package food world report part 1
TRANSCRIPT
Packaged Food 2010 - Part 1: Global Market Performance
November 2010
© Euromonitor International
2
Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
© Euromonitor International
3
Packaged Food: Market Performance
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accuracy and reliability, Euromonitor International cannot be
held responsible for omissions or errors
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Scope
Introduction
2010 Global Packaged Food Retail Value: US$1.95 trillion
2015 Global Packaged Food Retail Value: US$2.14 trillion
© Euromonitor International
4
Packaged Food: Market Performance
• The core objective of this two-part report is to examine the current state of the global packaged food industry, and
determine how latest industry trends and developments are impacting both present and future retail performance.
This report will take into consideration a variety of industry developments that have taken place since the beginning
of 2010, discussing their effects throughout the calendar year to date as well as future potential impact.
• Since a full-fledged global economic recovery remains far from guaranteed – given high sovereign debt levels and
public spending cuts in Europe and unemployment rates that refuse to come down in the USA – the report begins
with analysis as to how all this lingering uncertainty has impacted packaged food sales over the past year, both in
general and by specific product category and geography. A mixture of staple and impulse food items will be
reviewed. Given the present impact of broader economic factors, future industry prospects through to 2015 will also
be discussed.
• The report also examines how the competitive landscape for packaged food has evolved since Kraft‟s purchase of
Cadbury in January 2010. Other M&A developments and their overall market impact will be reviewed, as well as
other potential mergers, acquisitions and joint ventures currently in the pipeline.
• Retailer consolidation – and its impact on packaged food sales – will also be examined, as it relates to developed
and developing markets alike. The impact of retail consolidation on private label development will be examined in the
process, as will the effects of retailing regulations in key emerging markets such as India and Russia.
• The separately published second part of the report will then examine the key trends, developments and opportunities
impacting and driving the industry, starting with the present state of the health and wellness trend. Given increasing
levels of regulatory and consumer scrutiny, particularly for functional food, many manufacturers with a health and
wellness positioning are having to re-evaluate their product development and marketing strategies. While rumours of
the „demise‟ of health and wellness remain unfounded, significant changes may be in store.
• Health and wellness also plays – at least in part – to mounting global consumer demand for „lifestyle‟ brands, that is
products that very explicitly speak to consumers‟ personalities, values, priorities and quirks. Other packaged food
new product developments with an overt lifestyle positioning will also be reviewed and analysed.
• Another „lifestyle‟ positioning that has been gaining traction – especially in Western Europe – is ethical packaged
food. As such, a summary of the current state of packaged food leveraging an ethical positioning will be provided,
focusing specifically on organic, fair trade and other sustainably-sourced items. Any impact that continued global
economic uncertainty is having on the retail performance of ethical packaged food will also be examined.
Objectives of Global Briefing
Introduction
© Euromonitor International
5
Packaged Food: Market Performance
• The report concludes with a series of forward-looking final conclusions, which draw on the industry developments of
the past year to provide strategic insights for any player in the global packaged food industry looking to maximise
future retail sales prospects and success potential.
• The report does not claim to be comprehensive but rather seeks to offer high-level insight into key developments and
opportunities in the packaged food market at a time of continued macroeconomic uncertainty.
• Other Packaged Food and Health and Wellness global briefings from Euromonitor International provide additional
insights on relevant industry factors, variables and trends such as macroeconomic conditions and their impact,
retailer consolidation, private label encroachment, value-added product development and the health and wellness
and ethical food trends. For more insight on these and other topics, please see:
• Diverse Corporate Strategies to Exploit Opportunities in Global Dairy
• Probiotics and Prebiotics: Moving Beyond Digestive Health Status Quo
• Probiotics and Prebiotics: Moving Beyond Digestive Health – Opportunities and Challenges
• Got Milk? – Mapping the Dairy Supply Chain in Developed Markets
• Ethical Packaged Food: Does It Really Have A Future?
• Do Brands Still Matter? – Focus on Private Label Packaged Food
• Forecast Revisit: Will New Scenarios Alter Prospects for the Global Packaged Food Industry?
• The Shapes and Sizes of Recovery in 2010
• Impact of EFSA's Changing Guidelines on Health and Wellness Food Claims
• After Kraft/Cadbury: What Next?
Find Out More With Other Euromonitor Global Briefings
Introduction
© Euromonitor International
6
Packaged Food: Market Performance
Global economic
recovery still far from
guaranteed…
While the recent global economic downturn had a comparatively minimal impact on
packaged food sales, continued economic anxiety and the spectre of public spending
cuts across much of Europe means future growth prospects are far from guaranteed.
… But both staple and
impulse packaged food
categories holding firm
Despite ongoing economic uncertainty, general consumer preferences have not
necessarily changed that much when it comes to packaged food, but consumers will
shop smarter and seek out value for money in whichever retail formats they can.
Is the end of ‘health and
wellness’ nigh?
Health and wellness remains a significant growth driver for the global packaged food
industry, but has also come under mounting pressure from both regulators and
consumers. Significant changes to product marketing and claims are in store.
Lifestyle positioning
remains salient for
packaged food
As in other industries, packaged food offerings with a clear lifestyle message and
positioning remain popular, irrespective of broader economic conditions. Products
that speak to consumers‟ personalities, aspirations and values tend to do very well.
Ethical packaged food
still in vogue despite
economic uncertainty
One such value that is continuing to resonate with consumers, especially those in
mature developed packaged food markets, is ethicality. Though still relatively niche,
retail sales prospects for organic and fair trade food remain fairly strong.
Where did all the M&A
go?
After Kraft bought Cadbury in January 2010, a flurry of packaged food M&A was
widely anticipated. However, not much has actually transpired as leading
manufacturers instead focus on inward investment and organic growth strategies.
Retailer consolidation is
transforming the
packaged food industry
Packaged food retailing is becoming more and more consolidated, to the benefit of
supermarket, hypermarket and discounter chains and at the expense of traditional
formats such as small independent grocers and outdoor markets/bazaars.
Battle heats up between
brands and private label
Retail consolidation is also spurring on private label encroachment across the
packaged food industry, in developed and developing markets alike. That said, room
still exists for brands to succeed, especially those with a strong added-value focus.
Key Findings
Introduction
© Euromonitor International
7
Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
© Euromonitor International
8
Packaged Food: Market Performance
• The global packaged food market has carried on growing in constant retail value terms, and should approach US$2
trillion by the end of 2010.
• This represents a real terms gain of 1.5% from the previous year and is broadly in line with the 10-year CAGR for the
years 2000 to 2010, indicating that real terms consumer spending across the global packaged food industry remains
unfazed by broader macroeconomic conditions and lingering uncertainty.
• Bakery and dairy – both considered staple food items – remain the two largest product categories, accounting for
more than 40% of global packaged food retail value sales between them. This further underscores the inherently
recession-resistant – if not recession-proof – nature of packaged food, as consumers tend not to abandon perceived
necessities despite economic crisis.
• That said, global retail value gains for both categories have remained average at best during 2010, given their
general maturity in developed and developing markets alike and relatively depressed farmgate and commodity prices
in the wake of the dramatic peaks of mid-2008.
• Health and wellness continues to provide avenues for manufacturers to add value to otherwise mature product
categories. Companies such as Danone still find success via this strategy, which in turn has driven retail value gains
for dairy well above those of bakery in 2010.
• However, this strategy‟s viability has now come under threat given greater consumer and regulatory scrutiny.
0
500
1,000
1,500
2,000
2005 2006 2007 2008 2009 2010
US
$ b
illio
n
Global Packaged Food Retail Value Sales by Major Category, 2005-2010
Bakery Dairy Chilled Confectionery Dried Others
The State of the Global Packaged Food Marketplace in 2010
After the Fall
© Euromonitor International
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Packaged Food: Market Performance
• Real terms consumer spending on chilled processed food has increased steadily over the past decade, as
consumers in developed and developing markets demand more convenience and look to balance time-saving traits
alongside perceived freshness and nutritional value. That said, this balance comes at a comparatively high retail
price, which continues to constrain growth in 2010 relative to the 10-year CAGR as well as other, more affordable
categories such as frozen processed food. Slowing growth prospects have been further exacerbated by the fact that
some consumers in developing markets have reverted to fresh food, which is more labour intensive but also cheaper.
• Impulse and indulgence categories such as snack bars, sweet/savoury snacks, ice cream and confectionery
continue to see respectable retail value gains in 2010 as consumers look for small indulgences and treats to alleviate
economic worries. The relative affordability of value-added impulse food (healthy, ethical, decadent, etc.) relative to
„luxury‟ goods in the alcoholic drinks, cosmetics and fashion industries adds further appeal and reinforces value
growth.
• The importance of developing markets to global sales gains can no longer be understated. For example, strong and
global retail value growth for baby food and packaged noodles owes much to Asia Pacific, and specifically China.
0
2
4
6
% g
row
th
Global Packaged Food Retail Value Growth by Category, 2000-2010
2009-2010 % growth
2000-2010 CAGR
Consistent Global Retail Value Growth Across Industry
After the Fall
© Euromonitor International
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Packaged Food: Market Performance
• Global packaged food retail volumes should reach 550 million
tonnes in 2010, up nearly 3% from 2009. As with retail value, this
increase is broadly in line with the 10-year CAGR for the years
2000-2010 and underscores the industry‟s resilience to recession.
• While packaged food manufacturers remain successful in
persuading consumers to spend more money on what they eat, it is
also significant that the physical quantity of packaged food
purchased worldwide continues to rise.
• This is due to a variety of factors, none of which are necessarily
new but their continued relevance, regardless of general economic
conditions, is nevertheless significant.
• Consumer preferences for packaged food have not changed that
much as a direct result of the global economic downturn or its
aftermath, which is supporting retail volume gains. However,
consumers continue to shop smarter, which has benefited modern
retail formats such as supermarkets, hypermarkets and discounters
at the expense of traditional independent grocers.
• Modern retailers compete in terms of price, which makes packaged
food generally more affordable. This has been further augmented
in 2009 and 2010 by low commodity prices compared to the spike
witnessed from mid-2007 through to the middle of 2008.
• Retail volumes have also been bolstered as more consumers in
developing markets substitute unpackaged and fresh food for the
perceived benefits of packaged food. Growth of packaged noodles
in China or milk in India owes much to just such a shift.
• Economic uncertainty also means consumers are eating out less,
especially in developed markets, to the further betterment of overall
packaged food retail volume sales and growth.
Global Packaged Food Retail Volume Also Expanding
After the Fall
0
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100
150
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300
350
400
450
500
550
2005 2006 2007 2008 2009 2010
Mill
ion
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Global Packaged Food Retail Volume Sales, 2005-2010
Dairy Bakery DriedOils and Fats Canned Others
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Packaged Food: Market Performance
0
20
40
60
Supermarkets/ Hypermarkets
Discounters Small Grocery Retailers
Other Grocery Retailers
Non-Grocery Retailers
Non-Store Retailing
% r
eta
il va
lue
Global Packaged Food Retail Distribution by Format, 2000/2010
2000 2010
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2007 2008 2009 2010
US
$ p
er
kg
Retail Unit Prices for Select Staple Packaged Food Categories, 2007-2010
Noodles Oils and Fats Baked Goods Rice Milk
Retail Distribution and Unit Prices for Global Packaged Food
After the Fall
© Euromonitor International
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Packaged Food: Market Performance
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2005-06 2006-07 2007-08 2008-09 2009-10
% g
row
th
Packaged Food vs. Consumer Foodservice Retail Value Performance, 2005-2010
Packaged Food Consumer Foodservice
Packaged Food Values Outperforming Consumer Foodservice
After the Fall
0
1
2
3
4
5
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2005-06 2006-07 2007-08 2008-09 2009-10
% g
row
th
Packaged Food Retail Volumes vs. CFS Transactions, 2005-2010
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Packaged Food: Market Performance
22.4%
1.8%
8.0%
11.3%
4.7%20.2%
31.6%
Packaged Food Retail Value Sales by Region, 2005
Asia Pacific
Australasia
Eastern Europe
Latin America
MEA
North America
Western Europe
• In absolute terms, global packaged retail values are slated to increase by US$28 billion from 2009 to 2010. More
significantly, Asia Pacific and Latin America will between them account for more than US$21 billion of this increase.
