Management briefings show the global packaged food industry continues to face challenging market trends that will shape the future of the packaged food industry as they deal with consumer calls for healthier food, market fragmentation and commodity-cost volatility.
The Global packaged food briefing suggests that enhanced operational flexibility and three percent plus annual cost reductions are essential to offset commodity volatility, respond to market fragmentation and support revenue growth.
Ongoing investments in process innovation are required to reduce wasted ingredients and create more effective equipment maintenance and rapid set-up and line changeovers. Operational flexibility and responsiveness will help companies prepare for the inevitable disruptions in supply and demand and support business growth.
Commodity costs
The shift in bio-fuels appears to be the driving force of growth in world demand for grains and oilseeds. The increasing demand for grain and oilseeds by a rising middle class in developing markets has increased global demand beyond the rate of annual productivity gains.
Inventories also get tight with weather-related shocks that create commodity-cost volatility. Management briefings suggest infrastructure investments are needed to bring marginal costs down in the new growing areas of Brazil and Ukraine.
Changing consumer preference
Consumers want affordable fresh foods made with simple ingredients. Adults under 35 years are less likely to buy packaged food, preferring quality fresh and ready-to-eat products. Driven by media and social media, there is also a changing consumer preference across all household incomes for natural and organic ingredients, as well as antibiotic- and hormone-free food.
Strategic analysis
Historically, major retailers would only stock the number one and number two brands. Today small premium brands are gaining share as are retailer-branded private label products.
Management briefings state that as a result of retail consolidation, more mergers, such as that of Kraft and Heinz, could occur in the future, as manufacturers look to leverage the reputation of their brands to influence retailers. Power brands from food companies are products which have large value sales and are strongly associated with their market. With retailers strengthening their private label lines, it is now more important than ever to own power brands. Brands that offer low growth prospects, may be sold off by leading companies.
Simultaneously, retailers are looking to rationalise their store space, which includes de-listing products. Manufacturers cannot afford not to be stocked by the leading retailers. This gives retailers leverage in negotiations on pricing and in-store advertising.
Forecast 2015-2020
The global packaged foods market is estimated to grow at an annual rate of 4.5 percent between 2015 and 2020 to reach just over three trillion dollars by 2020. North America is currently the largest processed foods market, and the region is expected to continue generating the most revenue during that time. It is the growing demand from emerging economies of the Asia Pacific that will see the most growth in the forecast period, estimated at 5.4 percent. China and India are forecast an annual rate of 8 percent for the forecast period.
Food briefings show that non-alcoholic drinks and baked goods account for nearly three-quarters of the packaged food market by value. Ready-to-drink beverages in Asia and bottled water in developing nations are forecast to grow strongly.
E-commerce accounts for only a tiny fraction of packaged food sales, but volumes are growing significantly in some categories, like coffee and baby food. The brands that are doing well in store-based retail are very different than those doing well in the e-commerce channel as customers seek out products that they want, often at a premium price.