Mega Trends Review— Growth Strategy Optimization in the Global Food & Beverage Industry Value Chain


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Mega Trends Review— Growth Strategy Optimization in the Global Food & Beverage Industry Value Chain

  1. Mega Trends Review—Growth Strategy Optimization in the Global Food & Beverage Industry Value Chain Going from Mega Trends to Actionable Opportunities Christopher Shanahan Global Program Manager Food & Beverage Practice 4th June 2012© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is thesole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproducedwithout the written approval of Frost & Sullivan.
  2. Today’s Presenter Functional Expertise • Direct experience in data analysis, project management, consulting and market engineering. Particular expertise in: - Econometric-based market analysis including mathematical programming, statistical benefit-cost analysis, market forecasting, and scenario engineering - Product innovation adoption models and business strategy decision models Industry Expertise  Experience base covering broad range of sectors, leveraging past experience across various industry verticals - Agricultural and food & beverage markets with a focus on food ingredients, animal feed additives, consumer packaged goods, food packaging, and dietary supplements - Specific expertise in the following in food and beverage additives for digestive health, immune health, bone and joint health, sports, fitness, and weight management, cognitive health, nutricosmetics, heart & anti-hypertensive health, antioxidants and antimicrobials, and animal feed. What I bring to the Team  Economic, social and environmental business strategy development and implementation  Sound understanding of functions such as corporate strategy, tracking consumption trends, and sales &Christopher Shanahan marketing functionsGlobal Program  Ability to understand client requirements and deliver optimum solutionsManager – Food & Career HighlightsBeverage Practice  Published research in the Review of Agricultural Economics Journal and Agribusiness and the International Food and Agribusiness Management Association Review EducationFrost & Sullivan  Master of Science in Agricultural Economics from the Ohio State University, Columbus, United StatesNorth AmericaSan Antonio, UnitedStates 22
  3. Focus Points• Definition of the Global Food and Beverage Value Chain• Mega Trends Overview• Frost & Sullivan’s Strategic Approach—From Mega Trends to Actionable Opportunities 33
  4. Definition of Mega Trends Impact of Mega Trends on Key Our Mega Trend Definition? Organizational Functions Marketing and Strategy “Mega Trends are global, sustained forces of Innovation R&D Budget development that are Scouting Spending transformational to business, economy, society, cultures and personal lives” Product Technology Planning Planning and Development 44
  5. The Global Food and Beverage Value Chain The cumulative value of all revenue derived from the global food and beverage value chain was over $20 trillion dollars in 2011, representing nearly 30 percent of the entire world’s economy.Food and Beverage Market: Generalized Value Chain, $US Billion (Global), 2011 Sustainability Processing Food Packaging Equipment Agricultural $261 $223 Retail Grocery Production Food Additives (Food at Home) (Includes Agricultural Food and Supplements $7,664 Seeds and Animal Feeds) Logistics Processing Food and Beverage Traits $3,917 +$300 Logistics $646 $4,841 $43 $168 Health & Food Wellness Consumer Safety Software Software for Retail Food Service for Ag Processing Software for Software for (Food Away From Home) $2.15 $7.94 Logistics Retail $3,544 $2.89 $18.05 Globalization and Changing Economy Source : Frost & Sullivan analysis. 55
  6. Your Opportunity Universe is Shaped by the Mega Trends Relative Impact of Mega Trends, Global, 2012 1 2 3 4 5 6 7 • With respect to the F&B industry, the key Mega Trends expected to have a Globalization and Changing Low High direct affect on industry growth and Economics performance can be grouped into fourGreen, Safe, and Healthy main categories—globalization and Health and Low High changing economies, growing need for Wellness health and wellness solutions, and growing sensitivity to food safety, and Food Safety Low High and Security sustainability issues. • By 2020, Frost & Sullivan expects that Being Green— Low High companies with a truly global market Sustainability and product strategy, that fully exploit the growing demand for health and wellness solutions, and that adopt an all-encompassing sustainability strategy, will lead the F&B industry. . Source : Frost & Sullivan analysis. 66
