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Opportunities Challenges for Food Beverage and CPG


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Opportunities Challenges for Food Beverage and CPG

  1. 1. Opportunities and Challenges for theFood, Beverage, and CPG Industries John Blanchard Research Director Food , Beverage , and CPG Industries ARC Advisory Group
  2. 2. Challenging Times Food, beverage, and CPG manufacturers find themselves caught between slow growth, rising costs, waning pricing power, accelerated regulatory and customer requirements, and a growing p percentage of sales from a limited number of g powerful and demanding retailer, and increasingly limited capital, human, and even material resources 2 © ARC Advisory Group
  3. 3. Challenging Times How do we improve margins and increase profitable growth to sustain shareholder value? 3 © ARC Advisory Group
  4. 4. Business Environment♦ F d and product safety d dili Food d d t f t due diligence i increasing i • Concerned consumer • Yearly food borne illness statistics • Global terrorism • Global sourcing & rapid high volume distribution • These facts plus product counterfeiting are producing • New industry and company food safety initiatives • Increased regulatory and customer requirements 4 © ARC Advisory Group
  5. 5. Business Environment ♦ I Increasing government regulations i t l ti • US Bioterrorism Act • FDA and USDA regulations • CBP/CT PAT CBP/CT-PAT • DHS Customs- Trade Partnership Against Terrorism Recall Reason • Truth in labeling laws E. coli Foreign Matl Listeria • FDA & USDA mandated HACCP programs Staph St h Allergen for fish, meat, poultry, and juices Salmonel • Environmental regulations: land, water, air 5 © ARC Advisory Group
  6. 6. Business Environment♦ Increasing share of market controlled by a limited number powerful retailers, manufacturers, and suppliers♦ Increasing global competition for everyone♦ Mature US and European markets with limited growth opportunities♦ Seeking opportunities in high growth emerging markets 30.0% 2 8 .0 % $8.0 $6 . 8 b $7.0 25.0% 2 3 .0 % 2 2 . 5% 2 1% $6.0 20.0% 17. 2 % 17. 0 % $5.0 16 . 3 % 15.0% $3 .6 b $4.0 12 . 0 % 12 .0 % 13 .0 % 10 . 5% 12 .2 % $3.0 10.0% $1.8 b $1.8 b $1.4 b $2.0 5.0% $1. 0 b $1.0 b $0 . 9 b $0 .9 b $0 .4 b $1.0 $0 . 3 b $0 .3 b 3 0.0% $0.0 ) s) tte p. G gg n e s ey x r t ze af lo ro Le am or P& m ill e l lo sh ev Kr lo gi Sa C ra Ke G .S er C er R l ia Sa x. H En cl D (E (In s s i ll i ll M M al +Data al sources did not indicate whether Sam’s Club data was included or not in the reports. er er en en G G Share of Business at Wal*Mart Dollar Sales 6 © ARC Advisory Group
  7. 7. Rapid Change, More Complexity, LimitedResources ♦ Global sourcing of more limited, higher cost, more exotic ingredients ♦ Value health, and environmentally conscious and demanding new Value, health consumer ♦ Lots of consumer short (fads) changing purchasing patterns ♦ Rapidly changing demographics and new geographies (small bodegas) ♦ Increasing number of SKUs and new product introductions ♦ Increasing percentage of sales from promotions ♦ Increasing importance of packaging ♦ Limited resources ♦ Available capital ♦ L b pool and skill sets Labor l d kill t ♦ Water, energy, ingredients, packaging materials 7 © ARC Advisory Group
  8. 8. More Sustainable Manufacturing♦ Driven by retailer initiatives • “The challenge of creating a low-carbon society will require a revolution in thought and action – a revolution in green consumption.” - Terry Leahy – CEO Tesco♦ Driven by business and regulatory y g y requirements • As a part of their effort to eliminate waste and improve efficiency, Pepsico has been applying eco- friendly technology in packaging, deploying solar energy and methane gas recovery technology, and testing hybrid vehicle programs in their delivery fleets♦ Driven by limited resources for manufacturing in most parts of the world♦ Driven by the “green” consumer/shareholder • A recent survey over 50% of consumers consider “ f id “green” i their purchasing ” in h i h i decisions and 20% are ardent “green” even concerned over how a company treats its employees 8 © ARC Advisory Group
  9. 9. Sustainable Manufacturing ♦ To the consumer • Product availability Environment • Environmental & Resource responsibility Friendly Products ♦ To the employee and his/her family / y ♦ To the local community Environment & Resource Environment & Resource Friendly Friendly ♦ To many segments of Supply Chain Plants manufacturing ♦ To Wall Street 9 © ARC Advisory Group
  10. 10. Response to Changing Business Environment♦ Initial Strategy i i l “Margins rise while returns are flat” • Mergers, acquisitions, divestitures, outsourcing • Product portfolio rationalization/optimization • Productivity initiatives • OEE, TPM, continuous improvement • Supply chain optimization programs 10 © ARC Advisory Group
