2009 Economic Outlook For The Global Food And Beverage Market Apr09


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2009 Economic Outlook For The Global Food And Beverage Market Apr09

  1. 1. 2009 Economic Outlook for the Global Food and Beverage Market Christopher Shanahan Food Industry Research Analyst Global Chemicals, Materials and Food San Antonio, Texas USA April 23rd, 2009
  2. 2. Agenda • The economic recession and its impact of economy on the food and beverage industry • What will catalyze the turnaround? • Emerging trends in food & beverage industry • Best practices for staying resilient to the recession 2
  3. 3. Taking a Step Back and Reviewing the Recession Genesis From Financial Sector to Real Sector Defaults Lack of Trust in Financial Institutions Sub-Prime Mortgages Financial Institutions Losses Lack of Capital Suspension of for Companies Interbank Lending Tightening Credit Markets $ Banks Slow Lending Down $ $ Lack of Lending for Small Business Slower Growth Lack of Retail Consumers Reduce Spending $ Credit $ Economy Slows Down/Contracts • Fear has a maelstrom affect on economic activity. • Most economists argue that the primary catalyst of the economic downturn was the sub-prime mortgage crisis and the associated collapse of the financial derivatives markets. • This in turn drove mistrust in financial institutions and the economy as a whole began to unravel. • Commercial banks began to slow consumer lending to both large and small companies and consumers. • Job creation stopped and businesses shrunk, which spurred job losses. • Thus, with declines in both industrial production and consumer demand, total economic activity regressed and the current global recession had begun. 3
  4. 4. The Economic Downturn and the Food & Beverage Market Early 2008 Early 2008 Late 2008 Late 2008 ••Exponential increase in commodity & Exponential increase in commodity & ••Exponential decrease in commodity & Exponential decrease in commodity & energy prices energy prices energy prices energy prices ••Increasing biofuel production in US Increasing biofuel production in US ••Collapse of demand growth, especially Collapse of demand growth, especially ••Depreciation of the U.S. dollar Depreciation of the U.S. dollar from emerging markets from emerging markets ••Increasing demand from emerging Increasing demand from emerging ••New margin pressures New margin pressures markets (BRIC) markets (BRIC) ••Continued depreciation of the U.S. dollar Continued depreciation of the U.S. dollar ••Squeezed margins due to increasing Squeezed margins due to increasing ••Restricted R&D and marketing Restricted R&D and marketing costs costs investment investment 2009 2009 ••Low price inflation rates for energy and other commodities Low price inflation rates for energy and other commodities ••Decreased dependence on biofuels in US Decreased dependence on biofuels in US ••Flat demand growth Flat demand growth ••Lower agricultural production Lower agricultural production ••Increased aggressive pricing strategy Increased aggressive pricing strategy ••Health & wellness trend to continue Health & wellness trend to continue ••Increased focus on cost saving strategies among businesses and consumers Increased focus on cost saving strategies among businesses and consumers 4
  5. 5. Impact of the Downturn on Specific US Industries The US Food Industry has been relatively resilient during the downturn Relative Impact of the Economic Downturn on Various Industries The Cumulative Market Cap Value per Industry Today Relative to the Same Value One Year Ago April 1, 2008 to March 31, 2009 90.00 82.68 81.63 79.92 80.00 76.34 69.97 69.65 70.00 65.35 64.72 61.37 60.33 59.79 60.00 57.57 54.33 53.82 52.78 50.93 50.22 50.00 45.32 42.75 40.00 30.00 20.00 10.00 0.00 ng s es es l es gy er s &D es ng r s m n s ls 0 ia pe e ie ile io al 50 bb ia ar ag ag i ti ic nc si er at ei A lit ic at Pa ob er es rv Ph til ag er En P er Ru er na m ci rt S& Se at U om oc om ev ev Fa po he ck Fi M & Pr B B Pa n C ut ns gl re s ic io ic ic tic A on od a ca as ct & ol ol Tr as C ru lth B Fo s oh oh er Pl st ea lc ac in on A H ta on C on N C 5