Both regions have increased their retail value share of the global marketplace by 100 basis points from 2005 to 2010.
• Asia Pacific‟s overall impact on global packaged food sales is even greater when the comparatively developed
markets of Japan, South Korea, Taiwan, Singapore and Hong Kong are filtered out, all of which are expected to see
flat to declining retail values in 2010. By contrast, China alone will add more than US$7 billion to global retail values
in 2010, with a further US$1 billion or so each coming from India and Indonesia and US$480 million from Thailand.
• By comparison, the mature packaged food markets of North America and Western Europe will add only US$840
million and US$1.4 billion, respectively, to global retail value sales in 2010, less than 10% of total growth. On top of
general maturity, aggressive promotional pricing campaigns from manufacturers and chained grocery retailers alike,
coupled with increasing private label encroachment, is acting as a drag on overall retail value performance.
• That said, not all emerging packaged food markets are thriving. Economic recovery remains tenuous in Eastern
Europe, with the region‟s packaged food market expected to only increase by US$570 million in real terms in 2010.
However, market prospects should improve from 2011, after the region‟s economic recovery consolidates itself.
Emerging Markets Drive Global Retail Performance
After the Fall
23.4%
1.8%
8.2%
12.3%
4.9%
19.3%
30.1%
Packaged Food Retail Value Sales by Region, 2010
© Euromonitor International
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Packaged Food: Market Performance
• Bread, a staple in most countries, has weathered the
economic downturn fairly well as most consumers
reduce expenditure on non-essentials instead. While
not extraordinarily dynamic in a global context, constant
retail values have still held steady. Moreover, packaged/
industrial bread has performed slightly better than
unpackaged formats despite its higher retail price point.
• Value-added health and wellness trends are also
holding firm, regardless of economic concerns. In the
USA, whole grains and their health benefits remain
popular and continue to influence consumer choices.
While white bread, which tends to be much cheaper
than brown bread, still commands more than 31% of US
packaged/industrial bread retail value sales in 2010, it
has declined 100 basis points from the previous year.
Meanwhile, wholewheat bread has gained 20 basis
points in 2010 to account for nearly 11% of category
retail value as consumers remain fixated on fibre.
• Greater demand for healthier options is also driving
bread sales in emerging markets. In Argentina, the
Fargo and Bimbo packaged/industrial bread brands
offer variants with extra fibre, omega-6 and omega-9
and 0% trans fat, all attracting many new consumers.
• Argentine packaged/industrial bread sales are also
benefiting from aggressive price promotions in
supermarkets and hypermarkets, a tactic that has
greatly increased its affordability among lower-income
consumers and is relevant to other emerging markets.
0%
20%
40%
60%
80%
100%
2005 2006 2007 2008 2009 2010
% r
eta
il va
lue
US White vs. Wholewheat Packaged Bread Sales, 2005-2010
White Wholewheat
0
50
100
150
200
2005 2006 2007 2008 2009 2010
US
$ b
illio
n
Global Bread Sales, 2005-2010
Packaged/ Industrial Unpackaged/ Artisanal
Global Bread Sales Benefit From Staple Status, Added Value
After the Fall
© Euromonitor International
15
Packaged Food: Market Performance
• Even though in global real terms, retail value growth for frozen processed food has slowed in 2010 relative to the 10-
year (2000-2010) average, in large part thanks to continued economic uncertainty, constant value retail spending per
head has still held relatively steady – if not improved – since the start of the global crisis in 2008.
• It comes as no surprise that consumer spending per head for frozen processed food in the comparatively developed
markets of North America, Australasia and Western Europe far outstrips levels in Eastern Europe, Latin America,
Asia Pacific and MEA.
• However, what is remarkable is the fact that real terms consumer spending did not fall in any region between 2008
and 2010, be it developed or developing, with spending per head in most cases actually increasing.
• Growth is being driven by various factors, including sustained demand for convenient meal solutions irrespective of
economic conditions and the expanding presence of domestic and commercial freezer units in emerging markets
specifically. In developed regions there is also a growing perception that freezing food helps it to retain its nutritional
value better than chilled.
• The longer shelf-life of frozen food also appeals to more consumers in developed and developing markets alike.
• Manufacturers recently expanding their scale in frozen processed food via high-value acquisitions include Nestlé SA
and Iglo Bird's Eye Frozen Foods, while Kraft Foods and Unilever have sought to exit the category.
0
20
40
60
80
100
120
North America Australasia Western Europe Eastern Europe Latin America Asia Pacific MEA
US
$ p
er
he
ad
Frozen Processed Food Retail Per Capita Spending, 2008/2010
2008 2010
Frozen Processed Food Retail Values Hold Firm Worldwide
After the Fall
© Euromonitor International
16
Packaged Food: Market Performance
• Retail value growth for ice cream has proved resilient in
2010 thanks to a generally warm summer, which has
helped push global projected sales gains for the year
ahead of the 2000-2010 average. The 2010 FIFA World
Cup also no doubt bolstered retail sales performance.
• Likewise, the World Cup also appears to have benefited
other impulse food categories such as confectionery and
sweet and savoury snacks, with 2010 anticipated retail
value gains for both categories outperforming the 10-year
(2000-2010) average as well. However, the tournament
can only be seen as one bolstering factor, and even a
somewhat marginal one at that.
• The more important point to draw from 2010 retail
performance is that consumers around the world still crave
their „junk food‟ regardless of economic conditions and
conflicting industry trends such as health and wellness.
• Emerging markets are becoming more important to
impulse and indulgence food sales in retail value and
volume terms, thanks to more sustained – relatively
speaking – economic growth and increasingly Western
consumer lifestyles, preferences and eating habits.
• China‟s sweet and savoury snacks market should reach
US$9 billion in 2010. Moreover, real terms retail value
growth should continue to outpace retail volume gains.
This means Chinese consumers are continuing to trade up
to more premium-minded – and higher-priced – snacks,
which bodes exceptionally well for manufacturers‟ margins
and profitability going forward.
0
2
4
6
8
10
2005-06 2006-07 2007-08 2008-09 2009-10
% g
row
th
Chinese S/S Snacks Retail Sales Performance, 2005-2010
Retail Value
Retail Volume
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Confectionery Ice Cream S/S Snacks
% g
row
th
Global Impulse and Indulgence Food Retail Value vs. Volume Growth, 2010
Retail Value Retail Volume
Impulse and Indulgence Food Prospects Remain Resilient
After the Fall
© Euromonitor International
17
Packaged Food: Market Performance
• One potentially significant unknown quantity for packaged food retail prospects is the looming spectre of commodity
price volatility. Cocoa and wheat prices have continued to rise in 2010, while corn prices reached a two-year high on
commodity markets on 11 October 2010 after the US Department of Agriculture warned of “dramatically” reduced
stocks due to bad weather. In turn, this rise could have a profound impact on meat production costs, and thus prices.
• While most industry sources still believe that a repeat of the rocketing food prices seen from mid-2007 to mid-2008 is
unlikely, upward pressures are mounting thanks to a mixture of commodity speculation and natural disasters
including the recent wildfires in Russia and flooding in Asia Pacific that has blighted the likes of China and Pakistan.
• In turn, this potentially dangerous mix is leading to renewed social unrest, with Mozambique experiencing „food riots‟
in early September 2010. In turn, this has prompted the UN Food and Agricultural Organization to issue a series of
warnings in recent months, not least a report published in June 2010 stating that at current trends global food prices
could rise by as much as 40% by 2020. Rising prices are also attracting the ire of industry bodies. In a statement
published on its website in May 2010, the German Confectionery Association (BDSI) condemned the speculative
investment by banks and investment funds on agricultural commodities such as cocoa. Cocoa price fluctuations
since the end of 2009 and start of 2010 have caused uncertainty for chocolate manufacturers around the world.
100
110
120
130
140
150
160Commodity Food Price Index: March 2009-September 2010
What’s Happening With Global Food Commodity Prices?
After the Fall
Source: IMF
© Euromonitor International
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Packaged Food: Market Performance
• In the case of wheat, which has come under considerable scrutiny lately, global stocks are predicted to remain close
to 2008/2009 levels (despite the recent Russian fires) and consumer demand for wheat-intensive products is not
changing much. As such, strong fluctuations in the price of wheat stemming from supply/demand imbalances are
fairly unlikely in the short term. However, stronger than predicted demand in emerging regions and/or relatively poor
crops in specific countries could push up wheat prices close to 3-5% between September 2010 and the end of 2011.
• Any price movements going beyond this range could be driven by other factors. For example, a general economic
recovery is picking up pace in Asian markets, especially in China, India and Indonesia. Moreover, the urban
population in these countries – which accounts for the bulk of bakery consumption – is predicted to grow by 140
million between 2009 and 2014. Meanwhile, in the Middle East and Africa, where bread remains a heavily subsidised
staple food item, the total population is projected to grow by 140 million between 2009 and 2014.
• Nevertheless, the early August 2010 price hikes seen on international wheat markets are testament to just how jittery
trading in global food commodities is becoming. The prevailing mentality of so-called “food insecurity” has made
wheat, alongside other food commodities, particularly prone to speculative attacks, and thus mounting uncertainty. In
turn, this makes securing longer-term input supply contracts even more important to the future health of the industry.
Repeat of 2008 Food Price Spike Still Considered Unlikely
After the Fall
150
175
200
225
250
275
300
Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10
US
$ p
er
me
tric
to
nn
e
Wheat Monthly Prices: October 2009-September 2010
Source: IMF
© Euromonitor International
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Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
© Euromonitor International
20
Packaged Food: Market Performance
• The global packaged food marketplace remains
extremely fragmented, with the top 10 players
collectively accounting for little more than 15% of retail
value sales worldwide based on 2009 estimates. While
private label on aggregate claims another 12.5%, more
than 70% of value sales stem from smaller, more often
than not, highly localised players.
• As of November 2010, only two manufacturers of
branded packaged food can claim to account for more
than 3% of global packaged food retail value sales: the
newly-merged Kraft/Cadbury and Nestlé SA.
• The competitive landscape is so fragmented that
meaningful organic share growth – on a global or even
regional scale – is exceptionally hard for companies to
achieve. As such, mergers and acquisitions have
become the preferred method of expansion and
consolidation within the industry, and the only
perceived way to move up the company rankings.
• In the last three years, Mars is one of only two
companies to have moved up – albeit by only one
place – in the global company rankings, thanks to its
2008 acquisition of Wrigley and its iconic gum brands.
• The only other company to improve upon its global
ranking between 2007 and 2010 is, of course, Kraft
Foods, thanks entirely to its acquisition of Cadbury Plc
in January 2010. Based on 2009 sales, Kraft/Cadbury
is now the single largest packaged food company in
the world, just pipping Nestlé to the top spot.
