You're Free to Not be Stupid

By Jon Quast - October 27, 2012 | Tickers: KO, MCD, MNST, SBUX, YUM | 0 Comments

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"We the people of the United States...secure the blessings of liberty..." - Preamble to the Constitution

"we shall pay any price...to assure the survival and the success of liberty." - John F Kennedy:  Inaugural Address

Without a doubt, Americans value freedom.  We value a society that allows us to pursue our beliefs, our wants, and our dreams.  However, we value freedom up to a certain point.  People are free so long as they stay within the framework of what is acceptable in society.  For example, we are not free to rob people.  We are not free to burn down forests.  Freedom has limits, and rightly so.  

Freedom is a good thing.  Laws are also a good thing.  Total freedom would cause society to fall apart.  Total law would be a prison.  Currently, our country is figuring out where to draw the line on a particular issue.  Where will they decide to draw the line, and what will be the investing ramifications?  

The issue I'm referring to is the shift we are seeing in our culture:  you are no longer free to be stupid.

The Obesity Battle

Just a couple of years ago, San Francisco made a McDonald's ) Happy Meal illegal.  The decision was made that a toy cannot be used as incentive for children to eat unhealthy food.  McDonald's can take out the toy, or they can change the nutritional value of the meal.  This is said to be done in an attempt to put an end to obesity in children.  I'm all for helping kids overcome obesity.  Without question, being a good weight will help children as they develop and grow.

It's one thing when we talk about kids.  Children have not yet reached an age in which they are aware of all the consequences that one decision can have.  That's why they need guidance from adults.  But what about when the person is a fully consenting adult?  New York City made the news recently when they banned sugary drinks over 16 oz in an attempt to curb adult obesity.  This has left companies like Starbucks ) and Coca-Cola (NYSE: KO) wondering what they should do now.  Starbucks isn't sure if their Frappuccinos are exempt from the ban, and Coke is considering legal action against the city.

Is eating unhealthy stupid?  Probably.  Do I have a right to be stupid?  The answer to that question is still playing out.  So far, we have only seen drink and food restrictions on a local level.  But should we expect restrictions on a national level?  

What Could be Coming

With the passing of ObamaCare, many things in our country are changing.  "Free" health-care comes with a price tag.  One of those price tags is that the government is going to be infinitely more concerned with your personal health and eating habits than ever before.  It makes sense.  A healthy person costs less in medical care than an unhealthy person.  Since the government is going to start paying the bills, it only makes sense that they are going to want to be more involved in our decision making.

One provision of the health care legislation requires restaurants to post a calorie count on their menus. McDonald's went ahead and got it done.  They now have calorie counts on their menus.  This provision of the law is no doubt an effort to change the way people eat.  Uncle Sam hopes if you know how many calories are in the Big Mac, then you'll change your mind and not eat it.  But Jan Fields of McDonald's said of the new menu "...posting calorie counts did not seem to make a marked difference in customer behavior..."

If what Ms. Fields says is correct, then the health-care provision is not having the desired affect of steering people away from unhealthy food.  Will the government eventually just have to mandate what they hoped we would choose for ourselves?

But if they start mandating things, then what else could they mandate?  Monster Beverage ) plummeted on news recently that they were being sued in the deaths of several people due to their energy drinks.  In the several cases in which their drinks were cited as being harmful, the drinks were used in excess.  The drinks come with a warning.  But that may not be enough.  It is completely within the realm of possibility to see a legal limit on caffeine, or to see the banning of energy drinks altogether.

Where do We Go?

Whether you are Republican or Democrat, Redneck or Yankee, for ObamaCare or against it...these are changes that are happening now.  We can talk about whether or not we like the changes, but that wouldn't really be helpful.  What is more helpful is to acknowledge that these things are happening and decide what to do next.  Should we just give up on all the companies in the restaurant sector?

I believe that would be an over-reaction.  Let's hit the rewind button for a second.  A few years back Trans Fat was the edible incarnation of Satan himself.  I couldn't even walk my dog without the media trying to bombard me with more bad news about the substance.  New York City began to consider a ban.  It didn't look good for restaurant profitability.  Many were surprised as Yum! Brands (NYSE: YUM) Kentucky Fried Chicken voluntarily cut out trans fat before it became an issue.   

With a new law on the horizon, Yum! decided to adapt to the changing times.  They adapted and have been functioning just fine as a business ever since, trans fat free.  What this signals to me is that new government restrictions doesn't have to hurt a business' objective and profitability.  McDonald's is playing by the rules with the happy meal restrictions for example.  If restrictions on a national scale were eventually placed on its entire menu, I believe they have what it takes to adapt.  

Don't forget, Coca-Cola used to be made with coca leaves.  (You know, cocaine...)  Well, needless to say that the top secret formula, though none of us know what it is, does not contain this leaf anymore.  It was finally outlawed quite some time ago.  But Coke didn't just pack its bags and go home.  No, in the wake of changing legislature they made the necessary changes and are still in business today.

Although I think many companies will be just fine with possible government restrictions, not all companies are so well positioned.  Just like environmental change leads to animal extinction, so business environment changes will leave some businesses belly-up.  Monster in particular has a cloudy future.  The FDA has not indicated any wrong doing by Monster, and it's possible they won't.  But if energy drinks were eventually restricted, or just outlawed, that would virtually be it for Monster.  Monster derives around 90% of their income from the sale of their energy drinks.

My Conclusion

I always prefer it when businesses are allowed to run free and conduct business how they see fit.  But that doesn't always happen.  Some business are very well suited to adapting to any business environment,  and will continue to find ways to make money.  Others may go the way of the dinosaur.

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