Food Financials

A few years ago, I was asked if I would consider speaking at Nestle. The event would take place in Solon, Ohio, at their frozen foods’ headquarters. Sales were in a nosedive. I would be speaking alongside someone from McDonald’s.More

In a smart move, Breyer’s Ice Cream nixes dairy treated with artificial growth hormones. A food awakening is happening, and consumers are demanding food that is ‘free from’ artificial additives.  

The health of our families is changing, and we are waking up to the fact, whether due to a food allergy diagnosis, a diabetes diagnosis a cancer diagnosis or something else, that our food now contains a lot of artificial ingredients that aren’t used in other countries.  

The journal Pediatrics reports that 15% of American girls are expected to begin puberty by the age of 7 (with the number closer to 25% for African American girls). As Breyer’s dumps this artificial growth hormones, perhaps it’s time for a little history lesson about the introduction of this artificial growth hormones into the American milk supply in 1994.

For the past almost 20 years, much of our nation’s milk has come from cows injected with a genetically engineered growth hormone. If you didn’t know that, you’re not alone. Since it was never labeled, most of us had no idea that this hormone was introduced into our dairy in 1994. The hormone has two interchangeable names: recombinant bovine somatropine (rBST) and recombinant bovine growth hormone (rBGH).

RBGH has dominated the milk market almost since the FDA approved it in 1993. It was the first genetically engineered product ever brought to market. And the Associated Press (AP), theNew York Times and the rest of the media have called it “controversial” (the AP headline actually referred to it as “a bumper crop of controversy”).

So what is rBGH anyway? Although the product is made in a lab, it’s designed to mimic a hormone that’s naturally produced in a cow’s pituitary glands. It’s injected into cows every two weeks to boost their hormonal activity, causing them to produce an additional 10 to 15 percent more milk, or about one extra gallon each day. And within the first four years of its introduction in 1994, about one-third of the nation’s cows were in herds being treated with this growth hormone.

If all you knew about rBGH and this hormone was that it increased milk production, you might think it was a good thing. Why shouldn’t we use every means at our disposal to boost the supply of such a nutritious food?

Well, besides increasing milk production, rBGH apparently does a few other things, too.

First of all, the product seems to be hazardous to the cows. The package itself warns of such bovine problems as “increases in cystic ovaries and disorders of the uterus,” “decreases in gestation length and birthweight of calves,” and “increased risk of clinical mastitis.” Mastitis is a painful type of udder infection that causes cows to pump out bacteria and pus along with milk, requiring treatment with antibiotics and other meds that can end up in the milk.

When I first read this, I had to stop and walk away from the computer for a few minutes. How many bottles and sippy cups had I filled with this milk? Why hadn’t I known about rBGH when I was pouring countless bowls of cereal for my children? I shuddered at the thought that along with the milk, I had also been giving them doses of growth hormone and antibiotics, not to mention potentially exposing them to cow bacteria and udder pus. How had I not known about this Dirty Dairy?

Want some antiobiotics with that growth hormone?

On top of that, and is often cited in the press (most recently by Laurie David), 80% of antibiotics are now used on our livestock here in the U.S. And overexposure to antibiotics tends to kill off the friendly bacteria in our intestines—bacteria that we need for our digestion and immune system. Many doctors believe that too many antibiotics at too early an age is part of the reason that kids are more likely to be allergic: their immune systems aren’t being given the “microbial environment” that they require. Wonder how many “extra” antibiotics our kids are getting in their milk, cheese, and yogurt? Maybe it’s not just about those hand sanitizers.

And then on top of that, allergies are the body’s response to proteins that it considers “toxic invaders,” and that genetically engineered proteins may spark new allergies. According to CNN and a recent study published in the Journal of Allergy and Immunology, milk allergy is now the most common food allergy in the U.S., having risen to the number-one position in the last 10 years. It’s even starting to affect the sale of milk in schools. Might rBGH be a factor in that increase? We wouldn’t have a clue. No human studies were conducted.

