expenditure.

COVID-19 has thrust the issue further into the spotlight. The government’s National Food Strategy says: “In the age of COVID-19, a poor diet is almost as great a threat to life as cancer or old age.”

What happens next?
It is entirely down to Tesco to react to the proposals as it wishes. With sustainability and health trends at an all-time high, the retailer is familiar with the importance of pleasing consumers and shareholders, while maintaining its reputation as a retail leader.

“Shareholders that have co-filed this resolution are bringing to the attention of the company a gap in its corporate strategy that needs addressing,” remarks Vazquez.

“We are continuing to talk to Tesco about the resolution, and we hope their board will make a favorable voting recommendation to its shareholders. The vote is expected to take place in June when Tesco’s AGM traditionally takes place.”

By Gaynor Selby

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