We’re pleased to announce that the new 2015 Packaged Food 2015 Edition is now live and available to access on Passport. The updated research provides the latest data and insights on the food industry and identifies the key prospects through to 2019.
We have continued to strengthen and refine coverage of all 80 country markets tracked across 19 food categories and their respective constituent sections (298 category product levels in total). This latest edition adds tremendous extra value to our already comprehensive industry coverage.
Against the backdrop of rising commodity prices and greater political instability, 2014 has been a challenging year for the food industry and yet 2013 and 2014 have delivered some of the highest growth rates in retail value terms in the last decade. This marks a departure from the historically volume-driven nature of the industry and this is perhaps the most telling story from the new data: How the food industry is seeking to increase profitability through higher prices.
Global Packaged Food: The Shift in Focus from Volume-Driven Growth to a Value-led Proposition
It is all about premium?
With a number of commodities rising in price, the key question for many in the food industry is how to pass on these increased costs to the consumer and protect their own profit margins. Indeed for some there is no other alternative than to raise prices and this is something that the confectionery industry, in particular, is discovering. By the end of 2014, we are likely to see a 10% increase in the cost of cocoa and given its already high contribution to input costs it should come as no great surprise that Hershey, Mars and others have already announced that they intend to increase their own prices by as much as 8%. So far, premium confectionery companies such as Lindt have been relatively well-guarded against these issues as the higher prices of their products means wider margins. This allows more expensive brands a greater to ability to absorb moderate cost increases. The resulting impact from all of this? A push for premium.
Less is now more
Another key consideration for the industry is the idea that consumers in some markets are simply eating less, at least for some categories. Bread is perhaps the best example to use to highlight this concern. In most parts of the world, consumers are cutting back on their consumption of bread for a variety of reasons which we’ve previously discussed, and this is proving to be a real challenge for the industry. The answer? Charge more for less. Several bread brands have launched ‘thins’ which are lighter but sell for considerably more per kilogram than their regular counterparts. It is this strategy of offsetting volume declines by offering higher-priced variants which is keeping the bread industry alive and ultimately this approach will be needed in most packaged food categories to varying degrees.
Global Packaged Food: Volume to Value-Led Growth Transition by Category
The future of food is vertical
Last year saw some major M&A deals go through, most notably the sale of Heinz to private equity and the acquisition of Smithfield Foods by Chinese meat giant Shuanghui. 2014 has not disappointed on this front either. At the centre of much action seem to be companies seeking to dispose of peripheral food units. As one of the biggest food companies in the industry, Unilever has set the tone for 2014 by disposing of Royal Pasta, Slim-Fast, Bifi/Peperami, Ragu and Bertolli, raising a question mark over the company’s longer term ambition to remain in food.
There have also been a number of supply-side acquisitions. Some, such as Ferrero’s acquisition of Turkish hazelnut farm, Oltam Group, were geared at securing supplies of vital ingredients which are expected to rise substantially in 2014 and beyond. Others, predominantly from Chinese companies, were aimed at securing “safe” sources of agricultural inputs to feed the growing (and sceptical) Chinese appetite.
Global Packaged Food: Billionaire Brands from the Top Six Food Companies
Many of the acquisitions that took place this year were also geared towards arming food companies with greater natural and organic credentials. General Mills’s very recent acquisition of organic food firm, Annie’s, is an example of this trend but it is by no means an exception. 2014 also saw Hain Celestial acquire Rudi’s organic bakery and WhiteWave Foods get its teeth into Earthbound Organic.
The drive to absorb these smaller organic organisations is caused not so much because of the growth of the organic category, which is only really significant and growing in North America and some parts of Western Europe, but more because of the requirement for companies engaged in the food industry to align their CSR communications with their product portfolio. In 2014, pressure on the food industry from a variety of activist groups (and media) resulted in a lot of bad publicity and this has led to a greater possibility of regulation.
The headline “Sugar is the new tobacco” from the Daily Mail sent shivers down the spines of many in the food industry. To sum it all up, 2014 has seen legitimate operational concerns over agricultural supplies, emerging market slowdowns and Russian import bans. But what probably gives most CEOs in the food industry nightmares is the very real possibility of a lifetime of labelling and a future filled with fat taxes.