The global fruit and vegetable processing industry is a $158.1 billion industry that has been growing at an annual rate of 2.0% over the past five years. Most growth is in developing countries like China and India, while markets in North America, Europe, and Australia are declining. Currently, profit margins are at 4.8% due to economic downturn but are forecast to slowly increase over the next five years. The top companies, Heinz and Campbell Soup, hold 19.2% of the global market share. Competition is high as companies seek greater scale and efficiency through acquisitions and investment in efficient equipment.

1. Aaron Blanch
March 14, 2012
Executive Summary
Most of the growth in the fruit and vegetable market is found in the developing
countries such as China, and India. The markets in North America, Europe, and
Australia are declining.Currently the market profit margins are at about 4.8% due to
the economic downturn, but they are forecast to slowly increase over the next five
years.
Many large companies are seeking greater economies of scale and efficiency through
acquisitions of smaller companies, and investing in more efficient equipment.
Competitors are becoming increasingly aggressive in their marketingefforts
Buyer power is significant, but smaller computer technology has enabled some smaller
retailers to purchase directly from in manufacturers.
Abstract
The following report is about the top two companies in the global fruit and vegetable
processing industry-H.J. Heinz Co. and Campbell Soup Co. Key segments of this
industry include canned fruit and vegetables, specialty canned goods, dehydrated
food, and fruit and vegetable juices.
RivalBackgrounds
Heinz was founded in 1869, and is currently one of the world's largest food producers,
with more than 45,800 people in over 200 major locations worldwide (IBIS). During
the year 2011, Heinz was ranked number one in the processed fruit and vegetable
processing industry with 6.8% of the market share, and approximately 10.56 billion in
revenues (IBIS). In the U.S. Heinz is mainly known for its flagship product Heinz
Ketchup, which dominated the U.S. ketchup market in 2007 with a 60% market share
(Gidmann).
Campbell Soup Company was started in 1869, and is mainly known for their canned
soup products. Currently Campbell’s has products being sold in 120 countries, and
employs approximately 18,400 people. During 2011 Campbell’s held 5.1% of the
processed fruit and vegetable processing industry with 7.68 billion in revenues (IBIS).
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2. Aaron Blanch
March 14, 2012
Industries Dominant Characteristics
Market Size and Growth Rate
The global fruit and vegetable processing industry is a 158.1 billion dollar industry,
and has been growing at an average annualized rate of 2.0% over the past five years.
This is somewhat low due to economic downturn that started in 2008, and increased
popularity of low priced private label brands (IBIS).Some causes for their growth
projections were the steadily growing global population, and increased demand for
convenient meals in countries that are becoming more developed (IBIS). The United
States and Europeare the largest markets, but both are very mature with growth
mainly following minimal population increases. There is a growing popularity of fresh
fruits and vegetables however, in many areas as people gain greater access to such
products due to technological advances (IBIS).
Number of Rivals:
Overall, the global fruit and vegetable processing industry is relatively easy to enter
and is thus fairly fragmented, with approximately 6,071 different enterprises in the
industry. The top four companies in the industry are Heinz, Campbell Soup Company,
Kraft Foods, and McCain Foods; which hold only about 19.2% of the global market
share.However, in their domestic markets, and in some foreign markets, each has a
fairly dominant presence(IBISWORLD).
In general, the industry is going through a consolidation phase as large companies
have acquired several smaller companies to gain greater market share and efficiency.
Heinz and McCain both did this during the early part of the last decade (IBISWORLD)
Scope of Competitive Rivalry
Fairly stiff competition can be found in the local, regional, national and international
levels of the fruit and vegetable processing industry. Competition at the local and
regional levels involve private label brands that mainly compete with name brand
products by having lower prices, since they don’t have the resources to develop their
own brand names. According to the national processing company, Del Monte,private
label brands holdabout 30-45% of the market in various categories in the U.S.
(Hoovers).However, all of the major competitors in the industry operate globally, and
with international tradetaking up a growing percent of the industry (in 2006 it
accounted for 24.4% and in 2011 it accounted for27.8%), competitors are focusing
more on the expandinginternational markets (IBISWORLD).
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3. Aaron Blanch
March 14, 2012
Number of Buyers
The number one segment of buyers in the industry are mass merchandising
wholesalers, like Wal-Mart or Costco, which account for 53% of industry revenues
(IBISWORLD). In a November 2011 report, the company Del Monte (a national
processor) accounted 60% of their sales to just 10 customers; with Wal-Mart
accounting for about 30% (Hoovers). This is because such wholesalers can distribute
goods effectively to individual retailers, although computer inventory systems are
helping smaller retailers order directly from some manufacturers. The second largest
segment of buyers in the industry isthe food service industry and food processors
(restaurants, casinos, hotels, catering services etc.) which accounted for 27.6%of the
industry revenues.