  7. Globalization and Changing Economies—Growing Food Prices There has been a significant structural shift in price growth in the last 10 years that is expected to continue. Rising raw material costs, and the associated difficulties with transferring the increase to customers, will likely affect profit margins during the next decade. • Agricultural prices are once again Commodity F&B Price Index* (Global), Jan 1980 to March 2012 approaching the historic highs demonstrated 250 in 2008, as a result of various factors, including rising petroleum costs due to social unrest in the Arab world and the flat growth in the production of key grains and oilseeds. 200 • Above normal price growth can influence product reformulations and decreased package sizes. 150 • With continued price growth, a slowdown in consumer spending and a decreasing willingness to pay will occur. 100 • Accordingly, a food manufacturer’s ability to use pricing as a tool to maintain margins will be constrained. 50 Key: * The Commodity Food and Beverage Price Index 0 is made up of 30 different commodities from petroleum 2008 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2010 2012 and fertilizer prices to grains, fruits, meats, oilseeds, and sugars. This index reflects prices relative to Jan 2002.Index: January 2002 = 100 Source: International Monetary Fund and Frost & Sullivan analysis. 77
  8. Globalization and Changing Economies—ContributingDrivers to Price Growth Population growth in emerging regions, economic growth and associated growth in the cost of energy, and the expected increase in the occurrence of averse weather events are all significant growth drivers of food prices, none of which are expected to abate.Total Food and Beverage Market: Key Price Growth Drivers(World), 2011-2020 1-2 years 3-5 years 6-10 years Population growth in emerging regions and associated growth in meat and dairy consumption.Market factors Economic growth drives the demand for oil, thus increasing the cost of energy and potentially drive the demand for biofuels. Averse weather events over the last ten years has had a significant impact— climate change is expected by many experts to continue, thus potentially disrupting future harvests. Impact: High Medium Low Source: Frost & Sullivan analysis. 88
  9. Globalization and Changing Economies—Typical Foodand Beverage Market Profit Margins 9
  10. Globalization and Changing Economies—Typical Foodand Beverage Market Profit Margins (continued) 1010
  11. Globalization and Changing Economies—IndustryConsolidation Stable As of 2011, the top 25 food processors in the United States earned 27 percent of total industry revenues - this has remained the case for roughly the last decade and is Top 25 Food not expected to see a significant change. Processors 27%• This is expected to increase the overall Next 75 bargaining power of food processors when Top Food Processors it comes to sourcing key inputs from 11% ingredient suppliers, and thus add increasing pressure on top-line ingredient industries growth.• Increasing food industry consolidation will All Other be driven by growing power of food Food Processors retailers in the future in order to offset lost 62% bargaining power.• This is expected to drive increased industry consolidation among ingredient suppliers as this is a means of increasing economies of scale and maintain bargaining power. Food Processor Industry Shares (%), 2011 Source: Frost & Sullivan analysis. 1111
  12. Green, Safe, and Healthy—A congruence of trends thatexpands the potential product/market opportunity space As long as a company communicates its green, safe, and healthy initiatives as being morebeneficial or less costly than its competitor’s product offering, customers will be willing to pay a premium for it. A fully-integrated software solution is needed by industry participants. The Intersection of Green, Safety, and Healthy, 2012• Waste • Safe chemical prevention product design• Degradable • Minimal hazard after chemical chemical syntheses product use • Avoidance of• Use of Green Safe chemical renewable derivatives feedstocks • Use of safer• Minimize Smart value- solvents chemical by- added Solutions • Minimize products product and• Maximize production energy accidents efficiency• Maximum pollutant production Healthy • Slow minimization of unhealthy monitoring ingredients during the • Inclusion of functional production ingredients process • Healthcare products • Dietary supplements Source: Frost & Sullivan analysis. 1212
