Diversification Can Take Different Forms
For most ingredients companies, diversification into speciality ingredients is becoming more important. Revenue derived from commodity-style ingredients can be unstable as prices and demand fluctuate from year to year, and even month to month. Carving a niche and becoming an expert in one or two areas can provide ingredients companies with more reliable and profitable sales.
Health and wellness is one category which has become lucrative for many ingredients companies. Global dairy giant Glanbia is one such ingredients company. Thanks to its long history of dairy ingredients and cheese manufacturing it has become one of the world’s biggest suppliers of whey protein, with a growing emphasis on the sports and nutrition category. Proteins are used in these products to aid muscle development and are also claimed, among other factors, to help with satiety control and energy levels. The market for these products is dominated by the US, with the country accounting for 69% of the 96,100 tonne energy and nutrition bars category in 2011. In sports and energy drinks, the US accounted for 44% of the 15 billion litre category in 2011. Tweet this Stat!
Glanbia is well positioned to meet demand in the US. Despite having its headquarters in Ireland, it has a large number of production sites in the US. Its Southwest Cheese joint venture became the world’s largest whey production facility in the world following investment in 2009 and 2010. It competes for a share of the whey protein market alongside other dairy giants including Arla, Fonterra and Kerry, as well as smaller cheese companies for which whey is a by-product of cheese manufacturing.
Glanbia active in business-to-consumer activity
Euromonitor International forecasts demand for whey protein will continue to increase each year to 2015. Over 2010-2015 the category is forecast a CAGR of 2%, down from 4% over 2005-2010. This rate, however, does not include volumes used in protein products used for body building etc, which would increase the growth rate further. Indeed, it is this category which Glanbia is most interested in, having acquired a number of companies in this industry in recent years, the latest being Bio-Engineered Supplements & Nutrition (BSN) in 2011 for US$144 million, which supplies direct to the consumer.
For Glanbia, diversification does not just mean supplying speciality ingredients but also selling the end products as well. This gives it a ready market for its ingredients and an avenue for any new products that it develops. Could this be the way forward for other ingredients companies to guarantee a market?