Degree of Product Differentiation
One of the reasons that the industry is so fragmented is because there are so many
diverse products on the market. Such huge diversity in cultural tastes and individual
preferences makes it very difficult for any one company to dominate the market.
Differentiation is a key to the success of name brand companies like Heinz and
Campbell’s while private label brands position themselves closely to more recognized
brands just at a lower price (IBISWORLD).
Product Innovation
Generally products endure for a very long time- with Heinz Ketchup lasting for about
100 years, just as one example. Competitive advantages are often sought through
new packaging designs. Heinz has currently done this with the introduction of their
new “dip and squeeze” packets. Hunt’s has also tried to differentiate its products
through its packaging. According to Gidmann’s industry report, Hunts recently came
out with a bottle it claims is 12% lighter and more environmentally friendly than Heinz
bottles of the same size.
Demand-supply Conditions
The U.S. and Australia markets are very mature markets and growth in these markets
is mainly connected to the population growth. With such slow growing populations,
these markets have stagnated according to the IBIS report, because of an increase in
substitute products. On the other hand, the processed food market has grown
significantly over the last five years in countries such as China and India. This is due
to their economic growth, improved technology, urbanization, and westernization of
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March 14, 2012
their diets. Focusing on such developing markets has been attributed to be the main
reason for several major companies’ recent growth (IBISWORLD).
Pace of Technological Change
The pace of technological change has been low in the industry, since fruit and
vegetable processing uses fairly simple technology, and can be done in done in a
variety of ways. While very little technological changes have occurred in the industry,
applying new technological advances is key. For example, some manufacturers have
been using technological advances to produce more finished goods at the initial
processing sites. Doing soeliminates some processing steps, reduces shipping costs,
and utilizes plant capacity more efficiently (Hoovers).Also according to the
IBISWORLD report, innovations in packaging haveplayed one of the most key roles in
the industry.
Vertical Integration
Vertical integration with suppliers is a common practice because “purchases of raw
materials such as fresh produce, preservatives and packaging materials including
aluminum cans, glass jars and flexible plastic account for approximately 58% of
industry revenue” (IBISWORLD). Lowering such costs can give a competitive
advantage, and gives companies greater control and access of increasingly limited
quality inputs. However, investing in such activities ties up capital which could be
invested in other things that yield higher returns (IBISWORLD)
Economies of Scale
Economies of scale are playing a more crucial part in the industry, especially as
economic factors force margins down, and as suppliers are able to sell their goods to
more diverse markets due to improvements in shipping and other technologies. This
has been a major factor in the consolidation of the market.
Strategic Moves
Heinz restructured, selling off low profit segments of it business and purchased
others. In 2004 it purchased Unifine Richardson, a foodservice sauce and salad-
dressing maker. Kraft acted similarly, selling off certain segments of its business
andacquiring Cadbury in 2009, and the LUBiscuit brand in 2008. Another common
strategic move is entering new markets in developing countries like China and India;
Heinz attributed 30% of its growth in 2009 to exceptional growth in emerging
economies across Asia. Other general strategies have beeninvesting considerable
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March 14, 2012
amounts in new processing technology to increase productivity, and discount pricing
during the recession (IBISWORLD).
Five Forces
The following graph is shows the five forces and how much affect they have in the
fruit and vegetable processing industry.
New Market Entrants: High
100+ firms reg. enter & exit
Many market opportunities
Fairly simple technology used
Brand & capital barriers low
Supplier Power: Low Competitive Rivalry: High Buyer Power: High
Major portion of income from industry Increasingly globalized Brands are somewhat important
Many other suppliers Economies of scale needed Dependent on few large buyers
Threat of vertical integration Market growing slowly Buyers buy large quantities
Low to moderate switching costs Aggressive competition Identity of buyer adds prestige
Substitute Products: Medium
Fresh produce readily available
Produce seen as higher quality
Low switching costs
People want quick meals
Competitive Rivalry: High
The level of globalization is high and with it the need for economies of scale to
compete. The market is growing fairly slow, and competitors are becoming
increasingly aggressive to gain market share. Consolidation efforts to gain a
competitive efficiencies also prevalent in the industry(IBISWORLD).
New Entrants: High
Despite sunk capital costs, environmental regulations, and strong brand recognition
currently there are a hundred or more firms entering and exiting the industry each
year. This is because there are extensive market opportunities within the global
industry,the technology used is fairly simple, and acquiring the equipment to start
manufacturing goods is relatively easy (IBISWORLD).
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Substitute Products: Medium
Fresh produce is becoming more easily attained due to improved technologies and is
seen as more nutritious. Also demand for quick, easy meals is increasing due to
increased urbanization and western influence. However switching costs are relatively
low (IBISWORLD).
