Market Inefficiencies are Making You Fat (But Maybe Also Wealthy)
If you wish to prove that the world is more prosperous today than ever before, you merely need to look at the statistics of global obesity. With close to 400 million people world wide affected by Type-2 Diabetes and costs to global health care nearing $470B (USD) obesity is the unfortunate side effect of rising standards of living.
Canadians and Americans spend around $130B (USD) on fast food annually. That’s a lot of money, and you can imagine that much of it happens at lunch. Across many major cities, workers flee their office towers and head towards food courts to satisfy their hunger. Something else that both Canadians and Americans spend a lot of money on is weight loss, to the tune of $44B a year. So to recap, Canadians are spending lots of money on fast food, and lots of money on trying to lose weight.
Obesity is easily one of the major social issues that occupies our conscious. Perhaps because so many of us are now overweight, because the costs are so high, because the science is so confusing, or because we have such a warped image of beauty,
Canadians are eating too much and regretting it later to the tune of billions. Whatever the reasons it is now common to say that obesity is at epidemic levels.
One of the more popular reasons cited for this epidemic is that not only are our eating habits so poor, but that we aren’t really clear about what is in our food. Most recently this has been the focus of the Katie Couric documentary FED UP, which took aim at the sugar industry and how much sugar has been added to our foods without our knowledge. And there is some strong evidence that sugar may be one of the chief culprits behind obesity, type-2 diabetes, and a host of other illnesses now largely associated with prosperous societies.
We might expect that our “efficient markets ” would respond to the incredible demand for healthy foods by providing more nutritious fast foods, like Freshii. Freshii is a highly successful fast food chain that specializes in salads, wraps and other healthy food options. At lunch time in most food courts the lineup for Freshii is easily one of the longest, and yet the number of fast food places that imitate their business model, or compete directly is shockingly low. The theory that markets naturally respond to the needs and wants of the consumer seems to fall flat here.
One explanation is that the markets are responding to the desires of the consumer, and consumers don’t really want healthy food, but prefer hamburgers and french fries. Another theory is that if there aren’t any healthy food options around, people will choose only what they have available to them (hamburgers and french fries). I choose to assume another explanation. That is that businesses are incredibly conservative and typically don’t like to disrupt a known and profitable business model in favour of one that is largely untested. Entrepreneurs tend towards being “disagreeable” (to borrow a term from Malcolm Gladwell) and don’t mind risking failure to try something new.
This lag between successful companies and upstart firms like Freshii has been demonstrated by other companies (and most recently challenged in the New York Times) like Apple, and even Ford Motors. Henry Ford famously said that if he had asked what his customers wanted, “they would have asked for a faster horse.” Markets may ultimately be responsive to consumer needs, but not efficiently so. And within market inefficiencies we often find opportunities that are being ignored. While that can be good for the watchful investor, it seems to be bad for our waistlines.