Global Packaged Food Competitive Landscape in 2009-2010
Competitive Landscape
Global Packaged Food – Top 10 Companies by
Retail Value 2007-2009
Company2007
Rank
2008
Rank
2009
Rank
2009 %
Share
Kraft/Cadbury - - - 3.3%*
Nestlé SA 1 1 1 3.2%
Kraft Foods Inc 2 2 2 2.4%
Unilever Group 3 3 3 2.1%
PepsiCo Inc 4 4 4 1.8%
Mars Inc 6 5 5 1.4%
Groupe Danone 5 6 6 1.3%
Cadbury Plc 7 7 7 0.9%
Kellogg Co 8 8 8 0.8%
General Mills Inc 9 9 9 0.7%
Ferrero Group 10 10 10 0.6%
Note: *Based on consolidating Euromonitor International’s
published 2009 Packaged Food retail value shares by Global
Brand Owner for Kraft Foods Inc and Cadbury Plc to reflect
Kraft’s acquisition of Cadbury on 19 January 2010
© Euromonitor International
21
Packaged Food: Market Performance
• Immediately after Kraft‟s successful acquisition of
Cadbury on 19 January 2010, speculation ran riot on
potential deals and tie-ups elsewhere in the global food
industry. In particular, attention focused on what Nestlé
would do next, as the Swiss “nutrition” giant was no
doubt smarting after being knocked from its number one
spot and – more importantly – was flush with cash after
selling its remaining shares in eye care subsidiary Alcon
for around US$28 billion in cash.
• At the time, suspected acquisition targets for Nestlé
centred primarily on established US packaged food
companies such as General Mills, Heinz and Hershey.
• However, since the Kraft/Cadbury acquisition – and also
since it formally received payment for its Alcon shares
on 25 August 2010 – Nestlé has not actually made any
strategic acquisitions of any note or consequence (see
Nestlé Global M&A 2010 timeline to the right).
• Rather, it has used the proceeds of the Alcon sale – at
least in part – to invest in setting up its new Nestlé
Health Sciences division and focusing on medical
nutrition in the packaged food and beverage industries.
• Similarly, no other significant M&A events of truly global
significance have taken place among packaged food
companies since the Kraft/Cadbury tie-up at the start of
the year, though some speculative prospects remain
firmly in the pipeline and thus worthy of consideration.
• All of this begs the question: what happened to all the
packaged food M&A that was so widely anticipated?
What Happened to all the Promised Food M&A?
Competitive Landscape
• Nestlé purchases Ukraine‟s LLC Technocom for an undisclosed amount.
• LLC Technocom is a local market leader in dehydrated culinary products sold under the Mivina brand name.
3 March 2010:
LLC Technocom
• Nestlé acquires Liverpool, UK-based Vitaflo International for an undisclosed sum.
• The move boosts Nestlé‟s standing in clinical nutrition and tailor-made food for people with hereditary metabolic disorders.
4 August 2010: Vitaflo
• Nestlé becomes majority shareholder in Guatemalan company Malher, pending regulatory approval.
• Mahler has been active in the region for 50 years with brands including Malher, Yus and Toki.
10 August 2010: Malher
Group
Nestlé Global M&A 2010
© Euromonitor International
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Packaged Food: Market Performance
0123456789
0
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8
Savoury, Dressings & Spreads
Ice Cream & Beverages Personal Care Home Care & Other
% U
SG
Tu
rno
ve
r (E
UR
bill
ion
)
Unilever Financial Performance by Category: H1 2010
Turnover USG
• While some might argue that global credit markets remain tight after the 2007/2008 credit crunch, thereby precluding
any significant M&A events, takeovers have been taking place elsewhere in the global FMCG marketplace.
• Most notable has been Unilever‟s late September 2010 takeover of hair care group Alberto Culver for US$3.7 billion.
Unilever also acquired Sara Lee‟s divested personal care division in late September 2009, despite lingering global
financial malaise and fears at the time. Procter & Gamble also picked up Sara Lee‟s home care division, including
the Ambi Pur air and toilet care brand portfolio, in mid-July 2010 for US$470 million.
• If both Unilever and Procter & Gamble can make such acquisitions in home and personal care, irrespective of any
banking, financial or economic factors, why is this not being replicated in packaged food? Indeed, with the sale of its
Findus frozen food business in Italy, Unilever looks to be continuing to move away from the food industry.
• If anything, now is the perfect time for more M&A in global packaged food, given how well – relatively speaking – the
industry has performed in a retail context through the global economic crisis and its aftermath.
• Moreover, many packaged food companies – large and small alike – have taken advantage of low interest rates and
other factors stemming from government economic stimulus packages to get their balance sheets into better order.
All of this makes the general climate even more conducive to M&A, so why is it still not happening?
Significant M&A Events Still Taking Place Elsewhere in FMCG
Competitive Landscape
Source: Unilever financial reports, reflecting the acquisition of Sara Lee’s personal care operations on 25 September 2009, but
not the later Alberto Culver acquisition nor the divestment of the Findus frozen food business in Italy
© Euromonitor International
23
Packaged Food: Market Performance
• Consolidation in the global confectionery market, for
example, has all but stalled since the Kraft/Cadbury
takeover, even though the general competitive
environment remains essentially the same. Strategic
company aims continue to focus on achieving larger
scale and wider geographical reach, although there
are few well-fitting acquisition targets of sufficient
scale and international reach still available to buy.
• Rather, the top players have pursued more organic
means of expansion, including investing in
manufacturing capacities in emerging regions, setting
up distribution alliances in new markets and similar
initiatives to fuel international growth.
• Of the top 10 global confectionery companies, the
only one to have made an acquisition so far in 2010
is Lotte Group, buying Cadbury's E Wedel-branded
confectionery operations in Poland from Kraft Foods
for an undisclosed sum. The business division was
up for sale as a result of EU competition clearance
following Kraft's acquisition of Cadbury.
• Although E Wedel represents Lotte's second recent
acquisition in the European confectionery market,
after buying the Belgian manufacturer Chocolaterie
Guylian NV in 2008, neither one has succeeded in
significantly widening the company's geographical
reach, nor have they reduced Lotte‟s over-reliance on
its mature – as well as indigenous – South Korean
and Japanese markets.
Top 10 Global Confectionery Players M&A Potential:
2010
Company2009
Rank
2009
ShareM&A Potential
Mars Inc 1 14.4% Privately-held
Cadbury Plc 2 10.1% Acquired
Nestlé SA 3 7.7%Confectionery part
of wider operations
The Hershey Co 4 4.9% Trust-controlled
Kraft Foods Inc 5 4.7%Confectionery part
of wider operations
Ferrero Group 6 4.5% Privately-held
Perfetti Van Melle
Group7 3.0% Privately-held
Chocoladefabriken
Lindt & Sprüngli AG8 1.9%
Publicly-listed –
feasible target
Lotte Group 9 1.6%Confectionery part
of wider operations
August Storck KG 10 1.4% Privately-held
M&A Dries Up in Confectionery After Kraft/Cadbury Merger
Competitive Landscape
© Euromonitor International
24
Packaged Food: Market Performance
• Throughout 2010, the world‟s largest confectionery
producers have been actively investing in expanding their
manufacturing capacity in key emerging markets, most
notably Russia, India and Brazil.
• In August, Nestlé and Mars announced their intentions to
increase chocolate production in Russia. Mars stated that it
will open its second largest confectionery factory in the
country in the Ulyanovsk region in 2012 at a total investment
of US$111 million. The factory will produce all of Mars‟
brands, including its well-known chocolate bars. Mars'
current Stupino factory, in the Moscow region, is no longer
sufficient to supply the Russian market‟s rising demands.
• Nestlé announced it will produce its premium chocolate
brand Comilfo, acquired in 2008, in Russia's Samara region.
• In May, Mars also opened a second chocolate factory in
Dubai, investing some US$40 million. The facility will produce
Mars and Snickers bars for the Gulf markets. Mars claims the
investment reflects the company's long-term commitment to
growth throughout the entire Middle East and Africa region.
• In India, Ferrero has firmed up plans for a new production
facility in Maharashtra, with an investment of over US$125
million to manufacture some of its more popular brands,
including Ferrero Rocher and Kinder.
• Hershey‟s latest attempts to move beyond its core domestic
US market in 2010 have included distribution alliances, in
Europe with Euro Food Brands, and in India via a joint
venture with local powerhouse Godrej Consumer Products.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Mars Inc Cadbury Plc
Nestlé SA
Hershey Co
Kraft Foods
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Top Five Global Confectionery Company Retail Value Sales by
Region, 2009
Asia Pacific Australasia Eastern Europe
Latin America MEA North America
Western Europe
Focus Centres on Organic Expansion in Emerging Markets…
Competitive Landscape
© Euromonitor International
25
Packaged Food: Market Performance
• Following the Kraft/Cadbury deal, further consolidation among leading
packaged food companies was widely expected – and not just in
confectionery – to create even larger economies of scale and widen
geographic reach. However, over the past year manufacturer focus
has been on long-term plans to expand production capacity
organically, especially in emerging markets, and enhance the
presence of existing brand portfolios rather than purchasing an
assortment of local brands, each of which represents something of an
unknown quantity for the buyer.
• Another reason for the lack of any further large-scale M&A deals – at
least in confectionery – could be the difficult task of identifying a target
that is a good strategic fit and lacks any major obstacles to takeover.
For example, after the Cadbury acquisition, the only leading publicly-
listed, standalone confectionery company is Lindt & Sprüngli, the
premium portfolio of which would be a valuable asset to any suitor.
However, the company has suffered from the economic downturn,
making the potential future benefits of acquiring an exclusively
premium portfolio in a post-recessionary environment, with consumers
more reluctant to return to earlier levels of spending, open to question.
• While efforts to expand emerging market presence in a more organic
fashion are laudable, especially given the still challenging global
economic environment and other variables such as fluctuating raw
material and commodity prices, meaningful and strategically well-
thought out M&A is still one of the best ways to diversify global scope.
For example, a combined Kraft/Cadbury – based on 2009 regional
retail value performance – now has a much more diversified
geographical reach across the global packaged food market
compared to what Kraft Foods Inc had on its own.
0%
10%
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Kraft/Cadbury Packaged Food Retail Value Sales by Region:
2009
Asia Pacific AustralasiaEastern Europe Latin AmericaMEA North AmericaWestern Europe
…Even Though M&A Can Still Help Diversify Global Reach
Competitive Landscape
© Euromonitor International
26
Packaged Food: Market Performance
• Given the general necessity of M&A to bolstering a company‟s position in a very
fragmented global marketplace, the prospect of more significant packaged food
M&A may well still exist. As such, the operative questions should continue to
focus on „who‟ and „when‟ rather than on „whether‟ something will happen in the
short to medium term.
• One company coming under mounting takeover speculation has been Chicago-
based Sara Lee Corp. In an effort to refocus and deliver better shareholder
value, it has made several key divestments in fiscal 2010, including selling its
personal care business to Unilever for US$1.9 billion and its home care unit to
Procter & Gamble for US$470 million. While a now streamlined Sara Lee is
targeting high-growth developing packaged food markets like Russia and Brazil
in its international expansion plans, including possible acquisitions, it has also
become an acquisition target itself, just as Cadbury began attracting Kraft‟s
interests not long after divesting its beverage operations in 2008.