Buyer Power:High
Large wholesalers such as Wal-Mart and Costco account for 53% of the industry
revenues, and other large hotel chains, restaurants and other businesses account for
nearly 28% ofthe market.Also buyer images like Wal-Mart’s is important to sellers
(IBISWORLD).
Supplier Power: Low
It is common practice in the industry to contract for a grower’s entire production for
at least a year, so a great deal of their income depends on landing a good contract. In
addition to this, there are many suppliers in many developing countries, and switching
costs are relatively low for producers. The threat of vertical integration is also a key
reason why supplier power is low (IBISWORLD).
Driving Forces
According to the IBISWORLD industry report the key driving forces in the fruit and
vegetable processing industry are changes in cost,population and economic growth,
andconsumer preferences.
Changes In Cost
The price of raw materials has a large effect on the profitability of the industry. As we
saw during the economic recession that started in 2008, profit margins dropped as
manufacturers were unable to pass on some costs to consumers because if prices rise
too much consumers will simply turn to alternative products (Hoovers)
Population and Economic Growth
Changes in the long-term industry growth rate are very much affected by population
and economic growth. Population growth has a strong affects on the fruit and
vegetable processing industry, since strong growth will increase the demand for
processed fruit and vegetables- particularly in mature markets. Likewise the economic
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March 14, 2012
growth in China and India have enabled consumers to spend more and the increased
development creates more demand for quick prepared meals (IBISWORLD)
Changing Consumer Preferences
Another driving force in the industry is the changing consumption habits in various
segments. In North America and Europe consumers are becoming more health
conscious, preferring fresh produce, or more healthy processed goods. On the other
hand, consumer diets in developing countries like China and India are becoming more
westernized- preferring pre-processed products that allow for a quick meal. These
changes in consumption behavior have been key factors in the recent market changes
(IBISWORLD)
Key Success Factors
According to the IBIS WORLD report some of the key success factors affecting the
performance of the Global Fruit & Vegetables Processing industry included marketing
of differentiated products, quickly adopting new technology, upstream vertical
integration, and attractive product presentation.
Marketing Differentiated Products
Marketing a diversified range of products enables high capacity utilization, rather than
only seasonal operations; and also assists with brand recognition (IBIS). In foreign
markets, producers have developed many varieties of flavors to match the differing
cultural foods, and preferences. In 2010 Heinz and many other producers reduced
the salt content in their ketchup, which for Heinz was its first recipe change in 40
years, in order to cater to consumer’s health consciousness (IBIS WORLD).
Quickly Adopting New Technology
Adopting new technology quickly increases to increase productivity and reduce
costswhich are extremely important in such a competitive environment. One example
of how critical implementing such technology quickly is can be seen from a new
process
in the juicing industry that was introduced in the mid 1990’s, called counter-current
extraction. This process increased yields by up to 60 percent, which certainly gave a
competitive advantage to the first companies to implement the process. In recent
years companies have invested heavily in new technologies that reduce labor
requirements (IBISWORLD)
Vertical Integration
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March 14, 2012
Vertical integration with suppliers is also a key to success in the fruit and vegetable
processing industry because “purchases of raw materials such as fresh produce,
preservatives and packaging materials including aluminum cans, glass jars and flexible
plastic account for approximately 58% of industry revenue” (IBISWORLD). Lowering
such costs can give a competitive pricing advantage, and gives companies greater
control and access of quality inputs. Heinz did thisin 2004 when it acquired Unifine
Richardson, a Canadian foodservice sauce and salad-dressing maker. Most companies
in the industry also keep costs down by purchasing fresh fruit and vegetables from
developing countries at low prices and through large contract agreements
(IBISWORLD).
Attractive product presentation
Attractive product presentation is a key factor in the fruit and vegetable industry
because it helps create brand recognition, and generate sales. Also, consumers often
purchase products based on their visual appeal, so packaging is key tosuccess in the
industry.
Industry Outlook
Profits for global fruit and vegetable processors will remain relatively strong over the
coming years, with profits increasing gradually from about 4.8% to well above 5% by
2016. This growth forecast is attributed to the ability of large companies to get inputs
from developing countries at a low cost, and then sell the finished goods at higher
margins in more developed countries. The large market growth in countries such as
China and India are also key reasons for the growth forecasts.The availability of fresh
produce as alternatives and the degree of competition between major companies will
influence these numbers(IBISWORLD).
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9. Aaron Blanch
March 14, 2012
Works Cited
Fruit and Vegetable Processing Industry. (n.d.). Retrieved march 12, 2012, from www.hoovers.com
Fruit and Vegetable Processing Industry. (n.d.). Retrieved March 10, 2012, from IBIS World:
www.ibisworld.com
Gidmann, J. (n.d.). the squeeze on ketchup. Retrieved Feb 25, 2012, from Brand Channel:
http://www.brandchannel.com/features_effect.asp?pf_id=450#author
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