Packaged Food Giants Slump on Landmark San Francisco Lawsuit
Conagra, Hormel, and others decline as the city alleges deceptive practices over ultra-processed foods created a public health crisis, sparking new legal fears for the sector.
Shares of major U.S. packaged food companies fell on Tuesday after San Francisco filed a first-of-its-kind lawsuit against ten of the industry's biggest players, opening a new legal front that targets so-called ultra-processed foods.
The lawsuit, announced by City Attorney David Chiu, accuses companies including Conagra Brands, PepsiCo, and The Coca-Cola Company of engaging in deceptive marketing practices that have fueled a public health crisis. The action sent a ripple of concern through the consumer staples sector, which has long been defensive but now faces a potentially costly and protracted legal battle.
In response to the news, shares of Conagra Brands (CAG) dropped 2.8% to $17.17 in afternoon trading. Hormel Foods (HRL), another major producer of processed meat and shelf-stable meals, saw its stock decline by 1.8% to $22.88.
San Francisco's legal action alleges that these manufacturers have known for decades about the adverse health effects of their products, which are typically high in sugar, salt, and unhealthy fats, while containing little nutritional value. The lawsuit specifically claims that these companies violated California's Unfair Competition Law through deceptive advertising and branding.
"We are holding these companies accountable for the public nuisance they have created," Chiu stated in a press conference, framing the litigation as a necessary step to protect public health and recover healthcare costs borne by the city.
The move is being compared by some market analysts to the early stages of litigation against the tobacco and opioid industries, which ultimately resulted in billions of dollars in settlements. The central challenge for San Francisco will be to prove a direct causal link between the companies' products and specific public health outcomes—a high legal hurdle, but one that introduces significant uncertainty for investors.
The list of defendants reads like a who's who of the American pantry, also including Kraft Heinz, Mondelez International, General Mills, and Kellanova (formerly Kellogg). While the sell-off was concentrated in companies most associated with heavily processed canned and frozen goods, the broader packaged food sector felt the pressure.
This legal challenge compounds existing headwinds for the industry, which has been grappling with shifting consumer preferences toward healthier, less-processed options and navigating persistent inflation in input costs. The threat of wide-ranging litigation adds a substantial new layer of reputational and financial risk that could reshape the industry's future.
Investors will be closely monitoring the companies' official responses and the initial legal motions in the case. The outcome could set a precedent for other municipalities and states to follow, potentially leading to a wave of similar lawsuits. For now, the San Francisco case serves as a stark warning that the long-term health implications of the modern diet are becoming a focal point for regulatory and legal action.