2009 Economic Outlook for the Global Food and Beverage Market - Apr09
Transcript of 2009 Economic Outlook for the Global Food and Beverage Market - Apr09
2009 Economic Outlookfor the Global Food and
Beverage Market
Christopher ShanahanFood Industry Research Analyst
Global Chemicals, Materials and Food
San Antonio, Texas USA
April 23rd, 2009
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Agenda
• The economic recession and its
impact of economy on the food and
beverage industry
• What will catalyze the turnaround?
• Emerging trends in food & beverage
industry
• Best practices for staying resilient to
the recession
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Taking a Step Back and Reviewing the Recession Genesis From Financial Sector to Real Sector
Defaults Lack of Trust in Financial Institutions
Tightening Credit Markets
Banks Slow Lending Down
Slower Growth
Financial InstitutionsLosses
Lack of Lending forSmall Business
Lack of Retail
CreditConsumers Reduce Spending
Economy Slows Down/Contracts
Sub-Prime Mortgages
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Lack of Capitalfor Companies
Suspension of Interbank Lending
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Defaults Lack of Trust in Financial Institutions
Tightening Credit Markets
Banks Slow Lending Down
Slower Growth
Financial InstitutionsLosses
Lack of Lending forSmall Business
Lack of Retail
CreditConsumers Reduce Spending
Economy Slows Down/Contracts
Sub-Prime Mortgages
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Lack of Capitalfor Companies
Suspension of Interbank Lending
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• Fear has a maelstrom affect on economic activity.
• Most economists argue that the primary catalyst of the economic downturn was the sub-prime mortgage
crisis and the associated collapse of the financial derivatives markets.
• This in turn drove mistrust in financial institutions and the economy as a whole began to unravel.
• Commercial banks began to slow consumer lending to both large and small companies and consumers.
• Job creation stopped and businesses shrunk, which spurred job losses.
• Thus, with declines in both industrial production and consumer demand, total economic activity regressed
and the current global recession had begun.
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The Economic Downturn and the Food & Beverage Market
• Low price inflation rates for energy and other commodities• Decreased dependence on biofuels in US• Flat demand growth• Lower agricultural production • Increased aggressive pricing strategy • Health & wellness trend to continue • Increased focus on cost saving strategies among businesses and consumers
• Low price inflation rates for energy and other commodities• Decreased dependence on biofuels in US• Flat demand growth• Lower agricultural production • Increased aggressive pricing strategy • Health & wellness trend to continue • Increased focus on cost saving strategies among businesses and consumers
200920092009
Early 2008• Exponential increase in commodity &
energy prices
• Increasing biofuel production in US
• Depreciation of the U.S. dollar
• Increasing demand from emerging
markets (BRIC)
• Squeezed margins due to increasing
costs
Early 2008Early 2008• Exponential increase in commodity &
energy prices
• Increasing biofuel production in US
• Depreciation of the U.S. dollar
• Increasing demand from emerging
markets (BRIC)
• Squeezed margins due to increasing
costs
Late 2008• Exponential decrease in commodity &
energy prices
• Collapse of demand growth, especially
from emerging markets
• New margin pressures
• Continued depreciation of the U.S. dollar
• Restricted R&D and marketing
investment
Late 2008Late 2008• Exponential decrease in commodity &
energy prices
• Collapse of demand growth, especially
from emerging markets
• New margin pressures
• Continued depreciation of the U.S. dollar
• Restricted R&D and marketing
investment
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Impact of the Downturn on Specific US IndustriesThe US Food Industry has been relatively resilient during the downturn
Relative Impact of the Economic Downturn on Various Industries
The Cumulative Market Cap Value per Industry Today Relative to the Same Value One Year Ago
April 1, 2008 to March 31, 2009
82.68 81.6379.92
76.34
69.97 69.65
65.35 64.72
61.37 60.33 59.7957.57
54.33 53.82 52.7850.93 50.22
45.3242.75
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Global Commodity Food Price IndexThe bubble burst due to the collapse of demand