  6. 6. Global Commodity Food Price Index The bubble burst due to the collapse of demand One of the biggest economic stories of 2008 to affect most of the world, including the United States, was the exponential increase in commodity prices and then the Global Indexed Price Trend for Food & Beverage Commodities from April 2004 to dramatic fall in prices. Pinpointing a particular cause for March 2009, Base Year 2005 = 100, U.S. (2009) the increased volatility in food prices has been attempted 200 but to no avail. This is because food price volatility was not the result of any particular reason, but rather the synergy of multiple challenges impacting the food 180 economy as a whole. 160 Price Index 140 Likely Factors Impacting Price Volatility 120 • Volatility energy prices 100 • Increasing biofuel production 80 • Depreciation of the U.S. dollar Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Apr-04 Oct-04 Apr-05 Oct-05 Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 • Nature – Averse Weather in 2007 and 2008 • Government Policy Source: International Monetary Fund, Index Mundi • Long-term growth in international demand • Slowdown in agricultural production growth • Reduced global stockpiles of basic commodities like corn, soybeans, wheat, and rice 6
  7. 7. Significant Decline In Second-Half 2008 Imports Corresponded to Decline in World Sulfur Prices • Sulfur is a critical input in the production of fertilizers • Sulfur production is dependent on the petroleum industry and the demand for oil • According to industry sources, the expected price of sulfur has dropped off from 2008’s high due to the collapse of the fertilizer and industrial markets in emerging markets • In the second half of 2008, China’s sulfur imports were down 26 percent compared to the previous year. • In a typical year, China accounts for approximately 30 percent of world sulfur imports, so its reduced demand led to a rapid price decline. $0.20 $US Price per Pound $0.15 $0.10 $0.05 $0.00 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 2010 2011 2008 2008 2008 2008 2009 2009 Source: Frost & Sullivan • Price per pound based on a purchase of one metric ton order 7
  8. 8. Consequences - Supply Chain Pressures Economic conditions have impacted US supply chain reliability Biggest Problem Encountered with Ingredient Supply Chain Pressures Suppliers in the Past Year (2008) n = 28 • The economic downturn is pinching Supplier Reliability consumer demand in the food market, 29% but the food economy has been recession resilient Rising Costs Ingredient 50% Availability Other factors are impacting industry 21% performance and supply chains • Impact on supply chain Average Price Increase for Primary Ingredients in the Past Year (2008) n = 28 • Squeezed Margins No Change - Decreased • Availability 7% • Pricing Increased 1% • Reliability to 10% 33% • Supply chain safety and traceability More than 10% 60% Source: Frost & Sullivan 8
  9. 9. What Does the Downturn Mean for APAC? Not much…yet • Limited impact on the APAC food industry due to strong market growth rates • Asia shines despite economic gloom • Food expenditures in indicate a shift toward consumption of higher value food products across all income levels and regions • Growing consumer interest in health & wellness • APAC remains a vital sourcing ground for raw materials and low cost production • 2009 outlook among APAC food manufacturers is gloomy • High growth in APAC food markets has slowed, but signs of rebound are emerging 9
  10. 10. What Does the Downturn Mean for APAC? Urban Growth Rates - High Correlation with Growth in Economic Activity Urban Growth Rates - High Correlation with Growth in Economic Activity (2005) 5.00 4.50 4.00 3.50 CAGR % 3.00 2.50 2.00 1.50 1.00 0.50 0.00 m s es ia a . na re m n y o l ep zi ne an di pa do ic es na po at a hi In ,R ex pi Ja Br ng m n St C et ga li p do M er ea Vi Ki d n i G In Ph te Si r d Ko ni te U ni U Total Population Growth Urban Population Growth 10
  11. 11. Industry Reactions to Economic Downturn Increasing conservatism due to increase in uncertainty PRICING ADJUSTMENTS Price Volatility ORGANIC GROWTH EXPECTATION ADJUSTMENTS Pinched Consumer MERGERS & Demand Food & Beverage ACQUISITION Industry Supply RENEWED FOCUS ON Chain HIGH GROWTH Issues SEGMENTS 11
  12. 12. Catalyzing the Turnaround Specific Growth Drivers in the Food & Beverage Industry Today • Low inflation and increasing consumer spending • Increasing Urbanization • Government Stimulus • Growing interest and push towards health & wellness • Expected increase in interest in preventative medicine as a way to curb increasingly high health care costs • Greater awareness of benefits of functional food ingredients • Promotion of nutrients that are difficult to incorporate into a diet • Demand for alternative delivery formats of dietary supplements 12