• One strategic hurdle remains Sara Lee's over-reliance on the mature North
American market; with some 77% of its packaged food retail value sales
generated in this region. Moreover, the recession hit Sara Lee's core chilled
processed food categories hard, though strong labels like Hillshire Farm, Jimmy
Dean and the eponymous Sara Lee would still be good assets for those looking
to expand in these categories. Sara Lee's food operations would deliver
synergies to players like General Mills, Smithfield Foods or Maple Leaf Foods.
• News broke in early October 2010 that Sara Lee had received – and rejected –
an unsolicited US$12 billion takeover bid from private equity firm KKR & Co six
weeks earlier. While Sara Lee spurned this approach, sources claim that once it
sells its bakery business and replaces CEO Brenda Barnes it will split its US
and international businesses before possibly auctioning itself off piecemeal.
• On 9 November 2010, Mexico‟s Grupo Bimbo bought Sara Lee‟s North
American bakery business for US$959 million to boost its sales beyond Mexico.
0
1
2
3
4
5
6
2005 2006 2007 2008 2009
US
$ b
illio
n
Sara Lee Corp Packaged Food Retail Value Performance by
Region, 2005-2009
Australasia Latin America
North America Western Europe
Packaged Food M&A Prospects: Sara Lee Corp
Competitive Landscape
© Euromonitor International
27
Packaged Food: Market Performance
• Another potential M&A target – which also happens to be American – is
dairy processing giant Dean Foods Co.
• During the recent downturn, most dairy companies have witnessed
growing consumer preference for lower-priced – and in particular private
label – dairy products. In turn, company strategies to fend off a
subsequent squeeze in profit margins include expanding operations via
M&A. Indeed, 2010, has seen several fairly good-sized acquisitions
occur across various national dairy markets, including France‟s Lactalis
purchasing Ebro Puleva's dairy division in Spain.
• The sale of Dean Foods would easily eclipse any of these deals in terms
of impact on the competitive landscape of the global dairy market.
Speculation about a probable takeover has repeatedly boosted the
company's trading value on the New York Stock Exchange, with the most
likely buyer being Groupe Danone, the world's leading dairy player.
• Based on 2009 retail value performance, Dean Foods is the world's
eighth largest dairy player, but its global retail value share has been
steadily decreasing, falling from 1.6% in 2006 to 1.4% in 2009. Also, the
company's retail value sales of branded dairy products have declined
slightly since 2007, falling to just over US$4.8 billion in 2009 .
• In terms of geographical and category spread, Dean Foods is positioned
in less dynamically growing areas. Until the acquisition of Alpro's
operations in Western Europe in 2009, almost all the company's sales
were generated in North America, and in 2009 the share of sales from its
domestic market fell to 92%, thanks to Alpro's European revenues.
• In terms of product segmentation, about half of the company's revenues
in 2009 were generated in lower-margin milk, while yoghurt, a more
dynamic and higher-margin category, only accounted for 6% of branded
retail operations.
0
1
2
3
4
5
2005 2006 2007 2008 2009
US
$ b
illio
n
Dean Foods Co Global Dairy Retail Value Performance by
Region, 2005-2009
North America Western Europe
Packaged Food M&A Prospects: Dean Foods Co
Competitive Landscape
© Euromonitor International
28
Packaged Food: Market Performance
0%
20%
40%
60%
80%
100%
Dean Danone Merged
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Dean vs. Danone Global Dairy Sales by Region: 2009
Asia Pacific East Europe Latin AmericaMEA North America West Europe
0%
20%
40%
60%
80%
100%
Dean Danone Merged
% r
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Dean vs. Danone Global Dairy Sales by Major Category: 2009
Other YSMD DMP
• All that said, buying Alpro gave Dean Foods the leading position in European soy food and beverages. Alpro has
strong brand equity to allow for further category and/or geographic expansion and an established consumer base.
• Buying Dean Foods would further consolidate Danone‟s leadership position in the global dairy market. The combined
global retail value share, based on 2009 data, would be 6.6%, with number two player Nestlé commanding just 3.9%.
A deal would also catapult Danone into dairy leadership in the affluent North American market, where the group
currently only generates some 15% of its total dairy retail value sales. That said, buying Dean Foods would not
significantly increase Danone's presence in US yoghurt beyond its existing offerings, but it would grant instant
access to a large-scale local production and distribution infrastructure, which is the ultimate necessity for entry into
dairy categories given perishability and limited opportunities for exporting such products over long distances.
• Another valid consideration for Danone would be whether the high price Dean Foods would likely command could be
better invested in expanding Danone's operations in more dynamically growing emerging dairy markets, such as Asia
Pacific or Latin America, as well as in categories which would not dilute its currently high-margin, functional food-
focused product operations. Would Danone really want to get its hands dirty with staple drinking milk products?
Dean Foods and Danone Fit Geographically, Not By Category
Competitive Landscape
© Euromonitor International
29
Packaged Food: Market Performance
• Following the highly publicised sale of Cadbury, United Biscuits, the UK's
leading biscuit manufacturer, was put up for sale in July 2010 by its private
equity owners, Blackstone and PAI Partners, for an estimated GB£2 billion.
• Based on 2009 retail value performance, United Biscuits is the world's
fourth largest biscuit manufacturer and also ranks 11th globally in sweet
and savoury snacks with brands such as McCoy's, Hula Hoops and KP
Nuts. The company generates some 65% of its overall retail value sales
from biscuits and nearly 30% from sweet and savoury snacks, while also
having a lesser presence in a number of other packaged food categories,
such as snack bars.
• Despite a broad geographic presence covering Asia Pacific and the MEA,
about 85% of United Biscuit‟s biscuits sales are still generated in Western
Europe, a market expected to achieve a weak CAGR of 1% from 2010 to
2015 and accounting for less than 12% of global biscuit value expansion
over this period. As such, any buyer looking to secure a good short- to
medium-term return on an investment of some £2 billion, in a category
where the core geographic market is expected to grow by only £620 million
(US$945 million) over the next five years, will likely be in for a challenge.
• Continuing demand for healthier products and lingering economic
uncertainty are the main reasons for downbeat Western European biscuits
forecasts. Injecting wellness-led innovations will not be without its
obstacles, but trends such as high-fibre biscuits and products sweetened
with stevia could be exploited to potentially achieve more dynamic sales
growth. Greater geographic diversification could also help a buyer
maximise their return sooner. For example, Asia Pacific‟s biscuits market
stands to generate over 42% of global market growth in absolute retail
value terms between 2010 and 2015. While Japan is the largest player,
India and China are proving the most dynamic.
0
1
2
3
2005 2006 2007 2008 2009
US
$ b
illio
n
United Biscuits Global Packaged Food Sales by
Region, 2005-2009
Western Europe Rest of World
Packaged Food M&A Prospects: United Biscuits (Holdings) Plc
Competitive Landscape
© Euromonitor International
30
Packaged Food: Market Performance
• The likeliest acquirer of United Biscuits remains USA-based Campbell
Soup Co. Although unconfirmed, Campbell Soup is claimed to be
considering a £1.5 billion bid. In recent years the company has been
restructuring its activities to focus on simple meals, baked snacks and
healthy beverages. As part of this strategy it has exited confectionery
(divestment of Godiva) and sweet and savoury snacks, while it has
boosted its presence in bread via the acquisition of Ecce Panis in the
USA. Given all this recent activity – coupled with recent statements
indicating that it is seeking “external development opportunities” – a
bid for United Biscuits will not come as a complete surprise.
• Geographically, Campbell's activities are reliant on the developed
world, and in particular the USA, and its recent acquisition activity
(Ecce Panis and Wolfgang Puck) has only reinforced this bias. The
acquisition of United Biscuits would not significantly reduce Campbell
Soup's reliance on developed markets, given its own UK bias, but it
would still yield greater geographic diversity and give Campbell Soup
greater exposure to Western European markets.
• Category-wise, the integration of United Biscuits would almost double
Campbell Soup‟s global biscuits presence and help it become the
second largest biscuit manufacturer globally, with a retail value share
of 5.7% based on 2009 sales. That said, this remains some way off
global leader Kraft, with a 19% global value share in 2009.
• With its renewed focus on specific growth categories and enlarged
scale of operations, acquiring United Biscuits would help Campbell
Soup deliver even more improved margins, particularly in biscuits.
However, United Biscuits would not provide the geographical
diversification required to benefit from more dynamic growth in
emerging regions.
0
2
4
6
8
10
12
US
$ b
illio
n
Leading Biscuits Manufacturers Global Retail Value Sales by Region, 2009
Asia Pacific AustralasiaEastern Europe Latin AmericaMEA North AmericaWestern Europe
Campbell Soup Heads List of Suitors for United Biscuits
Competitive Landscape
© Euromonitor International
31
Packaged Food: Market Performance
• Kraft Foods has undergone a major restructuring of its packaged food operations between 2007 and 2010, having
acquired large operations in its focus categories, such as Cadbury in confectionery and Danone‟s biscuits brands,
and also selling divisions falling outside its identified growth areas (i.e. frozen pizza, Post cereals).
• With the completion of the Cadbury acquisition, Kraft has clearly outlined its strategic aim to become a "global
powerhouse in snacks, confectionery and quick meals". Throughout all this, Kraft‟s dairy operations remained
untouched during the general restructuring process and now occupy a rather ambiguous and borderline space
relevant to its current stated focus areas. After the integration of Cadbury, dairy operations account for only some
17% of the company‟s overall packaged food retail value sales, equating to just over US$10 billion.
• Given the division‟s narrow category scope and geographic market reach, its limited potential to generate dynamic
growth rates and its generally ill fit relative to other, more explicitly stated, strategic objectives and aims, all these
factors could lead to the divestment of Kraft Foods‟ dairy business.
• Although not on the same scale, such a divestment is not without precedent. In 2007, the company span off its Post
cereals division to Ralcorp, with the arrangement that Kraft shareholders would own 54% of the new Ralcorp when
the deal was complete, and the division benefiting from an industry-focused operational and managerial structure.
• Among potential buyers of Kraft Foods‟ dairy business, there are a number of other dairy industry players or private
equity firms that would undoubtedly show an interest in Kraft‟s stable of strongly established dairy food labels.
• Given that 88% of Kraft‟s dairy portfolio is cheese, potential acquirers would need to take into consideration how they
would be either enlarging or complementing their existing operations, as well as whether or not their financial
capabilities were strong enough to acquire the world‟s largest cheese-producing corporate division.
• Lactalis, the second largest global cheese manufacturer, has shown interest in, and ability to, expanding via frequent
acquisitions, although a division on such a scale as Kraft‟s dairy business could well be beyond the reach of even its
financial and/or logistical capabilities.
• If the company ultimately decides upon a divestment, given that the division consists of many iconic Kraft brands, not
least Philadelphia cream cheese and Jell-O dairy snacks and dessert mixes, it would best benefit from a similar spin-
off arrangement to that achieved for Post cereals.
Packaged Food M&A Prospects: Kraft Foods Inc’s Dairy Unit
Competitive Landscape
© Euromonitor International
32
Packaged Food: Market Performance
24%
25%
16%
10%
7%
18% 28%
23%17%
10%
7%
15%20%
17%
39%
7%
5%
12%
Kraft Foods Inc Retail Value Sales Breakdown: 2006 vs. 2009, Before and After the Cadbury Integration
Bakery
Dairy
Confectionery
Chilled Processed Food
Ready Meals
Other
Note: Inner circle shows category sales breakdown in 2006, middle circle shows breakdown in 2009 before the Cadbury
integration and outer circle shows the impact of the Cadbury acquisition on Kraft’s packaged food sales breakdown by category
in the wake of full integration
Potential Divestment of Kraft Foods’ Dairy Division
Competitive Landscape
© Euromonitor International
33
Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
© Euromonitor International
34
Packaged Food: Market Performance
• Supermarkets and hypermarkets will collectively remain the single largest purveyor of packaged food in 2010,
accounting for almost 53% of global retail value sales.