Global Indexed Price Trend for Food & Beverage Commodities from Global Indexed Price Trend for Food & Beverage Commodities from Global Indexed Price Trend for Food & Beverage Commodities from Global Indexed Price Trend for Food & Beverage Commodities from April 2004 to April 2004 to April 2004 to April 2004 to
March 2009, Base Year 2005 = 100, U.S. (2009)March 2009, Base Year 2005 = 100, U.S. (2009)March 2009, Base Year 2005 = 100, U.S. (2009)March 2009, Base Year 2005 = 100, U.S. (2009)
Source: International Monetary Fund, Index Mundi
• Volatility energy prices
• Increasing biofuel production
• Depreciation of the U.S. dollar
• Nature – Averse Weather in 2007 and 2008
• Government Policy
• Long-term growth in international demand
• Slowdown in agricultural production growth
• Reduced global stockpiles of basic commodities like corn,
soybeans, wheat, and rice
Likely Factors Impacting Price Volatility
One of the biggest economic stories of 2008 to affect most of the world, including the United States, was the exponential increase in commodity prices and then the dramatic fall in prices. Pinpointing a particular cause for the increased volatility in food prices has been attempted but to no avail. This is because food price volatility was not the result of any particular reason, but rather the synergy of multiple challenges impacting the food economy as a whole.
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Significant Decline In Second-Half 2008 Imports Corresponded to Decline in World Sulfur Prices
• Price per pound based on a purchase of one metric ton order
$0.00
$0.05
$0.10
$0.15
$0.20
2006 2007 Q1
2008
Q2
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Q3
2008
Q4
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Q1
2009
Q2
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2010 2011
Source: Frost & Sullivan
• Sulfur is a critical input in the production of fertilizers
• Sulfur production is dependent on the petroleum industry and the demand for oil
• According to industry sources, the expected price of sulfur has dropped off from 2008’s high
due to the collapse of the fertilizer and industrial markets in emerging markets
• In the second half of 2008, China’s sulfur imports were down 26 percent compared to the
previous year.
• In a typical year, China accounts for approximately 30 percent of world sulfur imports, so its
reduced demand led to a rapid price decline.
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Consequences - Supply Chain PressuresEconomic conditions have impacted US supply chain reliability
Rising Costs
50%
Supplier
Reliability
29%
Ingredient
Availability
21%
Increased 1%
to 10%
33%
No Change -
Decreased
7%
More than 10%
60%
Biggest Problem Encountered with Ingredient Suppliers in the Past Year (2008) n = 28
Average Price Increase for Primary Ingredients in the Past Year (2008) n = 28
Supply Chain Pressures
• The economic downturn is pinching
consumer demand in the food market,
but the food economy has been
recession resilient
Other factors are impacting industry
performance and supply chains
• Impact on supply chain
• Squeezed Margins
• Availability
• Pricing
• Reliability
• Supply chain safety and traceability
Source: Frost & Sullivan
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• Limited impact on the APAC food industry due to strong market
growth rates
• Asia shines despite economic gloom
• Food expenditures in indicate a shift toward consumption of higher
value food products across all income levels and regions
• Growing consumer interest in health & wellness
• APAC remains a vital sourcing ground for raw materials and low
cost production
• 2009 outlook among APAC food manufacturers is gloomy
• High growth in APAC food markets has slowed, but signs of rebound
are emerging
What Does the Downturn Mean for APAC?Not much…yet
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What Does the Downturn Mean for APAC?Urban Growth Rates - High Correlation with Growth in Economic Activity
Urban Growth Rates - High Correlation with
Growth in Economic Activity (2005)
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Industry Reactions to Economic DownturnIncreasing conservatism due to increase in uncertainty
PRICING ADJUSTMENTS
ORGANIC GROWTHEXPECTATION ADJUSTMENTS
MERGERS & ACQUISITION
RENEWED FOCUS ON HIGH GROWTH
SEGMENTS
Price Volatility
Pinched Consumer Demand
Supply Chain Issues
Food & Beverage Industry