But let’s get back to the cows, because rBGH can hurt them in several more ways. The label also warns of possible increase in digestive disorders, including diarrhea; increased numbers of lacerations on the cows’ hocks (shins); and a higher rate of subclinical mastitis.

Bad enough when dairy cows get visibly sick, because then they’re treated with antibiotics that end up in our milk. But what about the cows who are getting sick at a subclinical level—a level so subtle that farmers don’t notice it? Think of the bacteria and pus pouring out of those inflamed udders—infections that aren’t even being treated! How does drinking that milk affect us, our kids, and our babies in the womb?

Those are just the problems acknowledged on the rBGH product label. Another concern is that the extra hormones drain the cows’ bones of calcium, so that they tend to become lame. The Canadian federal health agency actually found that “the risk of clinical lameness was increased approximately 50 percent” in cows that were given rBGH. Partly as a result, Canada has banned the product, concluding that it “presents a sufficient and unacceptable threat to the safety of dairy cows.”

rBGH is banned in other developed countries but not in the U.S.

Canada isn’t the only country to bar rBGH. The genetically altered hormone has also been banned in the European Union, Japan, Australia, and New Zealand. In addition, the U.N. agency that sets food safety standards, Codex Alimentarius, has refused to approve rGBH not just once but twice.

Farmers themselves have noticed problems with the product. In addition to the expense of the drug itself, rBGH results in higher feed bills, higher vet bills due to increased antibiotic use, and more cows removed from the herd due to illness or low productivity. One study found that 25 to 40 percent of dairy farmers who tried rBGH soon gave it up because it wasn’t profitable enough to justify the damage to their cows. Other farmers have said that they see how hard the product is on cows, and they don’t want to subject their animals to such treatment.

Okay, so that’s why rBGH hurts cows. But I’m way more concerned about us and our kids. How does having a genetically altered hormone in our milk supply affect us?

Health concerns include possible link to cancer

As early as 1998, an article in the Lancet, the prestigious British medical journal, reported that women with even relatively small increases of a hormone known as Insulin-like Growth Factor 1 (IGF-1) were up to seven times more likely to develop premenopausal breast cancer.

And guess what? According to a January 1996 report in the International Journal of Health Services, rBGH milk has up to 10 times the IGF-1 levels of natural milk. More recent studies have put the figure even higher, at something like 20-fold.

Now stop and think about that for a minute, while correlation is not causation, breast cancer used to be something that women got later in life. Premenopausal breast cancer was so rare that when young women presented their physicians with breast cancer symptoms, the doctors often failed to diagnose it, simply because it was so unlikely that an “older women’s disease” would be found among young women.

But according to the Young Survival Coalition, one in 229 women between the ages of 30 and 39 will be diagnosed with breast cancer in the next ten years. Why are all these young women now getting breast cancer? And what about the effects of IGF-1-laden milk on older women, who are already at greater risk for breast cancer?

In case you think that the rising cancer rates have something to do with genetics, stop and think again. According to the Breast Cancer Fund, 1 in 8 women now have breast cancer. But only 10 percent of those cases can be linked to genetics. In other words, 90 percent of breast cancers being diagnosed today are being triggered by factors in our environment.

How did this happen?

Now if you’re like me, your next question probably is, So, if we know all of this, how did this hormone find its way into our dairy products? How did our government agencies, responsible for ensuring the safety of our food, allow the use of this growth hormone and the sale of IGF-1-laden milk? Why was rBGH not used in Europe, Japan, Canada, Australia, and New Zealand, but used so freely right here in our own United States?

Well, the year before the FDA approved the first genetically engineered protein, it said, “Ultimately, it is the food producer who is responsible for assuring safety.” But at the same time, the corporate communication’s director of Monsanto, company introducing rBGH, said, ” We should not have to vouchsafe the safety of biotech food. Our interest is in selling as much of it as possible. Assuring its safety is the F.D.A.’s job.”

You read that right. It’s kind of a “Who’s on first?” routine. Didn’t we learn anything from the tobacco industry?