  13. Health & Wellness—Weight Management Solutions willDominate the Food & Beverages Industry The Need • Overweight and obesity  “..abnormal or excessive fat accumulation, which presents a risk to health.” • Obesity on the rise in low- and middle-income states, particularly in urban areas. Over 6 million Americans are morbidly obese • 15% of children & adolescents are obese Proportion of the population with a body mass index (BMI) equal to or more than 25 (United States), 2010 Men Women African Americans 57% 66% Hispanic Americans 64% 66% White Americans 61% 49% The Costs• Direct medical cost for weight-related diseases  Over $50 billion per year• Direct spend on weight management products (Books, food, and diet programs)  Over $40 billion per year• Lost work days due to weight problems Over 40 million work days Source: Frost & Sullivan analysis. 1313
  14. Health & Wellness—Weight Management Solutions willDominate the Food & Beverages Industry (continued) The average American’s diet is highly imbalanced, yet it is expected that per capita calorie intake, and all associated nutrients, is expected to diminish or remain stable over the next ten years due to rising awareness of the associated weight issues. Recommended versus Actual Consumption Rates of Macronutrients (United States), 2010 Recommended Actual VariancePer Capita Calorie Consumption (Kcals) 2000 to 2500 3522.5 +1000 to +1500% Carbohydrates Per Capita 50-60% 49.5% 0 to -10%% Protein Per Capita 15-20% 12.4% -2.5 to -7.5%% Total Fat Per Capita 25-30% 38.1% +8 to +13% The Costs • The average American consumes 50 to 75% more calories then recommended by the majority of nutritionists. • Surprisingly, the average American does not consume enough carbohydrates and proteins according to the majority of nutritionists’ recommendations. • The average American consumes about 40% more fat then recommended by the majority of nutritionists. Source: Frost & Sullivan analysis. 1414
  15. Health & Wellness— The Need for Health & WellnessSolutions Will Increase with Increased Urbanization y = 0.0524x + 3.6258 y = 0.3578x + 21.648 % POP w/BMI >= 25 kg/m² 20 100Total expenditure on health 2 R 2 = 0.1831 R = 0.1646 80 15 as % of GDP 60 10 40 5 20 0 0 0 20 40 60 80 100 0 20 40 60 80 100 % of Urban Population % of Urban Population Beyond BRIC  Look for Significant correlation increasing urbanization, dietary between spending on changes, and economic Correlation between health solutions and obesity and urbanization development in emerging urbanization suggests points to opportunities in that growth opportunities markets, especially in Latin growing cities in emerging exist in regions with America and Africa, as these are markets growing urbanization. future growth regions for Health & Wellness Solutions Source: Frost & Sullivan analysis. 1515
  16. Health & Wellness—Weight Management Solutions willDominate the Food & Beverages Industry (continued) Almost 62 percent of Americans are classified as “overweight” (in terms of a body mass index of more than 25) and more than 25 percent of Americans are obese. This has motivated regulatory bodies and nongovernment organizations to rank this as one of the most critical health problems—and, consequently, national defense—facing Americans today. Overweight Adults per State: Proportion of the population with a body mass index (BMI) equal to or more than 25 (United States), 2010 USDA scientists found that people eat 500 more calories on average on days that contain atleast one fast food meal compared to days that don’t. Note: All figures are rounded; the base year is 2010. Source: CDC/NCHS, Frost & Sullivan analysis. 1616
  17. Health & Wellness—Weight Management Solutions will Dominate the Food & Beverages Industry (continued) The South Central United States has the lowest per capita consumption levels in terms of food weight despite these same states have some of the highest obesity rates. This suggests that the quality of food consumed is much lower in this region and waste is greater in higher income states. Total Food and Beverage Market: Consumption Per Capita per State in Pounds, United States, 2010 KeyUnit = Pounds Note: All figures are rounded; the base year is 2010. Source: U.S. Department of Agriculture, Frost & Sullivan analysis. 1717
  18. Food Safety and Security—Industry Challenges Drives theNeed for More Effective Solutions Confusion over the many different food standards and regulations impacts the implementation of effective food safety practices. Increasingly, food safety standards are indirectly enforced by retailers as opposed to government bodies. Food Safety Standard Heightened Awareness Confusion and of Food Security Redundancies Breaches Mistrust of Third-party Retailer Demand for Auditors Safer Products Source: Frost & Sullivan analysis. “Everybody wants to supply Wal-Mart. Wal-Mart is not the only one, but when Wal-Mart begins, everybodystarts to listen because everybody hinges their (profit) margin on that account…” (Large Food and Beverage Ingredient Manufacturer) 1818