  11. 11. Now Food, Beverage, and CPG Manufacturers AreAsking ♦ How do I address the fluctuating price and availability of commodities? ♦ How do I reduce my energy and other utilities costs and ensure the long term availability of these resources? ♦ How do I find and evaluate new technology that will support innovation and speed time-to-market? ♦ How do I reduce my manufacturing cycle time? ♦ How do I come up with new ideas or equipment that is multi- tasking and that can reduce change over time? ♦ Wh t are th b t metrics to support future manufacturing What the best t i t tf t f t i requirements? ♦ How do I support my ever expanding manufacturing and business automation systems and networks? 11 © ARC Advisory Group
  12. 12. Response to Changing Business Environment “An agile, innovative enterprise to sustain growth and improve♦ Strategy Going Forward – margins” • Global “super branding” • Expansion of distribution channels • Process automation and integration of manufacturing & business processes enterprise-wide • More sustainable & flexible manufacturing & supply chains h i • Develop a more innovative and extended organization and culture (people) 12 © ARC Advisory Group
  13. 13. Operational excellence is no longer enough.Its power to differentiate has eroded. Rory A. M. Delaney Senior Vice President Strategic Technology General Mills 13 © ARC Advisory Group
  14. 14. A Discipline of Innovation Emerging Innovation is generally recognized as the principle driver of growth and shareholder value g • An increased rate of change has made an ability to change more valuable • Methods and tools are emerging to vastly improve innovation success rates • Companies need new insights to achieve p g growth • Companies are “globalizing” their innovation p processes. A “follow the sun” p process is emerging • Companies are also utilizing more external resources to drive innovation 14 © ARC Advisory Group
  15. 15. A Discipline of Innovation Emerging Innovation is generally recognized as the principle driver of growth and shareholder value g • Companies involving suppliers earlier in design phase of new products and processes • Some OEMs are driving innovation faster than their clients – even in non-traditional areas of their business • Patented p oduc pac ag g a e ed product packaging • More functions on a single unit or machine • More continuous on-line quality verification • New environmentally friendly technology • Packaging end line provider • Sustainable manufacturing and limited resources in emerging markets will drive innovation even faster 15 © ARC Advisory Group
  16. 16. Where Are We Today? ♦ Few food, beverage, CPG manufacturing sites have their processing, packaging, warehousing, logistics, and business systems networked together with bi- bi directional electronic exchange of information ♦ Over 67% of packaging lines do not measure performance ♦ All respondents felt there was room for improvement in on-line quality verification, with almost two thirds saying there was significant room for improvement ARC Insights & Manufacturing Performance Surveys 2007 16 © ARC Advisory Group
  17. 17. Increased Need for On-line Quality Verification 17 © ARC Advisory Group
  18. 18. Where Are We Today?♦ One of the primary reasons for purchasing production management software is compliance♦ Leading edge companies depend upon production management software to optimize margin and quality ARC Insights & Manufacturing Performance Surveys 2007♦ Some factors inhibiting adoption of technology • Lack of ease of use for operators • Cost and complexity of maintaining technology • Lack of resources to evaluate new technologies • Long standing purchasing & amortization policies 18 © ARC Advisory Group
  19. 19. What Do We Need To Do? ♦ A More Comprehensive Plan to Meet Business and Regulatory Requirements includes: • Increased emphasis on performance monitoring , continuous improvement, and flexibility • Improved electronic tracking and tracing from the source to the consumer • Improved manufacturing plant security • Increased on-line quality verification and Quality by Design (QBD) • An “in depth” sustainable manufacturing strategy • An automation strategy that recognizes the commonality in both business and regulatory requirements • Affocus on people – your most valuable resource l l bl 19 © ARC Advisory Group
  20. 20. It’s Not Just About Technology “To sustain the productivity surge, todays managers must develop incentives that encourage their workers-as well as themselves-to be more creative, self-starting, educated, and willing to experiment. Jobs that call for simply following recipes will become scarcer, and demand for an innovation-driven workforce will continue to grow.” “……..It took 40 years for businesses to figure out how to redesign their factories and processes so that electricity could deliver a productivity payoff. Managers cannot afford to wait decades to harness the greater productivity offered by todays today s IT advances. ……. “Productivitys Technology Iceberg” March, 2004 by Erik Brynjolfsson, Professor of Management MIT Sloan School of Management 20 © ARC Advisory Group
  21. 21. 21© ARC Advisory Group