So with the jury still out on this one, no long-term human trials ever conducted, a self-regulated industry whose “interest is in selling as much of it as possible,” the increasing rates of antibiotics used on our livestock (not to mention the increasing rates of early puberty and cancer), and the stunning fact that this synthetic growth hormone was never approved for use in Canada, the UK, Australia, New Zealand, Japan and all 27 countries in Europe, maybe it’s time we start to exercise a little bit of precaution here in the U.S., too.

How to Opt-Out of rBGH

Thankfully, we can opt out of this experiment and look for milk labeled “organic” or “rBGH-free”— since by law, these types of milk are not allowed to contain rBGH, a genetically engineered product that was never allowed into the milk, cheese, ice creams and other dairy products in other developed countries. And you can find this milk in Wal-Mart, Costco & Sam’s.

And while correlation is not causation, with the American Cancer Society telling us that 1 in 2 American men and 1 in 3 American women are expected to get cancer in their lifetimes and the Centers for Disease Control reporting that cancer is the leading cause of death by disease in children under the age of 15, a precautionary move like this one just might be what the doctors ordered (at least that’s what they did in all 27 countries in Europe, Australia, Canada, New Zealand, the UK and Japan).

The food awakening is on, and it’s shining a harsh light on the Golden Arches which just reported its first decline in same-store sales in the US for almost a decade, continuing four consecutive quarters of poor financial performance. 

The number of 19-21 year olds who ate at McDonald’s in December fell 12.9 percentage points compared to 2011. 

Over the past year, senior  executives have blamed supply chain issues in China, restaurant closings in Russia and even bad weather. But deeper trends should create concern for financial analysts, investors, and McDonald’s Chief Financial Officer (CFO) Peter Bensen. 

Simply put, McDonald’s and its business model are out of touch. It has seen significant drops in patronage by core segments of its customer base in just three years. Worse, it’s losing ground to competitors – like Chipotle – that it once owned. Wednesday night, McDonald’s CEO, Don Thompson, announced that he stepping down. 

McDonald’s competitors are meeting the needs of the 21st century customer and have adjusted to health-conscious diners, but McDonald’s has not. And McDonald’s primary crisis-management strategy— kid-targeted marketing, staff shakeups , new menu items and more marketing — is not cutting it this time. What worked in the past isn’t working for 21^st century families. 

I should know. Fifteen years ago, I monitored McDonald’s as a financial analyst and observed the upward growth trajectory. Sure there have been health concerns, stoked by documentaries like “Super Size Me” – but McDonald’s saw consecutive growth in global comparable sales.

The tides have turned.  The Wall Street Journal reported that net income fell last year by almost 15%. For more than a year now, McDonald’s U.S. sales have struggled.  In October, the corporation reported a staggering 30% drop in third quarter profits. 

So, what changed?

There has been a food awakening. People are realizing our food system is broken, and this breakdown is contributing to disease. Younger consumers are willing to pay more for better food, and they are connecting the dots between an epidemic of childhood obesity and diabetes and obscene amounts of money junk food brands like McDonald’s and Coca Cola spend marketing to children. It’s not just a mom who carries the “veto vote” anymore, it is also the family member or friend with food allergies or diabetes.  

People are taking action, globally and locally. Recently, Berkeley, CA overwhelmingly approved a 1 penny/oz. soda tax.  A David and Goliath story, the grassroots initiative prevailed despite more than $2 million in outside spending by the beverage industry. Millenials are paying more for better food. 

And people are directly challenging junk food corporations. Parents and health professionals have called on McDonald’s to stop marketing junk food to children.  Intrepid youth advocates like 11 year-old Hannah Robertson have brought this call to McDonald’s shareholders’ meeting, and just a few weeks ago 70 parents and children rallied in Chicago with one demand for McDonald’s top executives: Retire Ronald McDonald.

This food awakening has changed the competitive landscape, and 20^th century brands like McDonald’s are becoming obsolete as they ignore the shifting demands of 21^st century families.

