The global food industry is constantly developing in tune with demands of global consumers. The industry participants, namely food suppliers, manufacturers and food retailers all work together to adapt and change to evolving trends in consumption. The food industry is a complex, global collective of diverse businesses that supply much of the food energy consumed by the world population. Only subsistence farmers, those who survive on what they grow, can be considered outside of the scope of the modern food industry.
The food and drink supply chain is complex and ends with a number of different food retail formats. The most popular retail outlet is the supermarket, but in recent decades, other retail formats have emerged, including hypermarkets, discounters, convenience stores and service stations. Supermarkets and hypermarkets account for a little over 50 percent off all grocery retail sales. Independent food stores take a 16 percent share and the rest of the market is shared between convenience stores, standard convenience stores, service stations, discounters and other outlets.
The total value of the food retail industry is approximately $4 trillion annually, with supermarkets and hypermarkets dominating the retail sector. The food retail market is relatively concentrated, with the top 15 global grocery retailers taking over 30 percent of global grocery retail sales. Many of the largest global grocery retail companies are US and European.
Over the past three decades, consumers, retailers, and manufacturers have come to expect food prices to consistently fall relative to consumer income. This was part of a larger trend of declining relative commodity prices. In rich countries, food has become such a modest share of total consumer expenditure (see chart below) that consumers can spend a large share of their total food budget on food services, such as restaurants, rather than simply purchasing ingredients for meal preparation. Low food prices have enabled consumers to purchase high-priced specialty foods, organic foods, and store-prepared meals. It has also allowed consumers to spend far more on many non-food items. Indeed, food retailers have struggled to offer higher value products in order to continue growing.
With the exception of bio-fuel subsidies, the factors that have caused a steep rise in food prices are not short-term phenomena. Strong global economic growth, rising incomes in emerging countries, elevated petroleum prices, and climate change are not likely to go away anytime soon. Subsidies for bio-fuels are dependent on the whims of governments, particularly the U.S. government. If food price inflation were to become a serious political issue in the United States, political support for bio-fuels might diminish. So far, this hasn't happened.
Thus, we may experience several years in which food prices will increase in relation to the prices of other consumer goods and services. This is unusual but not entirely without precedent.
In the longer term, if industry forces are permitted to function, food production will expand, land efficiency will increase, and prices will ultimately come back down. Yet this involves a big "if." Agriculture is one of the last bastions of intense government involvement in, and distortion of, the market. In rich countries, farmers have political clout that is out of proportion to their numbers, often due to a romantic notion of their role in society. In poor countries, urban consumers usually have more political clout, typically because urbanites can more easily create violent disturbances than villagers.
Key market segments:
The global fruit and vegetables industry is predicted to reach in excess of $736 billion in 2015, representing 25 percent growth over a five-year period. The fruit and vegetables market will produce over 690 million tons by 2015, up 5 percent on 2010. Vegetables lead the segment at almost 64 percent. The Asia-Pacific region accounts for over 45 percent of the overall market.
Demand for frozen food will drive the indsutry to over $228,000 million by 2015, up nearly 19 percent on 2010. The segment will represent a volume of almost 43,500 million kilograms in 2015, over 14 percent more than in 2010. Meat leads the segment with over 40% of the overall market value. The EU holds close to 38 percent of the market.
The global canned food industry is expected to reach almost $93 million in 2015. In terms of volume, the market will increase over 10 percent in the five-year period ending in 2015 to over 23,000 million kilograms. Meat products lead the market representing a quarter of overall value. The EU represents close to half of the overall world market for canned food.
Historically, developed countries such as the United States have been the largest producers of food products. However, there has been a slight shift in recent times, with China, Russia and India increasing their production capacities. For example, in the case of wheat production, China increased its production capacity by 26 percent from 2003 to 2007, while Russia raised its capacity by 45 percent. In comparison, over the same period, wheat production in the US decreased by 12.5 percent.
Additionally, food purchases in developing countries are shifting from staple foods rich in carbohydrates to more expensive foods such as meat and dairy products, indicating the significant growth potential of developing countries vis-à-vis developed economies. This trend is visible even on the consumption front. At present, about 58 percent of food produced is consumed by developing countries. This is expected to climb to 72 percent by 2050, supported by the fact that 37 percent of the world's population currently lives in China and India.
Healthy eating is another critically important consumer driver, a trend that will have considerable influence over company strategies in the next five years. But while consumers want "healthy," they often don't know what healthy means and are easily confused. For instance, organic means "not enhanced," while functional foods usually signify "enhanced." Many manufacturers have either reformulated existing brands with organic ingredients, extended their offerings to include healthier branded products, or have acquired or merged with already-existing organic companies. Retailers, too, have redirected their focus toward healthy eating lifestyles. In addition, the options in the area of functional foods will be getting stronger in the next 5 to 10 years. For those eating healthy, there now could be a variety of possible health benefit claims: organic, low salt, added vitamins, etc.