• Price-cutting campaigns, other forms of heavy discounting and a greater focus on private label ranges, have been
increasingly used by international and local players alike to maintain and broaden their customer base, with varying
degrees of success.
• Leading supermarket/hypermarket chains such as Wal-Mart, Tesco and Carrefour have also been expanding their
outlet numbers in recent years, especially in emerging markets. In turn, indigenous retailers in these same markets –
such as Brilliance Group and Bright Food in China, Pantaloon Retail in India or X5 Retail Group in Russia – are
doing a good job of replicating the success of leading multinational players and furthering the position of modern
retail formats in general.
• Many local supermarket/hypermarket operators in such emerging markets have received support from local laws that
control foreign ownership. That said, several legal changes may well be in store, paving the way for more robust
competition from multinational retail chains.
• As a result of all these factors, supermarkets and hypermarkets have made steady retail value share gains in all
emerging regions from 2004 to 2010. Despite this, they have still seen their share of global packaged food sales slip
over the same period thanks to mounting pressures in North America and Western Europe.
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Supermarkets/Hypermarkets Share of Global Packaged Food Sales by Region, 2004/2007/2010
2004 2007 2010
Supermarkets/Hypermarkets Coming Under Pressure
Retailing Landscape
© Euromonitor International
35
Packaged Food: Market Performance
• Small grocery retailers will remain the second most important retail distribution channel for packaged food in 2010,
accounting for just under 23% of global retail value sales. While globally such retailers have managed to hold their
own against fierce competition from modern formats, the expansion of supermarkets/hypermarkets and discounters
in many markets has been exerting more and more pressure, and they have become less able to compete with the
economies of scale, low-pricing models, wider product ranges and one-stop shopping convenience provided by
modern grocery retail chains.
• Most significantly, small grocers have been losing importance in Eastern Europe and Latin America. After growing
their share in Asia Pacific from 2004 to 2007, such retail formats have also been losing ground.
• Price remains the main reason for this declining share, with most packaged food items between 10-20% cheaper on
a per kg basis in a supermarket/hypermarket compared to an independent small grocer.
• While affordable prices will continue to exert a powerful pull on consumers, there are ways that small grocery
retailers can survive alongside supermarkets and hypermarkets. Consumers are returning to traditional small grocers
in emerging economies like Brazil, Vietnam and across MEA. This move has been helped by smaller retailers being
able to offer individual items, rather than multi-packs, or smaller packages. Independent shop owners have also
extended credit more readily than modern grocery chains.
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Latin America MEA North America Western Europe
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Small Grocery Retailers Share of Global Packaged Food Sales by Region, 2004/2007/2010
2004 2007 2010
Small Grocery Retailers Slowly Recede on Global Stage
Retailing Landscape
© Euromonitor International
36
Packaged Food: Market Performance
• As the new kid on the block in terms of global packaged food distribution, discounters remained comparatively small
among store-based grocery retailers in 2010, with less than 8% of global packaged food retail value sales.
• Distribution of some packaged food staples and meal solution categories – including ready meals, frozen processed
food, and bakery – has increased via discounters between 2009 and 2010 due to ever greater price-cutting
strategies and the growing presence of their own private label packaged food ranges.
• However, discounters are also starting to see global level share losses in other categories – including confectionery,
SDC and soup – over the same period after making gains from 2008 to 2009. This has partly been the result of
aggressive price discounting from leading supermarket/hypermarket chains, looking to stave off the threat of
discounters once and for all. Other non-grocery formats following the dollar/pound store model are also encroaching
on discounters‟ traditional budget-priced bargain basement turf, stealing share.
• Discounters have been losing share in Latin America and MEA, and also hold a negligible presence in Asia Pacific.
In general, their limited product range is a big stumbling block, especially in increasingly aspirational markets like
Brazil, China and India. As these three markets – and their surrounding regions – move further into the global
economic limelight, as is widely expected, discounters should look to expand their presence within them.
Have Discounters Now Plateaued or More Growth in Store?
Retailing Landscape
0
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15
20
World Asia Pacific* Australasia Eastern Europe
Latin America MEA North America Western Europe
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Discounters’ Share of Global Packaged Food Sales by Region, 2004/2007/2010
2004 2007 2010
Note: *Discounters continue to account for a negligible share of packaged food retailing across the Asia Pacific region
© Euromonitor International
37
Packaged Food: Market Performance
0
5
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15
Discounters Small Grocery Retailers
Non-Grocery Retailers
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Sales by Retail Distribution Format, 2004/2007/2010
2004
2007
2010
• After peaking at an impressive 65% of US packaged food sales by retail value in 2009, supermarkets/hypermarkets
are expected to suffer a sharp decline of 100 basis points during 2010. While they continue to compete aggressively
in terms of affordable prices – and balancing that against added value wherever possible, both for branded and
private label packaged food offerings alike – they have simply been unable to counter the triple whammy of
discounters, dollar stores and warehouse clubs, all of which can compete even more aggressively in terms of price to
win US consumer spending. Even though the US economy is now technically out of recession, US consumer
confidence remains shaken by the economic crisis and an unemployment rate that stubbornly remains near to 10%.
• Within discounters, Supervalu Inc‟s Save-A-Lot chain has proven particularly popular with cash-strapped US
consumers, both relative to supermarkets/hypermarkets and other discounter chains such as Aldi. The chain
promises consumers that it can help them save as much as 40% off conventional supermarket prices, and also
features tips on cutting grocery costs and creating meals that serve as many as four people for less than US$5.
• Within non-grocery retailers, member‟s only warehouse clubs have done well thanks to the value-minded bulk
purchases on offer. Additionally, „dollar stores‟ (where most items are priced at US$1) have performed extremely well
thanks to their uniformly low prices and increasing ubiquity. Category leader Dollar General boasts more than 9,000
stores in 35 states and is particularly well placed in small to mid-size communities to boost accessibility and footfall.
In turn, leading manufacturers such as Kraft Foods Inc are looking for new ways to retail through such channels.
US Consumers Increasingly Lost in the Supermarket
Retailing Landscape
63.6
63.8
64.0
64.2
64.4
64.6
Supermarkets/ Hypermarkets
%re
tail
va
lue
US Packaged Food
© Euromonitor International
38
Packaged Food: Market Performance
• As the US economy went into free-fall from 2008, many analysts predicted a
retailing cull leading to considerably more consolidation. However, as of mid-
2010, few grocery retailers had actually gone bankrupt, with fewer still
bought by supposedly „stronger‟ rivals.
• Looking ahead, though, all this may be set to change, with several US
grocery retailers now looking for M&A opportunities having battened down
the hatches during the worst of the US recession.
• US grocery retailing remains relatively fragmented, with only Wal-Mart
claiming a retail value share of 10% in 2010. However, as small and/or
regional US chains are put under sustained pressure by the continuous price
cutting of the country's largest retailers, many are losing share and finding
profits difficult to come by. In turn, two leading retailers have announced that
they are looking for takeover targets in the USA, but may wait until 2011
before making a move.
• First, Chief Executive of Netherlands-based Ahold, John Rishton, announced
the company had more than EUR2 billion that it could spend on acquisitions.
Then, Chief Executive of USA-based Kroger, David Dillon, said that the
company had been considering making more acquisitions as it sees “plenty
of growth opportunities” and there were prospects that the company had
previously identified in “our existing markets and adjacent markets”.
• The great unknown is what UK-based Tesco will do with its US operations.
The company has been slow to build a presence in the USA, through the
expansion of its Fresh & Easy banner, and has been continually forced to
justify its continuing presence in a market where it is losing money. While
acquiring a local retailer would further bolster Tesco‟s otherwise miniscule
presence in the world‟s largest economy, Tesco stated in its fiscal 2010 H1
results that it was looking to stay the course in the USA and that the chain
would become profitable by the 2012/2013 fiscal year.
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Top Five US Grocery Retailers by Retail Value
Sales, 2010
US Grocery Market Looks Increasingly Set for Consolidation
Retailing Landscape
© Euromonitor International
39
Packaged Food: Market Performance
• When the economic downturn first struck, packaged food manufacturers and retailers alike across Western Europe
widely expected that falling consumer spending and a greater acceptance of private label would drive patrons into
the arms of value-conscious discounters. While this came to pass in several markets, it has not been uniform across
the region nor has it led to a permanent shift in terms of where Western European consumers buy their food.
• Hypermarket and supermarket operators have targeted the likes of Aldi and Lidl by cutting the cost of branded
goods, introducing new products to their private label ranges and promoting themselves as offering consumers more
value for money. In Belgium, Delhaize has been fighting an ongoing battle with discounters since 2006 and over this
time has learnt how to defend its share, even in the worst of times. The company closely followed the strategy
outlined above and has explained its new pricing position very clearly to consumers. This has helped Belgium‟s
supermarkets/hypermarkets to collectively increase their retail value share of packaged food distribution each year
from 2008 to 2010 – up 40 basis points over the last two years – even as discounters‟ share has remained static.
• Similarly, thanks to the strength of leading supermarket/hypermarket chains Tesco, Asda, Sainsbury's and Morrisons,
discounters have always played a peripheral role in the UK and this should continue longer term.
• Looking ahead, discounters are expected to see a slowdown in overall grocery retailing share growth but the channel
is still expected to be the biggest driving force for grocery retailing across Western Europe through to 2015.
-10
0
10
20
30
40
2005-06 2006-07 2007-08 2008-09 2009-10
% g
row
th
Five Fastest Growing Western European Markets for Discounters by Total Retail Value Sales (excl. Sales Tax), 2005-2010
Ireland Switzerland Netherlands United Kingdom Turkey
Discounters Face More Competition in Western Europe…
Retailing Landscape
© Euromonitor International
40
Packaged Food: Market Performance
• As supermarkets and hypermarkets take up the fight against discounters in Western Europe, the latter has been
looking further East for growth opportunities. Eastern Europe‟s economic collapse in 2008/2009 has been to the
benefit of discounters, as cash-strapped consumers flock to the format to get the best deals possible across FMCG.
• Between 2010 and 2015, five of the 10 most dynamic discounter markets worldwide are expected to be in Eastern
Europe. The region‟s proximity to the discounter heartland in Western Europe, together with a less developed retail
landscape, makes the region an attractive expansion target. Lidl (Schwarz Group) and Penny Markt (Rewe) are
already well established. Aldi is also growing very quickly, increasing its sales in the region by 70% in 2009.
• There are also several powerful indigenous discounters in the region, led by Russia-based Pyaterochka (X5 Group)
and Magnit (Tander). Fourth-ranked Dixy has also taken advantage of the economic slowdown by opening 100 or
more stores in 2010. This combination of austerity and outlet expansion is driving the format‟s regional performance.
• In Romania, the discounter channel has grown dramatically, boosted by the entry of Plus, Penny Markt and MiniMax
in 2005. By the end of 2010, discounters are forecast to generate some 15% of total Romanian grocery sales.
• Bulgaria has also seen a rapid influx of discounters since late 2009. In November, Rewe, which already operates the
Billa supermarket chain, launched Penny Markt, while Tengelmann opened its first six Plus stores in the market. In
February 2010, Schwarz Group also announced plans for an imminent launch in Romania and Bulgaria. Aldi has yet
to appear in either Romania or Bulgaria, but could well do given its existing operations in nearby Greece.