Moreover, as this movement gains speed and visibility, McDonald’s is losing its core customer base, and seeing significant turnover at the very top. In fact, it’s seen at least eight senior executive level changes in the last two years. These transitions undoubtedly undermine franchisee confidence in the corporation even further, as relationships are already at an all-time low and have yet to find the person with the magic cure for its woes.

But there is no magic cure. There’s only the reality that as long as the corporation remains out of touch with shifting consumer demand, it will continue to miss the mark and miss earnings.

My experiences as an analyst and as a mother point to the same conclusion — it is the very consequences of McDonald’s outdated business model that have negatively affected the health of American families and are driving a shift in consumer demand. Failing to recognize this shift is not only costing McDonald’s its customers, it’s costing their shareholders, too, while its competitors like Chipotle thrive.

And, according to recent comments from McDonald’s new U.S. President Mike Andres, it is clear the company has resolved to double-down on the same tactics that people are pushing back on. During a call with investors, Andres said, “[Owner Operators] have got to be in the schools… this is an essential part of being a McDonald’s owner operator. This is our heritage.”

This may have been their heritage in the 20^th century, but it will make them a relic if they fail to change.

For McDonald’s to continue responding to growing public concern with public relations efforts, especially those targeting kids, is out of touch, and it creates significant financial risk for the corporation. Worse, it can open McDonald’s up to a possible shareholder lawsuit down the road for refusing to protect shareholders from a fundamental shift in consumer demand. Food allergies, autism and cancer are not a trends.  The President’s Cancer Panel reports that 41% of us are expected to get it in our lifetimes. 

The Golden Arches has long tried to associate itself with happiness and fun. But today, McDonald’s has increasingly come to symbolize unhealthy food and, ultimately, sickness. The longer top executives wait to recognize this and move to meet the evolving needs of 21^stcentury families, the worse it will get. The time to act is now.  The landscape in front of the company is wide open.

The announcement that General Mills would acquire Annie’s Homegrown sent the food world spinning.

There was an allergic reaction, and within hours of sharing the news, Annie’s Facebook page had over 9,000 comments.

To consumers, it was an emotional grenade.

As I dug into the announcement, the first email that I sent was to Annie herself, the mother who started the company 25 years ago. She quickly replied.

When Annie started the company, genetically engineered ingredients were not even in our food supply. She simply formulated a mac and cheese product for her kids that wasn’t loaded with junk.

Could she have anticipated this? Not at all.

John Foraker, Annie’s CEO, the dad of four responsible for overseeing the growth of the company and for taking it public in 2012 with one of my all time favorite ticker symbols, BNNY, also responded:

And in one swift motion, the landscape of food had changed.

No one could have anticipated food ingredients designed by chemical companies that have been genetically engineered to produce their own insecticides. Nor could the industry have anticipated this food awakening, driven by the escalating rates of diseases and conditions like cancer, autism and food allergies and other conditions impacting the health of the people that we love.

Food allergies in our children are forcing us to read labels, as quickly as cancer diagnoses are forcing the same. No one would choose to be standing in the aisles of the grocery store, holding the hand of a child with food allergies or autism or managing a parent’s cancer diagnosis, yet that is where so many of us find ourselves today. We are being forced to read labels to protect the health of our loved ones, whether we want to read them or not. And sales of organic foods are soaring, as consumers try to eat a little bit better, a little bit cleaner and opt out of artificial ingredients. The U.S. branded organic and natural foods industry’s sales have been growing at a 12 percent compound rate over the last 10 years.

And while big food companies like General Mills might have fought this for some time, they also aren’t stupid, and their job is to drive shareholder return. Sales of processed foods and conventional products that are pumped full of artificial growth hormones, artificial dyes and other artificial ingredients like GMOs are lackluster at best. The industry watches companies like Kellogg entrench and refuse to address this change in demand. What happens? Sales slump, and Kellogg is laying off 7% of their workforce.

It’s a slow death by artificial ingredients.

One look at the share price of Kroger or Chipotle tells the story of what happens to a company that expands into this ‘free from’ category: shareholders are rewarded.