  19. Food Safety and Security—The Need for Value ChainSpeed The top four product categories in terms of retail sales are fresh vegetables, pulses, and cereals, fresh fruit, fresh milk, and fresh meat, respectively. Bakery products is the largest processed food category at $430 billion in 2011. In addition, delivering fresh food necessitates the need for value chain speed. Value ChainTotal Food At Home Revenue and Value Chain Speed Estimates by Product Type, Global, 2011 Speed 1,800 8.0 Faster 1,500 7.0 Revenue ($US B) 6.0 1,200 5.0 Medium 900 4.0 600 3.0 Slower 246 220 1,705 1,503 1,452 2.0 175 729 430 400 129 125 108 105 105 100 100 112 300 82 80 75 70 70 62 47 42 20 15 10 1.0 8 0 - Note: All figures are rounded. The base year is 2011. Source: Frost & Sullivan analysis. 1919
  20. Food Safety and Security—Refrigeration Critical forEnsuring Food Safety In terms of preservation type, fresh food still dominates all retail sales and market share diminishes as the need for refrigeration increases. Almost 50 percent of all food and beverage products needs some form of cold storage when it is traversing the value chain. Total Food At Home Revenue Share by Preservation Type, Global, 2011 Shelf Stable Frozen Processed Processed $1,804 $243 21.7% 2.9% Chilled Processed $692 8.3% Chilled food and frozen food demand is constrained by access to effective refrigeration in developing countries Shelf Stable Fresh Food Chilled Fresh $2,386 Food 28.7% $3,198 38.4% Note: All figures are rounded. The base year is 2011. Source: Frost & Sullivan analysis. 2020
  21. Being Green—What is Sustainability? In general, the primary objective of a food and beverage company will be to generate, evaluate and implement an effective sustainability strategy. An optimal sustainability strategy will attempt to satisfy the following seemingly unrelated, but highly interactive, objectives: • A sustainable profitability margin  Economic Bottom Line • A sustainable competitive advantage  Economic Bottom Line • Sustainable Revenue Growth  Economic Bottom Line • Minimize/maximize the production of negative/positive externalities produced by the company over time that impact a given companys constituents  Social Responsibility • Minimize wasted inputs and unusable byproduct  Environmental Awareness • Avoid/minimize use of non-renewable resources such as resources that have a virtually fixed amount (petroleum) and resources that have a virtually fixed amount whereby the resource’s harvest rate is greater than the resource’s renewal rate  Environmental AwarenessSustainability, in a broad sense, is the ability to maintain a given process or state. In an ecological context,sustainability can be defined as the ability of an ecosystem to maintain ecological processes, functions,biodiversity and productivity into the future. With respect to business applications, the key processes that aremeant to be sustained overtime are the economic bottom line, social responsibility and environmentalawareness. 2121
  22. Being Green—What is Sustainability? Optimization of the bottom lines over time In the past, the only metric that a given company really paid attention to and worked toward sustaining was its economic bottom line. Social responsibility and environmental awareness were not considered key objectives. This has changed. With the growing power of external constituents that demand increasing social and environmental responsibility, companies now must adopt business practices that meet these additional objectives. Yesterday’s Objective Today’s ObjectiveChange in Bottom Line Change in Bottom Line Time Time Source: Frost & Sullivan analysis. 2222
  23. Being Green—Food Waste Continues to be a Major Issue Throughout the Value Chain (continued) Cereal loss is minimized throughout the value chain, but consumers tend to through away roughly 15% percent of all cereal produced (usually in the form of baked goods). Consumers also tend to throw away a significant amount of cereal, fruit and vegetables due to spoilage.Percent Loss or Waste Through the Value Chain by Selected Product Types, Global, 2011 18.0% 16.0% 14.0% % Loss or Waste 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Agricultural Postharvest Processing and Post Processing Consumption Production Handling and Packaging to Retail Storage Distribution Cereals Roots & Tubers Oilseeds & Pulses Fruit & Vegetables Meat Fish & Seafood Milk Note: All figures are rounded. The base year is 2011. Source: USFAO and Frost & Sullivan analysis. 2323