0
30
60
90
120
150
Bosnia- Herzegovina Belarus Serbia Morocco Croatia
% C
AG
R
Top Five Fastest Growing Discounter Markets by Retail Value, 2010-2015
…And Thus Looking to Move Further East To Find Success
Retailing Landscape
© Euromonitor International
41
Packaged Food: Market Performance
• The recent success of discounters in Eastern Europe – both in general and for packaged food specifically – shows
the opportunities available to players bold enough to seize them. At times, however, external barriers exist that
preclude such sudden and dramatic success. Legislation controlling the retailing landscape through limits on FDI and
foreign ownership is one such barrier, and one with significant implications for both companies and consumers.
• In India, legislation on foreign direct investment (FDI) in retailing remains an issue. While many Indian retailers are
proclaiming that the future will be dominated by modern formats, potential changes to the law restricting foreign
ownership means that while modern retailing may grow, it may not be just Indian companies that will benefit.
• On 1 April 2010, the Indian government put a cap on the amount of sales allowed to „group companies‟ at 25%.
However, the definition of what constitutes „group companies‟ remains unclear. Against this backdrop, foreign
retailers are hoping that the rules will be clarified or, better still, relaxed. The Finance Ministry appears to have come
under pressure, since the introduction of the cap, to relax the ruling, with several retailers, including Bharti Wal-Mart,
saying it was too drastic and would severely affect their operations. As international retailers grow their presence in
the Indian market, grow to better understand its differences and forecast the growth from which they could potentially
benefit, so the Indian government is likely to come under increasing pressure from them to change the law. Such
moves could see the acquisition of Indian retailers by their multinational/Western counterparts, leading to potentially
dramatic consolidation in what is an otherwise extremely fragmented grocery retailing landscape.
0
300
600
900
1,200
Pantaloon Retail India Ltd
Reliance Group Aditya Birla Group National Dairy Development Board
RPG Group
US
$ m
illio
n
Top Five Indian Grocery Retailers by Retail Value, 2010
Legislative Hurdles Block Multinational Grocers in India
Retailing Landscape
© Euromonitor International
42
Packaged Food: Market Performance
• Legislative issues have also characterised grocery retailing in Russia in 2010. On 1 February, the Russian
government introduced new regulations stipulating that retailers with a 25% share in their regional market will be
banned from adding more selling space within that region. In addition, payments to suppliers will have to take place
within a set timeframe, including as little as 10 days after delivery for most perishable food items.
• This is another example of a growing trend within the world's emerging markets for governments to attempt to regain
the upper hand in their relationship with increasingly influential retail environments. In Russia, the national retail
industry has changed from a fragmented and disorganised entity into a powerful economic force.
• The outlawing of extended payment terms for food and alcohol is a marked change from other markets where
retailers have been summarily imposing delayed payments on suppliers to protect their margins. The new law should
benefit suppliers, particularly domestic ones, despite a limited list of products under the new law‟s jurisdiction.
• The new retailing law could also benefit multinationals, by weakening the hold of dominant indigenous Russian
players such as X5 Group. By reducing the definition of local „dominance‟ from 35% to 25%, the new law stands to
greatly curtail the ambitions of the biggest players at present. Not surprisingly, industry heads such as X5 CEO Lev
Khasis and Magnit CEO Sergey Galitsky are not in favour of the changes, with Galitsky calling it „anti-market‟.
0
2
4
6
8
10
12
14
16
X5 Retail Group NV Auchan Group SA Tander ZAO Dorinda Holding SA Dixy Group OAO
US
$ b
illio
n
Top Five Russian Grocery Retailers, 2010
New Law Could Open Russia to International Retailers
Retailing Landscape
© Euromonitor International
43
Packaged Food: Market Performance
• As supermarkets/hypermarkets and discounters consolidate their position within global packaged food retail
distribution, sometimes supported by new retailing legislation that facilitates the expansion of leading multinational
retailers, this process is furthering the competitive position of private label packaged food at the expense of brands.
• Private label packaged food retail value sales totalled US$234 billion in 2009, or 12.5% of global retail value. Its
share should grow to 12.6% in 2010 thanks to ongoing economic uncertainty and public spending cuts in Europe.
• Private label‟s share of total packaged food retail value sales has also been increasing since the global credit crunch
began in 2007, driven by the continued expansion of supermarkets, hypermarkets and, to a lesser extent,
discounters. As such retail formats have expanded, increasingly displacing smaller, typically independent, retail
operators in the process, they have simultaneously increased their own brand food offerings.
• This trend is particularly pronounced in developed regions such as North America and Western Europe, where
private label has increased not only its shelf space but also the quality and sophistication of the products on offer.
More private label packaged food products are emulating the tiered pricing strategies so successful for many brands.
Retail Consolidation Spurs Private Label Encroachment
Retailing Landscape
12.1
12.2
12.3
12.4
12.5
12.6
2005 2006 2007 2008 2009 2010*
% r
eta
il va
lue
Global Private Label Packaged Food Retail Value Performance, 2005-2010
Note: *Private label share is estimated
© Euromonitor International
44
Packaged Food: Market Performance
• Private label‟s global expansion has been constrained by its relatively limited presence in emerging regions such as
Latin America and Eastern Europe and key emerging Asian markets such as India and China.
• This owes much to generally lower levels of consumer awareness for private label packaged food, coupled with
entrenched consumer preference for brands, which tend to better capture consumer aspirations.
• A comparatively underdeveloped modern retail network of chained supermarkets and hypermarkets has further
hindered private label‟s expansion in these markets.
• Latin America, Eastern Europe and MEA have the lowest packaged food private label shares mainly thanks to the
relatively low importance of supermarkets and hypermarkets to overall packaged food sales.
• Sales of packaged food via supermarkets/hypermarkets in Russia and India, for example, accounted for just 25%
and 11%, respectively, of total retail values in 2010, compared to 71% in the UK and 64% in the USA.
• The relatively low importance of private label-intensive product categories such as canned/preserved and chilled
processed food in emerging regions further impedes overall private label expansion. In Latin America, for example,
fresh food is regarded as both healthy and affordable and remains preferred over packaged food by many
consumers. In turn, Latin America accounted for less than 10% of global canned/preserved food sales by retail value
in 2010.
0
5
10
15
20
25
Asia Pacific Australasia Eastern Europe Latin America MEA North America Western Europe
% r
eta
il va
lue
Private Label Packaged Food Retail Penetration by Region, 2009
Private Label Packaged Food Still Rare in Emerging Markets
Retailing Landscape
© Euromonitor International
45
Packaged Food: Market Performance
• While initiatives among branded manufacturers to add
value to their products, particularly among more easily
commoditised staple food items, have been commendable
and have created genuine innovations, retailers are
proving to be increasingly savvy when it comes to bringing
those same innovations to bear on their own private label
ranges.
• This is particularly true in developed markets, where
private label products have become more sophisticated
and retailers have implemented a tiered pricing strategy to
differentiate added-value private label ranges from the
basic value-for-money product portfolio.
• The addition of functional and ethical attributes to private
label offerings is becoming widespread. Examples include
Spanish retail chain El Corte Inglés, which offers probiotic
fat-free yoghurt under its own brand, some of which
contains fruit and cereal pieces.
• In the UK, retail chain Sainsbury‟s devotes much shelf
space to its own brand organic Fairtrade chocolate
confectionery, which is positioned as being more
sophisticated than mass-market brands and competes
with premium organic chocolate such as Green & Black‟s.
• Despite the increasing sophistication of private label,
however, consumers remain reluctant to buy private label
brands in certain product categories such as chocolate
boxed assortments or baby milk formula, where quality,
presentation and/or health properties tend to override
most price considerations.
Private Label Increasingly Adept at Mimicking Brands
Retailing Landscape
Private label food becoming more sophisticated
Ethical, functional and other added-value trends fairly well
established
Consumers still reluctant to choose
private label in some food categories
© Euromonitor International
46
Packaged Food: Market Performance
Strengths
Opportunities
Weaknesses
Threats
• The importance of
supermarkets and
hypermarkets in
developed regions, along
with their expansion in
emerging markets, is
contributing to even
greater shelf space for
private label foodstuffs.
Retail consolidation
• The recent global
recession and continued
economic uncertainty
have made cash-strapped
consumers even more
aware of the importance
of retail prices in planning
their household food
budgets.
Economic uncertainty
• The importance of corner
shops and small, typically
independent or family-run,
retailing businesses in
Latin America and Asia
Pacific has constrained
private label
encroachment in these
regions and will remain a
limiting factor.
Retail fragmentation
• Trust in private label still
constrains categories
such as baby food, where
brand loyalty is
exceptionally high.
Similarly, brands still tend
to trump private label
when it comes to
conveying a real sense of
product quality.
Reputation and trust
• The expansion of
supermarkets and
discounters from upper- to
lower-tier cities in
emerging markets stands
to ensure sustained
growth for private label
packaged food in fast-
developing countries.
Geographic expansion
• Demand for „fair trade‟
and organic products is
still far from its full
potential. As such, private
label should expand its
ethical stance from
traditional categories such
as chocolate and milk to
chilled and frozen
processed food.
Ethical positioning
• The increased importance
of non-grocery retailers
like warehouse clubs or
those which follow the
„dollar store‟ model in
major markets like the UK
and USA may provide an
opening for brands given
their low retail prices and
lack of private label items.
Non-grocery retailers
• Superior product quality in
terms of indulgence and
health properties, as well
as packaging and general
presentation in many food
categories, including ice
cream and chocolate
continue to override price
considerations.
Added-value brands
SWOT Analysis for Private Label Packaged Food
Retailing Landscape
© Euromonitor International
47
Packaged Food: Market Performance
• Looking ahead, the economic downturn, as well as continued economic uncertainty, has reinforced consumers‟
shopping habits even further. From 2010 to 2015, evermore price-sensitive consumers – especially those in Europe
facing public spending and benefit cuts – will not necessarily change what they buy when it comes to packaged food,
but are likely to shop smarter and seek out value for money wherever they can. This attitude will continue to benefit
larger retailers such as chained supermarkets/hypermarkets as well as discounters, which have greater scope to
reduce prices.
• A rise in spending through supermarkets/hypermarkets and discounters will be seen in all regions from 2010-2015.
Discounters should remain popular in Eastern Europe, where the effects of the economic downturn have been most
keenly felt, thanks to concerted expansion by multinational and local retailers alike.
• Further proliferation of modern retailers in Asia Pacific will continue to sway consumers from traditional channels,
namely outdoor markets and small grocery retailers, and also improve overall packaged food availability and
distribution in second-tier cities and rural areas, especially in key target markets such as China and India. Asian
consumers attracted by the varied offering of both staples and chilled and frozen packaged food at competitive
prices are expected to increase overall spending in hypermarkets and discounters by more than 55% in each format
from 2010 to 2015.
-6
-4
-2
0
2
4
6
8
10
12
Asia Pacific Australasia Eastern Europe Latin America MEA North America Western Europe
% C
AG
R
Global Changes in Overall Per Capita Consumer Spending by Grocery Retailer Format, 2010-2015
Hypermarkets Supermarkets Discounters Convenience Stores Independent Small Grocers Other Grocery Retailers
Larger Retailers, Formats Should Continue Global Expansion
Retailing Landscape
© Euromonitor International
48
Packaged Food: Market Performance
• In the medium term, even as positive news about economic growth slowly emerges, consumers in Western Europe
are expected to have to face up to rising levels of tax and unemployment, with much of the latter stemming from
extensive public sector spending cuts in markets as diverse as the UK, Ireland, Spain and Greece. As public
spending is cut, so too will be government benefits, leading to a real terms decline in wealth for many consumers.