Chipotle Stock

Kroger Stock

Why wouldn’t a company want to enter this space in a meaningful way?

Change is hypocritical.

General Mills has been part of the anti-labeling brigade. Led by the Grocery Manufacturers Association, they have been a core member of the team of companies that have spent millions to keep consumers in the dark. When I spoke with their company recently, they were fascinated by what I had to say, then stopped and said, “But there is something on your bio that is a problem.” “What is it?” I asked. “It’s your affiliation with “Just Label It” campaign.

That is their problem, as taking the position that a consumer does not have the right to know how her food is made, despite the fact that we are told if milk is pasteurized or if orange juice comes from concentrate, is undemocratic. It’s a freedom enjoyed by 60% of the world’s population.

Annie’s has been an outspoken advocate for GMO labeling.

Consumers got on it, and General Mills was quick to reply with their position. They told consumers that we already have a way of knowing if GMOs are not in our products, and it’s called “USDA Organic.” That’s fine for consumers who can afford it, but what about everyone? For those that want to know if GMOs are used, there is no mandatory labeling system in place. Why label one and not the other? The very costs that they are arguing against, they are happily paying when they label their organic products.

So the outrage over this new marriage stems from the the fact that General Mills has fought to keep consumers from knowing what is in their products, while Annie’s has led with transparency.

The reaction that consumers are having to the announcement is the fear that General Mills wrangles Annie’s into submission. And while General Mills can operate Annie’s with an expansive economy of scale and get their price to manufacture down, it’s not all altruistic. General Mills also knows that people are willing to pay more for Annie’s products. It’s a way to diversify their portfolio, get better, higher margin products to market and increase Annie’s availability in the marketplace. It’s good for business. They also see the writing on the wall, and it doesn’t contain the letters “G-M-O.”

The fear is that Annie’s will fold, but this is where leadership and personal stories step in. Annie’s CEO, a dad of four who comes from a farming family, holds a degree is in agricultural economics and has a background in banking, will be a pivotal leader in the organization. He knows the supply chain and knows the demands of the financial world. He also knows what it is like to see someone that you love face serious health challenges. He knows that families around the country are experiencing these challenges every day.

And like the CEO of Stonyfield did when he expanded the brand and the reach of the yogurt company through its Danone partnership, Annie’s CEO found a partner to expand and capture economies of scale that the company couldn’t on its own. Stonyfield’s founder never backed down.

General Mills buying into the organic movement through the purchase of Annie’s provides distribution and access to capital.

Is consolidation the best answer? “These big food companies aren’t going to let anything else happen,” said one of the portfolio managers that I used to work with when I spoke with him today.

And right now, our food system is currently structured in a way that the costs of production for organic ingredients are disproportionately higher. It is structured this way at the federal level. It is not a level playing field for the organic industry. And when a company goes public, the way that Annie’s did in 2012, it is opening itself for an acquisition.

Does it mean that it will always be this way? That policy will always be this way? Not at all. Policy follows the money, and right now, the organic industry is growing while conventional is stagnant. The landscape of the food industry is changing at every level. Amazon is entering the retail space, online distribution companies are entering, too. Farmers market and community supported agriculture are taking off. Why? Because the grocery retail structure makes it hard for smaller brands to compete. They either have to sell out or buy in. It requires capital.

To hit the scale and scope of distribution that makes a product accessible and affordable to all Americans, companies have repeatedly sold themselves to a larger company: Stonyfield to Danone, White Wave to Dean Foods, Happy Family again to Danone. The list goes on.

Have these brands sold out? Or have the bigger brands bought into the organic movement? Stonyfield didn’t sell out. Happy Family didn’t either. Both companies were founded by people who have personally known how autism or cancer can impact a family.

Do I wish there were other ways for these companies to scale? And that the food industry had a level playing field for organic companies? Absolutely. There is nothing that I would rather have seen then Annie’s, White Wave, Hain Celestial and other organic brands become the iconic brands of the 21st century. Our generation’s iterations of Kraft, General Mills and Pepsi.