Growing concerns regarding obesity have increased the awareness of health and nutritious foods. Consequently, the diet-food segment is positioned to grow in developed markets. The total US and European diet-related F&B market is predicted to reach $128.5 billion by 2014. While Europe is estimated to increase at a CAGR of 3.4 percent from 2008 to 2014, the US is expected to expand at a CAGR of 4.1 percent over the same period.
Meal-replacement shakes and protein bars are expected to contribute the maximum to this sector. To tap this area, most major food companies, such as Nestlé and Unilever, are revamping their product offerings to also concentrate on nutritional items. For example, Nestlé1 is focusing on nutrition and wellness product offerings. In 2008, the company made changes to more than 6,000 of its products for nutrition and health considerations. Other companies, such as Heinz, are also offering products such as the Weight Watchers line of frozen foods.
An increasing global population and a shift towards convenience food continue to push the industry forward. Changing habits in food culture mean varied tastes increasing demand for ethnic foods and newer formats such as microwaveable food products. Convenience is key as consumer demand focuses on processed, ready-to-eat, packaged goods. Demand exceeds supply in certain food markets such as lactic acid in industrial applications in food and the beverages market. Moving forward environmental concerns will lead to growth in green packaging and organic foods. The industry will equally concentrate on safety measures following concern over potential health risks from food such as mad cow disease.
|NESTLÉ||$101.8 billion (2008)|
|ARCHER-DANIELS MIDLAND||$69.2 billion (2009)|
|UNILEVER||$59.6 billion (2008)|
|BUNGE LTD||$52.6 billion (2008)|
|PEPSICO||$43.3 billion (2008)|
|KRAFT FOODS INC||$42.2 billion (2008)|
|COCA-COLA||$31.9 billion (2008)|
|MARS INC.||$30 billion (2008)|
|WILMAR INTERNATIONAL||$29.1 billion (2008)|
|TYSON FOODS||$26.7 billion (2008)|
Nestlé SA is the largest food producer in the world. Nestle's brands covers all food and beverage types.Some of the famous Nestle brands include KitKat, Nescafe, Hot Pockets, Dog Chow & Purina (Pet Foods), etc. The stock is one of the most traded on the OTC market.
US-based Kraft Foods Inc. operates sells its products in more than 150 countries. Kraft was spun-off from Altria Group. Kraft has an yield of 4.28% and the annual dividend growth over the last 5 years is 13.18%. The profit margin is only 6.15% and the beta is 0.6. Some of Krafts brands are Oreo, Ritz, House, Planters, Easy Mac, etc.
Unilver NV is an Anglo-Dutch multi-national company with operations in 100 countries and owns over 400 brands in foods,beverages, cleaning agents and personal care. Some of the famous brands are Lipton, Knorr, Ben & Jerry's and Breyers Ice-creams, Dove, Rexona, Slim-Fast, etc. Unilever pays a dividend of 6.74%. Profit margin is 10.57%, better than Kraft Foods Inc. Annual dividend growth over the last 5 years is 21.42%. Unilever's UK division trades with the ticker UL in New York Stock Exchange.
PepsiCo Inc is a global beverage and snack company based in the USA. PepsiCo's brands owns hundreds of brands including Quaker Oats, Pepsi, Gatorade, Lay's Potato Chips, Doritos, Tropicana, AquaFina, etc. The current yield is 3.28% and the profit margin is 13.26%. Earnings have grown at 15.38% annually over the last 5 years and it has raised dividends by 19% annually in the same period.
Kellogg is a leader in the manufacture and marketing of cereals and convenience foods. K pays a dividend of 2.82% and the average annual earnings growth rate is 9.5%. Some of its competitors are Heinz, General Mills and Campbell Soup Inc. Kellogg's products are sold in more than 180 countries and some of its brands are Pop-Tarts, Frosted Flakes, Special K, Graham Crackers, Keebler Cookies, etc.
US-based ConAgra Foods company is a leading packaged food company with many brands such as Healthy Choice, Chef Boyardee, Egg Beaters, Hunt's, Orville Redenbacher's, PAM, Reddi-WIP, etc. The current yield is 4.52% and the revenue growth over the past 5 years is 12.85%. The dividend yield paid is in-line with its peers in the food-processing industry.
For more information on the global food industry, see the latest research: Global Food Industry
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