• All these factors are expected to undermine consumer confidence and purchasing power in the short term at least,
and are likely to provide fertile ground for discounters in which to operate, given the channel's concentration on low
retail prices, although, as previously noted, it is not something that other retailers will cede without a fight.
• It is against this backdrop that discounters are expected to continue to make significant share gains in the majority of
Western European markets. While modern grocery formats are expected to continue to take share from traditional
channels over the medium term, the discounter format is set to gain the most, increasing its share of total grocery
retailing sales by 100 basis points from 2010 to 2015. In comparison, hypermarkets and supermarkets are both set
to see their share of total Western European grocery retail increase by only 40 basis points over the same interval.
• These changes should continue to put pressure on branded manufacturers and cause problems for other grocery
formats by further lowering consumers' concept of price. As such, while discounters‟ growth is set to slow between
2010 and 2015, the shadow that the channel is likely to cast across grocery retailing in Western Europe is expected
to grow.
180230280330380430480530580
2010 2011 2012 2013 2014 2015
US
$ b
illio
n
Western European Grocery Retailing by Major Channel Format, 2010-2015
Discounters Hypermarkets Supermarkets
Will Austerity Spur Discounters Forward in Western Europe?
Retailing Landscape
© Euromonitor International
49
Packaged Food: Market Performance
0
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015
US
$ b
illio
n
MEA Hypermarkets Total Retail Value Sales (excl. Sales Tax), 2010-2015
0
2
4
6
2010 2011 2012 2013 2014 2015
US
$ b
illio
n
Iran and UAE Hypermarkets Retail Value Sales (excl. Sales Tax), 2010-
2015
Iran UAE
• Hypermarkets have been a key driver of overall grocery value sales – and packaged food specifically – in the Middle
East, and will remain so as the format rises to the challenges posed by the region's diversified markets.
• Some markets, such as Dubai, are compact and highly Westernised, and retail saturation is a significant obstacle
regardless of the emirates‟ economic situation. Others, like Iran, hold enormous latent consumer demand for modern
grocery retail formats but suffer from a relative dearth of supporting infrastructure.
• Credited with introducing the hypermarket format to the region, Carrefour and its UAE partner Majid Al Futtaim Group
(MAF) opened the first store in 1995 in Dubai, and have now expanded across the Middle East. In August 2009, the
duo‟s Hyperstar banner entered Iran with licences for up to 11 outlets in major Iranian cities.
• By allowing a major international grocery chain to establish itself in the market, the Iranian government is hoping to
stimulate competition and lower prices across the rest of the retail landscape. Food sold through Hyperstar is mostly
locally sourced and substantially cheaper, up to 10-15% below existing retail prices.
• Despite government support, Hyperstar will face challenges. An underdeveloped regulatory framework meant that
the first outlet, near Tehran's Azadi Stadium, took two years to construct, rather than the usual six months. The other
element of difficulty is the local retail environment. Sainsbury's foray into Egypt famously ended with the chain being
subject to an unofficial fatwa, in part the result of protests from smaller, traditional retailers who found their prices
significantly undercut and shops increasingly deserted. A similar backlash in Iran could slow Hyperstar's progress.
Are Hypermarkets the Future of Food Retailing in MEA?
Retailing Landscape
© Euromonitor International
50
Packaged Food: Market Performance
• While much attention has been given to the interplay between supermarkets/hypermarkets on the one hand and
discounters on the other when it comes to food retailing, one neglected format has been the Internet.
• Internet retailing accounts for less than 1% of global packaged food retail values (0.7% in 2010), but has grown from
an all but negligible presence 10 years ago. Western Europe is the only region where the Internet claims more than
1% of packaged food retail value, though Asia Pacific is not far behind thanks to mounting broadband penetration.
• While online retailing sites for brick and mortar grocery retailers dominate packaged food Internet retailing, July 2010
saw Internet giant Amazon unexpectedly enter the online grocery markets of Germany and the UK, offering some
35,000 products in Germany and 22,000 in the UK, including perishable food such as vegetables, meat and fish.
• Operating within such different online markets as Germany and the UK for food and drink could prove to be a huge
challenge for Amazon. The first offers little in terms of direct competition but its consumers seem to lack the
motivation to switch to online grocery shopping. The latter is already very developed, with strong competition from
both online players and traditional brick and mortar stores alike. Amazon has overcome challenges in the past, but
the logistical complexity of delivering perishable food items represents an entirely new experience for the company.
• Amazon's early foray into online food and drink sales might not be an immediate success, but if the company could
entice consumers to change their habits; the extra competition could also push down prices, which could be
significant as consumers in both the UK and Germany tighten their budgets in the face of austerity measures.
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Asia Pacific Australasia Eastern Europe Latin America MEA North America Western Europe
% r
eta
il va
lue
Packaged Food Internet Retailing by Region, 2010
Will Internet Retailing of Food Ever Really Take Off?
Retailing Landscape
© Euromonitor International
51
Packaged Food: Market Performance
0
2
4
6
8
10
12
14
Asia Pacific Australasia Eastern Europe Latin America MEA North America Western Europe
US
$ b
illio
n
Food and Drink Internet Retailing Retail Value by Region, 2010/2015
2010 2015
0
2
4
6
8
10
12
14
16
2010 2011 2012 2013 2014 2015
US
$ b
illio
n
Western Europe Food and Drink Internet Retailing Retail Value, 2010-2015
Western Europe Germany United Kingdom
Market Forecasts for Food and Drink Internet Retailing
Retailing Landscape
© Euromonitor International
52
Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
© Euromonitor International
53
Packaged Food: Market Performance
• According to Euromonitor International‟s Countries and Consumers database, global real GDP growth is predicted to
start recovering in earnest from 2010, with the currently nascent recovery expected to consolidate each year to 2014.
• The global economic recovery will be primarily driven by emerging markets. Asia Pacific will be the primary dynamo
underpinning global economic performance, bolstered by a relatively rapid recovery in Eastern Europe. Real GDP
growth is predicted to reach 22% in Asia Pacific and 17% in Eastern Europe between 2010 and 2014.
• Latin America‟s GDP is predicted to grow 16% in real terms over the 2010-2014 period, further assisting the global
recovery. Robust regional economic growth will be driven by positive economic prospects in large countries such as
Brazil and Mexico, where real GDP growth is set to increase by 16% and 22%, respectively, from 2010 to 2014.
• Meanwhile, economic growth in North America and Western Europe is predicted to be far lower than what is being
seen for emerging regions and individual markets, although from a relatively much larger base. GDP is predicted to
grow by 10% in North America and 8% in Western Europe in real terms over 2010-2014.
-1
0
1
2
3
4
5
2008 2009 2010 2011 2012 2013 2014
% g
row
th
Global Real GDP Growth, 2008-2014
Final Conclusions: Economic Growth Gathers Pace in 2010…
Final Conclusions
© Euromonitor International
54
Packaged Food: Market Performance
• Factors such as high sovereign debt levels (as currently faced by countries including Greece, Spain, Portugal, Italy
and the UK), high unemployment rates and/or the early withdrawal of fiscal stimulus packages in developed and
emerging countries alike could result in only a partial economic recovery (PER) from 2010 to 2015. The worst case
scenario would be for developed markets in Western Europe to suffer a double-dip recession following upon the
current sovereign debt crises, which could also severely constrain economic prospects globally.
• In turn, this potential slowdown in economic recovery stands to have significant repercussions for global packaged
food consumption, in both retail value and retail volume terms, for not only 2010 but also for the years to come.
• Compared to the full economic recovery (FER) currently reflected in Euromonitor International‟s published packaged
food forecasts, based on the latest IMF economic predictions, a PER will constrain retail volumes for non-essential
food categories such as confectionery, ice cream and sweet/savoury snacks, as consumers cut back. Even staples
such as bread, milk and oils and fats – not to mention meal solutions such as frozen processed food, soup and
canned/preserved food – could all see retail volume prospects somewhat constrained as consumers cut back.
• Were global and/or regional economic recovery to be derailed, this would likely provide a further boost for private
label packaged food, as consumers become even more price sensitive and once again tighten household budgets.
…Or Talk of Economic Recovery Still Premature?
Final Conclusions
0
1
2
3
Bread Ice Cream Milk Cheese Ready Meals
Oils and Fats
Soup S/S Snacks Frozen Canned
% C
AG
R
Global Packaged Food Retail Volume CAGR by Select Categories, 2010-2015
FER PER
© Euromonitor International
55
Packaged Food: Market Performance
• Recently published company results for Nestlé and
Danone, covering the first nine months of 2010, reveal
just how much emerging markets are driving revenues.
• Nestlé SA and Groupe Danone reported year-on-year
growth (at constant scope of consolidation and constant
exchange rates) of 6% and 7%, respectively, for the nine-
month period through to 30 September, largely driven by
Asia Pacific, MEA and other emerging markets.
• Nestlé‟s best performing markets include China,
Indonesia, and the Philippines, while dairy and
confectionery count among the most rapidly growing
categories in the Asia, Oceania and Africa region. Nestlé
has also widened distribution of its value-priced Popularly
Positioned Products (PPP) in the region with key growth-
driving Maggi Noodles and Nestea Litro.
• Danone has categorically stated that emerging markets
are the company‟s priorities as drivers of both present
and future growth. In Asia Pacific, Danone‟s water and
baby nutrition operations posted high growth rates in the
first nine months of 2010, with China and Indonesia being
the main global drivers of its infant food division.
• Danone‟s definition of emerging markets also includes the
USA, and it has announced plans to triple its US sales,
which currently stand at US$2.5 billion rsp, in the next
two years, without any large M&A, and ruling out buying
Dean Foods, the largest US milk producer and long
viewed as a target for Danone. The company argues that
milk does not fit into its strategic focus.
Nestlé SA 2010 9-Month Results
Geography Sales (CHF msp)% organic
growth**
Europe 15,946 2.0
Americas 24,985 5.7
Asia, Oceania
and Africa 12,9419.2
Total* 82,770 6.1
Final Conclusions: The Future Lies in Emerging Markets
Final Conclusions
Groupe Danone 2010 9-Month Results
Geography Sales (EUR msp)% like-for-like
growth**
Europe 7,061 1.8
Asia 1,798 14.3
Rest of World 3,852 15.1
Total 12,711 6.9
Notes: *Sales by geography for Nestlé do not sum to total
group sales as business divisions only reported on a global
level (i.e. Nestlé Waters, Nestlé Nutrition, Other Food and
Beverages and Pharma) are excluded
**Nestlé’s reported organic growth is equal to Danone's like-
for-like growth; both show y-o-y growth at constant scope of
consolidation and constant exchange rates
© Euromonitor International
56
Packaged Food: Market Performance
• Now that it is well on its way to integrating Cadbury‟s operations, Kraft Foods has started looking ahead, and has set
significant expansion throughout emerging markets firmly in its sights.
• During the long takeover battle for Cadbury, Kraft cited greater access to expanding international markets as one of
the main benefits of the acquisition. Based on the first full quarterly results for joint operations, published in summer
2010, Cadbury boosted net revenues across all regions but most significantly in Kraft's Developing Markets reporting
segment, where net revenues increased by over 73%, including a 61 percentage points impact from Cadbury.
• While Kraft's access to international markets has improved, there are still gaps to fill, not least a comparatively weak
presence in the most attractive geographic region of all: Asia Pacific.