Perhaps this is the first iteration towards that. But right now the cost structure is prohibitive. We haven’t financed a healthy food system at the federal level. If farmers want to grow organic crops, they lose the crop insurance protection programs, they lose subsidies and they lose marketing support. Is that financially viable?

The food movement is not going away. Demand for food that is ‘free from’ artificial ingredients like food dyes, GMOs, high fructose corn syrup and other ingredients is not a fad, because cancer, autism and food allergies are not fads. We are seeing a fundamental shift in the way that Americans buy food, because we are sick.

General Mills obviously recognizes that. They are hedging with this acquisition, balancing their portfolio. The key is to not compromise the integrity of the Annie’s brand in the process. Creative destruction is an economic term trumpeted by a man named Joseph Schumpeter. And change, in these early stages, often looks like hypocrisy. It often looks destructive. The question becomes: what is the long term objective here? Is it really to destroy a brand? No, it’s to capture its market share, its margins and expand into the category.

So how could this play out?

A look back at other historic acquisitions in the food industry gives us a feel for how this could play out, because if the share prices of White Wave and other organic companies are any indication today, this consolidation stage will continue.

In 1985, Philip Morris Cos. became a holding company and the parent of Philip Morris Inc. and bought General Foods. The acquisition of Kraft Foods came in 1988. In 2001, Kraft Foods spun out of Phillip Morris and launched an IPO for 11.1% of the company that raked in $8.7 billion, making it the 2nd largest IPO in American history at the time

If General Mills decides to grow the Annie’s brand and then spin it out again in a few years time, like Philip Morris did with Kraft or like Dean Foods did with White Wave, they would drive enormous shareholder value if they stay true to the brand.

If they don’t, there are plenty of examples of fallout in the food industry. From Kellogg’s, to the companies that made pink slime to those that put yoga mat material in their buns. Shareholders suffer if companies don’t response to the 21^st century online consumer.

We live in a day and time where online bullying can take many forms. At the end of the day, no one misses a beat, and companies that think they can pull a fast one on the consumer are quickly proven wrong.

Refinance Food

We have financed a food system that gives food companies the incentive to use the cheaper ingredients. The cost of producing organic ingredients is disproportionately higher than producing conventional, genetically engineered crops. On top of that, farmers that choose to grow organic crops don’t get the crop insurance programs and marketing support programs. In other words, their entire cost of production is higher. That hammers all of us. It hammers food companies trying to do the right thing.

And as much as any of us want to romanticize food, right now, this is our current capitalist structure, and until we refinance the food system, this won’t be the first of these acquisitions.

What if the cost of production were the same? What if farmers, regardless of what they choose to plant on their farms, could receive crop insurance programs and marketing support? What if food companies, regardless of what they choose to use in their products, had to label their ingredients as genetically engineered or not.

Right now, there is economic discrimination. Costs are disproportionately higher for those who want organic food, from the farmers growing it to the food companies using it to the families eating it.

Does anyone want it this way? Does General Mills? Do our farmers? Do our families?

But we weren’t given a choice.

Right now, our taxpayer resources are used to support the food system dependent on GMOs and chemicals. What if at the voting booth, we got to check a box?

Do you want your taxpayer resources to support the food system? And if yes, which would you rather see support given to farmers growing organic ingredients? To food companies using them?

How do we want our tax dollars to work in the food system?

What would General Mills choose if price weren’t an issue? If there were an economic equilibrium, which ingredients would General Mills choose? Genetically engineered or organic? And why haven’t we structured our food system with this kind of pricing parity?

Right now, no one has been given the choice because of the financial structure executed at the federal level through the crop subsidy programs, the crop insurance programs and the marketing support programs. They only go one way.

Is this acquisition a symptom of that unhealthy financial structure?

Under terms of the agreement, General Mills will acquire Annie’s for $46.00 per share in cash. The proposed transaction has an aggregate value of approximately $820 million.

It’s not a hostile takeover. Annie’s entered into it as a way to grow to reach more consumers, just like Stonyfield did with Danone or White Wave did with Dean Foods.