  13. 13. Best Practices in the Food & Beverage Market • Invest in marketing strategies that focuses on your core product offering • Exploit opportunities from consumer feedback • Have a complete 360 degree perspective on your market’s external environment in order to discover opportunities • Establish partnerships with other suppliers • Adopt proactive product and service differentiation strategies • Understand the consumer’s motivation for buying your product 13
  14. 14. Boosting Top-Line Growth Through Differentiation Top Line Accelerated Growth Service Differentiation The Solution Provider: The Optimize Relationships with Marriage of Value-Added Value- Customers Quality Enhancement and Customer Relationship Optimization Maximize Customer Value by being the Low Cost Provider Enhance Value-Added Quality Value- through New Product Development Product Differentiation Source: Frost & Sullivan What distinguishes the food industry’s high performers from the average more than any other single factor is differentiation—of product, application, service and price, as well as differentiation in terms of the kinds of collaborative partnerships and alliances these companies strike with both customers and providers. Reactive strategies rarely achieve competitive advantage. High performance companies always adopt proactive strategies. 14
  15. 15. Focus on Food & Beverage Industry in China - SWOT Analysis Positive Factors Negative Factors STRENGTHS WEAKNESSES Internal Factors • F&B industries is one of the fastest growing • China’s underdeveloped agricultural industry sectors sector remains a major barrier to growth especially true for high-value • Gradual removal of market barriers and perishable foods (fresh dairy) trade restrictions • Food safety higher production and • Partnerships with multinationals have labeling costs allowed for rapid development OPPORTUNITIES THREATS External Factors • Health scares have opened up the • Food scares have impacted the entire market for food imports and has a food value chain highlighted positive effect on sales of processed vulnerabilities of the marketplace foods could constrain FDI • Rising disposable incomes is fueling • Emergence of India could mean growth in high-quality and specialty increased competition for FDI processed foods 15
  16. 16. Focus on Grocery Retail in China - SWOT Analysis Positive Factors Negative Factors STRENGTHS WEAKNESSES Internal Factors • China’s vast population • Underdeveloped infrastructure • High disposable incomes in urban centers • Much of the country’s rural poor cannot afford most grocery retail products • Lifting of FDI restrictions has fueled increased investment OPPORTUNITIES THREATS External Factors • China’s mid-sized cities remain fairly • Saturation in major cities is near unsaturated • Hypermarket format is already facing • The convenience and discount formats regulatory obstacles remain underdeveloped • Structural problems such as wide income • Private labeling inequality could constrain grocery retail growth • Rising tourist numbers 16
  17. 17. Next Steps Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities (www.frost.com/news) Register for the next Chairman’s Series on Growth on 26 May 2009, 11am SGT. The topic is - The CEO Challenge: Creating a Culture of Growth, Innovation and Leadership (visit http://www.frost.com/growthapac) Join us at a GIL 2009 : Asia Pacific - A Frost & Sullivan Global Congress on Corporate Growth from 12-16 Oct 2009 at Kuala Lumpur, Malaysia (visit www.frost-gil.com) Request a proposal for a Growth Partnership Service to support you and your team to accelerate the growth of your company. (email apacfrost@frost.com) 17
  18. 18. Your Feedback is Important to Us What would you like to see from Frost & Sullivan? Growth Forecasts? Competitive Structure? Emerging Trends? Strategic Recommendations? Other? Please inform us by taking our survey. 18
  19. 19. For Additional Information Steve Lee Strategic Account Manager Krithika Tyagarajan Chemicals, Materials and Food, Asia Pacific Research Director- APAC (65) 6890 0914 65.6890.0230 steve.lee@frost.com ktyagarajan@frost.com 19