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Catalyzing the TurnaroundSpecific Growth Drivers in the Food & Beverage Industry Today
• Low inflation and increasing consumer spending
• Increasing Urbanization
• Government Stimulus
• Growing interest and push towards health & wellness
• Expected increase in interest in preventative medicine as a way to curb
increasingly high health care costs
• Greater awareness of benefits of functional food ingredients
• Promotion of nutrients that are difficult to incorporate into a diet
• Demand for alternative delivery formats of dietary supplements
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Best Practices in the Food & Beverage Market
• Invest in marketing strategies that focuses on
your core product offering
• Exploit opportunities from consumer feedback
• Have a complete 360 degree perspective on
your market’s external environment in order to
discover opportunities
• Establish partnerships with other suppliers
• Adopt proactive product and service
differentiation strategies
• Understand the consumer’s motivation for
buying your product
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Boosting Top-Line Growth Through Differentiation
Service DifferentiationService Differentiation
Product DifferentiationProduct Differentiation
Maximize Customer Value by Maximize Customer Value by
being the Low Cost Providerbeing the Low Cost Provider
The Solution Provider: The The Solution Provider: The
Marriage of ValueMarriage of Value--Added Added
Quality Enhancement and Quality Enhancement and
Customer Relationship Customer Relationship
OptimizationOptimization
Top Line Accelerated Growth Top Line Accelerated Growth
Enhance ValueEnhance Value--Added Quality Added Quality
through New Product through New Product
DevelopmentDevelopment
Optimize Relationships with Optimize Relationships with
CustomersCustomers
Source: Frost & SullivanSource: Frost & Sullivan
What distinguishes the food industry’s high performers from the average more than any other single
factor is differentiation—of product, application, service and price, as well as differentiation in terms of
the kinds of collaborative partnerships and alliances these companies strike with both customers and
providers.
Reactive strategies rarely achieve competitive advantage. High performance companies always adopt
proactive strategies.
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Focus on Food & Beverage Industry in China - SWOT Analysis
STRENGTHSSTRENGTHS
OPPORTUNITIESOPPORTUNITIES
• F&B industries is one of the fastest growing industry sectors
• Gradual removal of market barriers and trade restrictions
• Partnerships with multinationals have allowed for rapid development
• Health scares have opened up the market for food imports and has a positive effect on sales of processed foods
• Rising disposable incomes is fueling growth in high-quality and specialty processed foods
WEAKNESSESWEAKNESSES
• China’s underdeveloped agricultural sector remains a major barrier to growth ���� especially true for high-value perishable foods (fresh dairy)
• Food safety ���� higher production and labeling costs
THREATSTHREATS
• Food scares have impacted the entire food value chain ���� highlighted vulnerabilities of the marketplace ����could constrain FDI
• Emergence of India could mean increased competition for FDI
Positive FactorsPositive Factors Negative FactorsNegative Factors
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Focus on Grocery Retail in China - SWOT Analysis
STRENGTHSSTRENGTHS
OPPORTUNITIESOPPORTUNITIES
• China’s vast population
• High disposable incomes in urban centers
• Lifting of FDI restrictions has fueled increased investment
• China’s mid-sized cities remain fairly unsaturated
• The convenience and discount formats remain underdeveloped
• Private labeling
• Rising tourist numbers
WEAKNESSESWEAKNESSES
• Underdeveloped infrastructure
• Much of the country’s rural poor cannot afford most grocery retail products
THREATSTHREATS
• Saturation in major cities is near
• Hypermarket format is already facing regulatory obstacles
• Structural problems such as wide income inequality could constrain grocery retail growth
Positive FactorsPositive Factors Negative FactorsNegative Factors
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Next Steps
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For Additional Information
Krithika Tyagarajan Research Director- APAC 65.6890.0230 [email protected]
Steve LeeStrategic Account ManagerChemicals, Materials and Food, Asia Pacific(65) 6890 [email protected]