The question is whose compass is stronger? What will consumers do to send the message to General Mills that being part of the anti-labeling campaign is detrimental to shareholders?

Annie’s has the wind at its back. General Mills know that. Consumers want “free from” food. Food that is “free from” artificial ingredients, artificial dyes, growth hormones and genetically engineered ingredients. One look at the share price of Chipotle tells that story.

As more and more companies enter the organic space, either through new products or through acquisitions, it again begs the question: is the Grocery Manufacturers Association a relic of the 20th century? If this organization is not working to meet the needs of its member companies, should it still exist in its current form? Or should a new organization, let’s call it the Food Production Association, be formed to meet the evolving needs of these brands in the 21st century?

Change at its very core begins with hypocrisy.

If General Mills chooses to make a strategic shift and follow Annie’s into an industry with a 12% compound annual growth rate, delivering a portfolio increasing full of “free from” foods, shareholders will be rewarded. The rates of cancer, autism, food allergies and other conditions aren’t declining. This food awakening isn’t a fad.

Annie’s has the potential to be a powerful compass for General Mills. If the companies are serious about their commitment to the 21^st century consumer and their shareholders, they should step away from the Grocery Manufacturers Association’s anti-labeling campaign and join the consumer where she stands: in the grocery store aisles, reading food labels while holding the hand of a loved one with allergies, autism, EoE, cancer, diabetes or any one of the conditions impacting our families today and deliver exactly what she wants: food that is “free from” artificial ingredients and information about how she can protect the health of her family.

General Mills is already labeling genetically engineered ingredients in the products that they sell overseas, or they’re not using them altogether.

It’s up to them if they continue to operate with a 20th century mentality or if they will move into the 21st century with the consumer and Annie’s as a compass.

Kellogg has a story to tell. Chipotle does, too.

It’s up to General Mills which one will be theirs. And if their shareholders are paying attention, the writing is on the wall, and it doesn’t contain the letters “G-M-O.”

Wall Street sent Chipotle’s stock soaring when they announced that they were dumping genetically engineered ingredients from their food in 2014. The stock was up almost 72% year to date on the announcement in October, and the following Friday, the stock soared 15% to an all time high.

It’s not the first time this has happened. Wall Street fell in love with Annie’s IPO last year over a bowl of mac and cheese that wasn’t loaded with junk.

Contrast that with junk food companies that were just sued by a state attorney general for an attempt to keep consumers in the dark over how these same ingredients are quietly being inserted into food.

Food companies are now faced with an interesting choice: invest in a food supply free from genetically engineered ingredients or pour money into efforts in an attempt to keep consumers from knowing about them.

Chipotle announced in October that their revenue for the quarter was $827 million — up 18% the same quarter last year, beating analysts’ estimates of $820 million.

Comps (an industry term learned and tracked by analysts that measures same store comparable sales year over year, month over month, etc.) increased 6.2%. Compare that to other restaurants in the industry: Qdoba’s 0.5% and Taco Bell’s 2%, and you get a feel for the growing strength of Chipotle’s hold on consumers’ hearts, minds and stomachs.

So what is Chipotle doing right?

Rather than try to tell the consumer what to think or to keep them in the dark, they are listening.

And rather than stifle the growing desire of the American public to know more about the food that we are eating, Chipotle decided to meet us where we are and tell us.

And both customers and investors celebrated. Sales are up, with no price increase, and the stock soared 15% on Friday.

Is it a fluke? Not likely.

The first signs of Wall Street’s love of clean food came last year when Annie’s, the company that makes cleaner versions of mac and cheese and cheddar bunny snacks, went public. In response to that IPO, Annie’s had the biggest opening day gain in almost a year in March of 2012.

Of all the technologies that Wall Street saw in almost a year, investors got the most excited about a bowl of mac and cheese that didn’t contain the junk.