  24. Green, Safe, and Healthy—Industry Challenges Drivesthe Need for More Effective SolutionsConfusion over food standards impacts implementation of effective Green, Safe, and Healthy best practices. • The plethora of choices of voluntary food safety standards and mandatory government regulation has been an inhibitive factor on the adoption of any type of voluntary/mandatory industry standard • It is perceived by some industry participants that many voluntary/mandatory food safety standards are redundant with already-existing government regulations that merely need to be enforced. • Some companies feel that it is much easier to just meet the minimum level of government-enforced safety laws without being noticed and except the risk. • It is in the opinion of Frost & Sullivan that many companies do not understand the benefits of adopting a food safety standard and how to effectively integrate that into their marketing strategy. 2424
  25. Green, Safe, and Healthy—Industry Challenges Drives the Need for More Effective Solutions (continued) Effective green, safe, and healthy message communication involves the entire value chain, yet many challenges persist that is constraining the adoption of a good solution.Without a clear industry icon… Finished Good Distributors and Raw Material Supplier Final Consumers Manufacturer Retailers We Are Green, We Are Still Are Green, Is this Green, Green, Safe, Safe, and Safe, and Safe, and and Healthy Healthy? Healthy? HealthyWith a clear industry icon… Finished Good Distributors and Raw Material Supplier Final Consumers Manufacturer Retailers We Are We Are We Are We Are Green, Green, Green, Green, Safe, and Safe, and Safe, and Safe, and Healthy Healthy Healthy Healthy 3rd Party Verified Product Flow $ and Feedback Flow Source: Frost & Sullivan 2525
  26. Frost & Sullivan’s Strategic Approach—From Mega Trends to Actionable Opportunities
  27. Growth Consulting Approach The core objective of The Growth Model is to identify your Companys GROWTH ZONE— those set of opportunities which have been optimized and validated based on yourCompany’s own strategic objectives and capabilities weighed against the opportunities in the marketplace. 2727
  28. The Overarching Objective is to Filter Top Level MegaTrends into Actionable Portfolio Prioritization Changing Economics Health & Wellness Being Green Food Safety  Mega Trends Identification and Prioritization RELEVANT MEGA TRENDS  Determination Which Identified core total Addressable Markets areaddressable market and Sustainable Sustainable and Driven By specific opportunities Addressable Market Mega Trends • Detailed analysis of specific Detailed need-based opportunities in Opportunities each sustainable addressableFinal output: Prioritized sustainable market to provide actionable data and outcomes addressable markets and potential opportunities Need-based Opportunities 2828
  29. Our Analytical Approach for Going From Mega Trends to Identifying Specific Opportunities PHASE 2 PHASE 3 PHASE 1Project OPPORTUNITY IMPLEMENTATION GROWTH PIPELINEPhases EVALUATION STRATEGIES Deep dive Determination of analysis of Down Strategic Prioritization of shortlisted Identification of Select/Shortlist Options for each the Sustainable opportunities to Mega Trend and Optimal selectedProcess Addressable support and Sub Trend Submarkets and OpportunitySteps Opportunity Market and Opportunities facilitate growth from Phase 2 – Resultant workshop Universe For Phase 2 selection and Opportunities sessions with Research Agreement. Key F&S and internal Action Items experts Mega Trend Growth Research and Growth StrategyActivity Workshop and Mega Trend Workshop / Research Decision Support Workshop and Group Pre Work Matrix Population Action Plan 2929
  30. The Goal is to Capture Your Company’s Growth Optionsfor Further Analysis The Product- Market Matrix (PMM) Model helps to map out the addressable market, the potential market, and the adjacency market landscapes and provides guidance to the optimal growth strategies that need to be adopted in order to address opportunities. Your optimal growth strategy will be dependent on the pre-determined growth criteria, the nature of the market place, and your company’s ability to win. New Adjacent “Blue Sky” Focus on New Product Development and Line Extension or Acquisition of Complementary Focus on Innovation and R&DProducts Companies Core Adjacent Focus on Competitive Strategies to Increase Focus on New Verticals and Geographies or Current Share in Current Markets through increased Acquisition of Complementary /Substitute Marketing, Distribution, Sales, or Acquisition of Companies in new Verticals/Geographies Competitors Current Markets New 3030
  31. Next Steps Develop Your Visionary and Innovative Skills Growth Partnership Service Share your growth thought leadership and ideas or join our GIL Global Community Join our GIL Community Newsletter Keep abreast of innovative growth opportunities 3131
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  34. For Additional Information Christopher Shanahan Jeannette Garcia Global Program Manager—Food and Corporate Communications Beverage Practice Chemicals, Materials and Foods (1)210-477-8419 210.477.8427 3434