The latest quarterly revision (Q1 2016) of the global packaged food market will understandably be a concern to many in the industry. Forecast projections for the 2015-2020 period have been downgraded from a 2.5% CAGR to 2.3%. This matches similar revisions from key industry players, which are particularly concerned about the impact of an emerging market slowdown.

1. PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016
March 2016

2. Key findings
PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016
Global forecast annual average
growth in packaged food cut
from 2.5% to 2.3%
The latest quarterly revision (Q1 2016) of the global packaged food market will
understandably be a concern to many in the industry. Forecast projections for the
2015-2020 period have been downgraded from a 2.5% CAGR to 2.3%. This matches
similar revisions from key industry players, which are particularly concerned about
the impact of an emerging market slowdown.
Concerns over emerging
market slowdown shift from
China to Brazil
Whilst China has previously been the cause of much distress, recent data clearly
indicate that the wider Latin American market is going through a period of disruption,
with Brazil’s downgrade being the most alarming event.
Nestlé and Lactalis are
particularly exposed to
downgraded markets
With over 10% of their sales coming from Brazil, Nestlé and Lactalis are likely to bear
the brunt of this downgrade, but all of the top global food companies will feel the
effect. There are small pockets of good news in Pakistan, Iran and India, but, on the
whole, the future is looking a little less rosier than it did three months ago.
Slower performance
experienced in the industry
brings cost cutting back into
fashion
This weaker outlook is reflected in recent company financial performance, with the
majority of the larger food companies hampered by a strong US dollar and opting for
profit growth through cost cutting. This is perhaps best exemplified by Kraft Heinz,
which continues to deliver operational efficiencies through factory closures and
workforce cuts.
Unilever bucks the trend by
increasing sales, but at the
expense of profits
Unilever appears to stand out from the crowd, and has continued to invest boldly in
innovation, optimistically looking for continued growth in what is a slowing market.

3.  Baby food accounts for over half of the reduction in food sales growth
in this update. This highlights that baby food has a stronger elasticity
to GDP growth, (0.33 over one year), than overall packaged food,
(0.22). In China, baby food recently started facing specific challenges
to value growth that do not apply to the same extent to other
foodstuffs. In particular, legislation passed in 2015 limits the number
of brands allowed to be sold to three per manufacturer, in order to
encourage traceability and raise quality standards, thereby fostering
the creation of more competitive local brands with nationwide
distribution, and putting pressure on prices.
Tighter regulations and lower GDP growth lower China’s outlook
PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016

4. Downgrade to US food market a shared concern for many
PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016

5.  Over the last decade, the
packaged food industry
has witnessed a slowdown
in growth rates. Even if
2009 (recession) and
2015 (strong US dollar)
are excluded from the
analysis, the trend has
been distinctly downward.
 This has prompted major
mergers across the
industry, such as the 2015
Kraft Heinz deal, as
business leaders seek
profit growth through
efficiencies and scale,
rather than through sales
expansion.
 Q1 2016 proved no
different in that respect.
Slowdown across market forces a focus on margin growth
PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016

6. Our quarterly view on the top 10 food giants recent performance
PACKAGED FOOD: QUARTERLY STATEMENT Q1 2016
“With Mondelez net sales down 17%, and the loss
of its No.2 position in packaged food and its No.1
position in confectionery, there is concern about
this snacks giant still finding its identity.”
“Unilever is one of the few big food firms to report
a net sales increase, underlining its focus on high
growth categories. This is a contrast to rivals
adopting a more cost/profit-centric approach.”
“Nestlé is currently well placed to benefit from its
healthy food portfolio in developed markets, but
will face growing competition from other food
companies trying to do the same.”
“2015 saw Lactalis enter the top 10 global food
companies due to its aggressive acquisition
strategy. It has now gained a solid foothold in
most of the key growing dairy regions.”
“PepsiCo has overtaken Mondelez to become the
world’s No.2 packaged food company. This has
been aided by a strong US dollar and PepsiCo’s
focus on savoury snacks.”
“Kellogg has seen a 7% dip in its net sales,
primarily due to its declining breakfast cereal
sales in North America and Europe, two of the
largest contributors to its revenue.”
“A sizeable product recall across 55 countries will
dampen short-term sales at Mars. Longer term,
the company’s lack of premium confectionery will
be a cause for concern.”
“General Mills’ rebalanced its portfolio to focus
more on healthy snacks, divesting Green Giant,
acquiring Epic meat snacks and relaunching
Annie’s; all to try to appeal to the US millennial.”
“Danone is cautious in its growth forecast for
2016, due to weak demand in Brazil and Russia,
and seeks to focus on expanding in Africa. It
anticipates higher milk prices undermining
profits.”
“Kraft Heinz has seen operating profit increase,
despite declining sales. This confirms the group’s
aggressive cost-cutting measures, as it operates
mostly in a low growth environment. The Kraft
Heinz brand portfolio still lacks brands with a
more natural positioning.”

7.  The Industry Forecast Model is a new tool from Euromonitor International that integrates intuitive,
judgment-based forecasting with the quantitative techniques of an econometric Industry Demand Model.
 The Industry Demand Model assesses the relationships between several historic quantifiable independent
variables (demand drivers) and historic retail volume sales for different markets that Euromonitor
International tracks.
 In identifying these relationships, the model estimates elasticities for each statistically significant demand
driver, including income growth, changing retail prices, demographic trends and retail channel trends.
 Multiplying these elasticities by corresponding year-on-year growth forecasts for each demand driver allows
the Forecast Model to build annualised retail volume and value forecasts for a market in a given year.
 While estimated demand driver elasticities are constant, forecast demand driver growth can change over
time. For example, forecast GDP growth for a given year is regularly upgraded or downgraded in
Euromonitor International’s Macro Model to reflect changing economic and sociopolitical conditions.
 In turn, changing only forecast growth for GDP in this example allows the Packaged Food Forecast Model to
create multiple retail forecasts that capture the impact of these changing macroeconomic conditions.
About Euromonitor International’s Industry Forecast Model
ABOUT OUR INDUSTRY FORECAST MODELS
Impact of Russia GDP Shock on Chocolate Confectionery Retail Volume Forecast in Russia
2015 Real GDP %
Growth Forecast
Chocolate Income
Elasticity
Income Effect on
Chocolate Growth
2015 Chocolate %
Volume Growth
Baseline Forecast
(June 2014)
+1.43 0.37 +0.53pp +1.41
Updated Forecast
(December 2014)
-3.82 0.37 -1.41pp -0.55

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