It wasn’t always this way. Back in the late 1990s, when I worked as an equity analyst, we celebrated how artificial ingredients drove down the cost of production and drove up profitability. Companies were quick to swap out the real stuff with these new ingredients that had been created in labs, and investors celebrated the change.

Until a growing body of scientific evidence started to highlight something else: that maybe we do not know what the long term effects of all of these things in combination might be.

Reports from the President’s Cancer Panel now tell us to start eating cleaner, since 41% of us were now expected to get cancer in our lifetime, and we know this data to be true because we see it happening in the lives of our friends, our families and our loved ones.

A food awakening has begun, or maybe it was forced upon us, as our kids get diagnosed with conditions that were barely heard of when we were kids, and we find ourselves suddenly trying to read labels. Ingredients we’ve never heard of and can’t pronounce or recognize.

Wall Street sees this, too. Disease doesn’t care where you work, you could be a teacher or an analyst.

Chipotle made a bet, to meet consumers where they are, and decided to dump meat loaded with antibiotics and growth hormones and genetically engineered ingredients hardwired for chemicals. Why dump what the industry has labeled “GMOs”? Because a growing number of consumers, legislators and food companies are opting out. Target and Safeway are rolling out new product lines, legislation is being introduced around the country, and people are waking up to the fact that these ingredients are so new that they are now patented by the U.S. Patent and Trademark Office and in some cases regulated by the EPA as a pesticide.

With their announcement to remove these new genetically engineered ingredients from their food, Chipotle’s stock hit a high and soared 15%.

They’ve got their finger on the pulse beating around the country, in Americans and especially in our kids who are the first generation expected to have a shorter lifespan than their parents.

And the market didn’t hammer them over a fear of supply chain issues or a bottleneck, investors simply gave them a thumbs up for the decision.

So what will happen to them next quarter? Next year? Will this ingredient swap drive up the cost of production?

Farmers, like consumers, are opting out of genetically engineered ingredients, too. A recent earnings report showed a 38% decline in the sale of genetically modified soybeans. Why? That method, genetically engineering a soybean to withstand increasing doses of weed killer, has been a fifteen year experiment on farms that is resulting in record uses of chemical applications. Perhaps farmers aren’t willing to go into any more debt to purchase yet more chemicals, or perhaps they are concerned over their legacy, farms that in many cases have been running for four and five generations, and what these chemicals are doing to the health of their soil. Whatever the reason, they are beginning to opt out, too.

As supply adjusts to meet demand, a new equilibrium will be set and a new price point. As more companies like Chipotle look to non genetically engineered ingredients, supply will increase to meet this growing demand and drive down costs making these products and others not loaded with artificial growth hormones, antibiotics and genetically engineered ingredients more affordable to all Americans.

It has to start somewhere. And it can’t happen fast enough.

Right now the food system that we have uses our national resources, what we contribute as taxpayers, to support genetically engineered ingredients and all of the chemicals required to grow them. While on the other hand, the farmers that opt out of this chemically intensive system and grow crops without the use of these genetically engineered ingredients (and chemicals required for them) are charged fees to prove that their crops are safe and then charged fees to label them. That’s like giving the guy who doesn’t wear a seatbelt a hall pass while fining the guy that does.

On top of that, the farmers that opt out of this genetically engineered system don’t get the same marketing support and crop insurance programs. In other words, their entire cost of production is higher, from marketing to insurance, for the farmers currently employing what we now call “organic” methods on their farms. It used to be the only way to farm.

But as a growing number of consumers and companies like Chipotle continue to make the switch, supply and demand for non genetically engineered ingredients grows, and so will demand for a policy change, so that these ingredients can be more affordable for all Americans.

The market opportunity in front of the food industry is enormous: farmers are opting out, and consumers are, too. The market sees it as evidenced by investors responses to companies like Annie’s and Chipotle.

So while the chemical and processed food industries continue to pour millions of dollars into efforts to keep consumers in the dark about the genetically engineered ingredients in our foods, their shareholders might want to pay attention as Wall Street pours millions into companies who are opting out of them. Chipotle’s stock is up almost 72% this year.

Just food for thought.