New Packaged Food Data: Is Low Growth the New Normal?
With data for 2016 across all food categories now live, we’re in a solid position to take a broad look at the food industry and determine what’s been happening this year as well as what is likely to be happening in the future. Overall 2015 and 2016 proved to be disappointing years for the global food industry as key emerging markets, China and Brazil, underperform. Developed markets too faced challenges as the very nature of the grocery shop continued to evolve. Savoury snacks and food products that benefitted from a naturally healthy perception were still very much ‘on trend’ and drove any remaining growth in mature markets. Our top four findings are as follows:
1. The food industry is now facing the lowest levels of growth in over a decade
2. Mixed outcomes in China raises new questions about approach
3. Yoghurt replaces baby food as the new global growth engine
4. Market disruptors likely to have a big impact on the future of the grocery shop
Low growth future to cement new strategic positions
Faced with a low growth future, most food companies have already steered their course towards one of a few destinations. Many have chosen to ride the health and wellness wave, hoping that it will continue to deliver higher levels of growth than 1.1%. This strategy generally requires investment, either in research and development or capital for acquisitions. Danone’s recent purchase of WhiteWave is perhaps a good example of this. The second strategy centres on on-the-go consumption and turning more food products into snacking variants. Snacks have certainly been relatively immune to the low growth environment that afflicts the rest of packaged food and companies like PepsiCo, Lindt and Ferrero have shown that solid returns can be made in snacking. The third route is one that centres on focusing on key brands/categories to improve profitability with the Kraft-Heinz merger being the best example of what that looks like. There are, of course, variations of the above strategies but they broadly fit into the wellness, snacking or consolidation themes.
A little trouble in big China?
Over the last decade, the packaged food industry has become reliant on China’s rapid growth and used that offset slow growth in Europe and North America. But with China only growing by 2% in 2015/2016 many are asking if the party is over. Of course 2% is still twice the rest of the world could muster but the question remains ‘if China can no longer drive growth, what can?’. A closer look at the data reveals that performance is not even across categories with yoghurt still growing in healthy double digits but categories like gum suffering strong declines. For further insight on what is affecting category performance in China be sure to read the country reports.
Grocery shop continuing to evolve
Another interesting aspect of the newly published data is retail distribution, which breaks down sales by retail channel, and how that is continuing to evolve. E-commerce sales have been identified as an area of strategic importance for the majority of large food manufacturers, with many issuing targets to reach by 2020. Globally internet retailing sales of packaged food are only 2.1% but there are a handful of markets which significantly overtrade in this channel. South Korea, China and the UK are the top three markets in terms of channel penetration, deriving over 5% of their sales from internet retailing. With new online business models emerging such as online recipe boxes and food delivery companies, the channel has definitely still got room to grow.