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Euromonitor International’s latest statistics show that the top 15 global players’ estimated average year-on-year retail value sales growth in 2013 of 6.4% is set to significantly outperform the global market (2.6%), largely due to their growing exposure to emerging markets and the shifting of portfolios in line with the currently reigning healthy snacking trend. However, the operating environment in the global packaged food market remains challenging. It is being negatively impacted by a number of factors, such as still weak economic growth in developed markets, a slowdown in growth in emerging economies, fluctuations in commodity prices and fierce competition.
Source: Euromonitor International
The companies with the strongest emerging market presence have seen robust growth. Danone and Nestlé have been among the most successful multinationals at establishing strong positions in fragmented emerging markets thanks to consistent and long-term expansion policies targeting still untapped opportunities. Meanwhile, local players such as Inner Mongolia Yili Industrial Group and China Mengniu Dairy Co have leapt up the rankings on the back of strong domestic demand to become top 20 players in packaged food globally.
The food operations of Mondelez, which was created in the last quarter of 2012, are set to post 6% year-on-year growth in 2013, fuelled by a portfolio of iconic brands and the fact that nearly 50% of sales are generated in dynamic developing markets. Brazil and Russia are the company’s two largest emerging markets, while China ranks third, accounting for only 3% of Mondelez’s global food sales, thus leaving room for significant expansion in this vast and dynamic market. In its first year of business in 2013, Mondelez has benefited from more streamlined operations and strong exposure to dynamically growing economies, although in some markets it is facing operational and/or competitive challenges and is set to post negative growth, for example in South Africa, Japan and a number of troubled Western European markets.
Multinationals needing to enhance their emerging market exposure include, for example, Kellogg, Mars and Unilever’s food operations. Although Kellogg’s acquisition of Pringles in 2012 has significantly enhanced the company’s consumer base in developing economies, particularly in the Middle East and Africa and Southeast Asia, still only around one fifth of its global retail value food sales are generated in emerging regions.
Unlike many of its competitors, since the acquisition of Wrigley in 2008, Mars’ emerging market expansion has been largely organic, and hence moderately paced. The share of its emerging market sales has risen from 28% in 2008 to 36% in 2013. Its largest developing market remains Eastern Europe, which is forecast the most moderate performance of all the emerging regions with a predicted 2% CAGR over 2013-2018 compared to 8% in the Middle East and Africa and 5% in Latin America over the same period.
Going forward, capturing a wider consumer base in emerging regions and new frontier markets with less intense international competition, such as Africa, or deeper penetration in less urbanised, Western/Central Chinese markets will remain the focus of all multinational food companies. However, the routes to achieving this objective remain diverse.
Increased health awareness has been a long-term trend in the global packaged food market, driven by a combination of circumstances, for example ageing populations in developed markets and rising spending power in developing markets.
Within packaged food, snack foods have been identified by many multinationals as core categories for expansion. Despite a still unstable global economic environment, non-essential food categories, such as sweet and savoury snacks, biscuits and snack bars, are set to significantly outperform the wider packaged food market in 2013. Growth in these categories is being partly driven by increased spending power as well as the potential to cater for a wide range of health trends. Most newly-launched products or line extensions in sweet and savoury snacks are being marketed as lower in fat (baked not fried) and suitable for weight management purposes. High-fibre biscuits are being aligned with digestive health trends. Currently in packaged food the most dynamic snack food manufacturers and products are those which successfully combine nutritional value, convenience and a value-for-money positioning. Among the top 10 global packaged food labels, Lay’s and Activia have particularly benefited from a combination of these factors.
Mondelez and Mars are the two companies which are particularly strong in this area, with over 90% of their packaged food sales accounted for by snack categories. However, these sales are led largely by confectionery, which is set to record year-on-year growth of just 2% in 2013, a weaker performance than the wider packaged food market. PepsiCo and Kellogg, meanwhile, are both benefiting from the dynamic growth in sweet and savoury snacks, a category which is significantly profiting from growing popularity in the Asia Pacific region.
The combination of longstanding nutritional trends and snacking is expected to drive growth over the short to medium term. Targets for expansion are expected to include snack products which cater for a range of health trends, from weight management and digestive health to immune system and brain health