• Nevertheless, more than half of Kraft‟s overall revenues originate from outside its „domestic‟ market of North
America. Even more importantly, the company‟s stated strategic objective will be to increase the proportion of
business stemming from so-called „developing markets‟ from a quarter of total revenue to approximately one third by
2013. Essentially, Kraft Foods is banking on its stable of „powerhouse‟ brands in established markets and product
categories to generate enough profit to allow for aggressive expansion into more high-margin categories and fast-
growing emerging markets across Asia Pacific, Eastern Europe, MEA and Latin America.
0
10
20
30
40
50
60
70
80
Asia Pacific Latin America MEA Western Europe North America Eastern Europe Australasia
US
$ b
illio
n
Packaged Food Absolute Retail Value Growth by Region, 2010-2015
Final Conclusions: What Now For Kraft Foods?
Final Conclusions
© Euromonitor International
57
Packaged Food: Market PerformanceFinal Conclusions
M&A Capabilities for Top 10 Global Packaged Food Companies: 2010
Company Evaluation of current acquisition capabilities
Kraft Foods IncFinancially stretched, with the recent Cadbury takeover and integration in the short to medium
term.
Nestlé SAFinancially most capable after the finalisation of Alcon divestment, but may be pre-occupied with
establishing the new Health Sciences division to buy anyone of significant note.
Unilever Group
After acquiring Sara Lee‟s personal care business, purchased Alberto Culver one year later.
Shows appetite for growth via high-scale acquisitions but could be financially overstretched in
the short term given high-profile takeovers in other non-food segments.
PepsiCo IncRecently completed the merger with its two largest bottlers, The Pepsi Bottling Group Inc and
PepsiAmericas Inc, rationalising operations.
Mars IncAs a privately-owned company, few details are known about its finances; recent integration of
Wrigley was a major financial commitment.
Danone, GroupeHas not made any acquisitions since Royal Numico in 2007; it has been following a policy of
debt reduction.
Kellogg Co
Only its cereal business is internationalised. As the clear leader in most markets it would face
strong competition issues with large-scale acquisitions in cereals. Is reluctant to internationalise
other divisions.
General Mills IncPotential acquisition target for Nestlé. Heavily reliant on US market, operates via joint ventures
in international markets.
Ferrero GroupeSeems to be interested in geographic expansion, especially into Asia Pacific, but looking
towards potential joint venture partners rather than outright acquisition.
Lactalis, GroupeIts recent European expansion campaign shows its appetite for acquisitions, including the March
2010 purchase of Ebro Puleva‟s dairy business.
Final Conclusions: M&A Capabilities of Top Food Companies
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Packaged Food: Market Performance
• In terms of packaged food retailing, a general trend towards consolidation between supermarkets and hypermarkets
on the one hand and discounters on the other looks broadly set to continue. That said, there are some deviations
from this trend, such as the growing success of dollar and pound stores in the USA and the UK or smaller grocery
formats offering more affordable (from a consumer point of view) pack sizes and greater access to credit. However,
these retail format deviations, where they exist, also tend to share one common quality: affordability.
• What consumers want has not changed much since the dark economic days of the Great Recession of 2009. What
has changed is that consumers are shopping smarter – in terms of where they shop – to save money, rather than
eschewing lifestyle brands and/or the products they genuinely want to consume the most. While this is certainly good
news for branded packaged food manufacturers, it also means that their margins will become increasingly squeezed.
• Looking ahead, there is a clear opportunity for further consolidation within the global grocery retailing market. This
process will create ever larger grocery retailers which will have enormous buying power and a greater hold over the
markets in which they operate. Moreover, SKU rationalisation – like Wal-Mart‟s Project Impact initiative – will become
more common. Carrefour, for one, now has SKU rationalisation high on its agenda.
• Moreover, expanding private label category penetration even further will remain high on the agenda, which will put
manufacturers under even more strain. As such, in 2015, after a wave of consolidation, brand owners could well look
back fondly on 2010, although convincing them of that at the moment is likely to prove rather difficult.
-5
0
5
10
15
Asia Pacific Australasia Eastern Europe Latin America MEA North America Western Europe
% C
AG
R
Grocery Retailer Outlet Growth by Format and Region, 2010-2015
Supermarkets Hypermarkets Small Grocery Discounters
Final Conclusions: Global Retail Consolidation Will Continue
Final Conclusions
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Packaged Food: Market Performance
• Despite the steady expansion of private label packaged food
during the generally uncertain years of 2008-2010, brands still
accounted for around 74% of global packaged food sales in 2009.
Also, private label continued to have a very low presence in
emerging regions. In Latin America, private label accounted for a
mere 2% of packaged food retail value sales in 2009.
• Additionally, there is industry consensus that mass-market brands
remain essential to shaping consumer preferences and spending
habits, especially in more aspirational emerging markets.
• In China, for example, locally-sourced mass-market brand Le
Conté is leading the transition from sugar confectionery to more
expensive, but also more indulgent, chocolate confectionery
among middle-class consumers. Similarly, brands such as
Britannia (Britannia Industries Ltd) and Parle (Parle Products Pvt
Ltd) have underpinned the expansion of packaged biscuits in
India, particularly among busy professionals in urban areas with
little or no time for traditional hot meals during working hours.
• In baby food, brands have demonstrated the primacy of perceived
quality and health properties over price. Furthermore, the robust
performance of brands during the economic turmoil of 2008 and
2009 has shown the resilience of some food categories to
fluctuating consumer incomes and the subsequent impact on
demand for branded lines with specific health properties.
• In short, brands will remain vital to the future health of the global
food market, but they face increasing challenges in mature
markets/categories where differentiation from private label is
dwindling and the additional added-value properties brands offer
are more quickly mimicked by increasingly savvy retailers.
Final Conclusions: Branded vs. Private Label Packaged Food
Final Conclusions
Brands still account for almost three-quarters of global retail value sales
Brands drive the transition from fresh to
processed food consumption in
emerging markets
Brands face increasing challenges
in markets where private label has larger exposure
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Packaged Food: Market Performance
Industry prediction:
Economic recovery
Despite continued economic jitters, not least as many European markets are now
facing significant public spending cuts and the USA continues to struggle with 10%
unemployment, a double-dip recession is looking increasingly unlikely.
Industry response:
Emerging markets and
‘hot’ growth prospects
To stave off the constraining effects of economic uncertainty in increasingly mature
developed packaged food markets, aggressive and sustained expansion into
emerging markets, especially Asia Pacific, will be essential to future success.
Industry prediction:
Commodity prices
Commodity prices are once again facing the spectre of volatility, which will put
pressure on manufacturers and the broader supply chain. However, a repeat of the
rapid food price inflation seen from mid-2007 to mid-2008 remains unlikely.
Industry response:
Managing volatile
commodity prices
Nevertheless, manufacturers that anticipate any increases to commodity costs will be
in a stronger position, especially as cost savings and effective supply chain
management become more important in the face of mounting retailer consolidation.
Industry prediction:
Innovation
Packaged food manufacturers will increase investment in new product developments
in light of better economic prospects, particularly in fast-growing regions such as Asia
Pacific. Innovation will also remain crucial to staving off private label encroachment.
Industry response: Don’t
stop adding value
Manufacturers must become bolder and even more compelling in adding value to
their new product launches, while resisting the temptation to retreat into a single-
minded value-for-money proposition as they try to compete against private label.
Industry prediction:
Private label
Even though economic prospects are gradually improving, there is no guarantee that
consumers, especially those in developed markets, will return en masse to branded
products, especially now that private label has become more adept at adding value.
Industry response:
Diversify between brands
and private label
Private label encroachment looks here to stay, so if you can‟t beat them, join them.
Food manufacturers should explore opportunities to split production between added-
value brands on the one hand and more commodified private label on the other.
Final Conclusions for Packaged Food: 2010 and Beyond
Final Conclusions
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Packaged Food: Market Performance
Introduction
After the Fall
Competitive Landscape
Retailing Landscape
Final Conclusions
Report Definitions
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62
Packaged Food: Market PerformanceReport Definitions
• 2010 figures are provisional and based on part-year estimates.
• The forecast period under review subsumes the years 2010 through to 2015, inclusive.
• All forecast retail value data for Packaged Food are expressed in constant terms; inflationary effects are discounted.
All historical data – country-specific, regional and global – through to 2010 are also expressed in constant value
terms, with any inflationary effects completely discounted.
• All US$ data for Packaged Food – historical and forecast – at national, regional and global level are shown at fixed
2010 exchange rates. As such, any impact from currency and/or exchange rate volatility are discounted.
• All forecast retail value data for Health and Wellness and Health and Wellness Packaged Food are expressed in
constant terms; inflationary effects are discounted. All historical data – country-specific, regional and global – through
to 2010 are also expressed in constant value terms, with any inflationary effects completely discounted.
• All US$ data for Health and Wellness and Health and Wellness Packaged Food – historical and forecast – at
national, regional and global level are shown at fixed 2009 exchange rates. As such, any impact from currency
and/or exchange rate volatility are discounted.
Data Parameters
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Packaged Food: Market Performance
• Definitions for industry-specific and other terminology/abbreviations used in this report:
• CAGR – Compound annual growth rate
• Canned – Canned/preserved food
• Chilled – Chilled processed food
• DMP – Drinking milk products
• Dried – Dried processed food
• EU – European Union
• Fairtrade – Officially certified by a recognised and authorised accrediting agency
• fair trade – Absence of capital letters refers to the general ethical movement centring on fair prices and living wages
• FMCG – Fast moving consumer goods
• FER – Full economic recovery
• Frozen – Frozen processed food
• MEA – Middle East and Africa
• MR – Meal replacement
• MSP – Manufacturer selling price
• NPD – New product development
• PER – Partial economic recovery
• RSP – Retail selling price
• SDC – Sauces, dressings and condiments
• S/S Snacks – Sweet and savoury snacks
• USG – Underlying Sales Growth, reports turnover growth at constant exchange rates, excluding the effects of
acquisitions and/or disposals
• USP – Unique selling point
• YSMD – Yoghurt and sour milk drinks
Report Terms and Definitions
Report Definitions
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Packaged Food: Market Performance
• Packaged Food comprises the following Euromonitor International product categories and definitions, as well as
each individual component sub-category therein:
• Baby food
• Bakery
• Canned/preserved food
• Chilled processed food
• Confectionery
• Dairy
• Dried processed food
• Frozen processed food
• Ice cream
• Meal replacement
• Noodles
• Oils and fats
• Pasta
• Ready meals
• Sauces, dressings and condiments
• Snack bars
• Soup
• Spreads
• Sweet and savoury snacks
Product Definitions
Report Definitions
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Packaged Food: Market Performance
• Packaged Food retail sales are defined as sales through establishments primarily engaged in the sale of fresh,
packaged and prepared foods for home preparation and consumption.
• Packaged Food retail coverage subsumes the following Euromonitor International retail distribution categories and
definitions, as well as each individual component sub-category therein:
• Grocery retailers
• Hypermarkets
• Supermarkets
• Discounters
• Small grocery retailers
• Convenience stores
• Independent small grocers
• Forecourt retailers
• Food/drink/tobacco specialists
• Other grocery retailers
• Non-grocery retailers
• Health and beauty specialist retailers
• Other non-grocery retailers
• Non-store retailing
• Vending
• Homeshopping
• Internet retailing
• Direct selling
Retail Distribution Definitions
Report Definitions
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Packaged Food: Market Performance
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