Globalisation of Fresh Produce Markets

GLOBALISATION OF FRESH PRODUCE MARKETS_____________________________________________________

MIKE KNOWLES EUROFRUIT MAGAZINE

CHANCE· NECESSITY· RISK

CHANCE OPPORTUNITIES FOR GROWTH

NECESSITY THE NEED TO GROW

RISK OBSTACLES TO GROWTH

• AFFECTING ALL AREAS OF THE FRESH PRODUCE SUPPLY CHAIN– International expansion of retailers – Consolidation of importers / category managers– Related service providers also consolidating eg seed companies, transport providers

• CONSOLIDATION DRIVEN BY NEED TO…– Compete more effectively– Achieve economies of scale– Keep pace with consolidation among inputs and clients

• NOT JUST MERGERS AND ACQUISITIONS – Strategic alliances – Marketing partnerships– Sharing of research

CONSOLIDATING PRODUCTION WILL BE ESSENTIAL,BUT HOW THAT OCCURS REMAINS TO BE SEEN…

GLOBALISATION

EUROPE THE ESTABLISHED MARKET

EUROPE THE ESTABLISHED MARKET

• COMPETITION MORE AND MORE INTENSE

• COSTS HIGH COMPARED WITH POTENTIAL RETURNS

• RETAILERS AND OTHER BUYERS INCREASINGLY POWERFUL

• DRIVE TOWARDS VERTICAL INTEGRATION

• INCREASED USE OF TECHNOLOGY

• PRICE AS THE LEADING CONSUMER TREND

• STAGNANT CONSUMPTION LEVELS

• GOVERNMENT NOT HELPING AS MUCH AS IT COULD

• ENVIRONMENTAL AWARENESS AT ALL-TIME HIGH

HOW ATTRACTIVE IS THE EUROPEAN MARKET?

Source: Five Forces Model – Michael Porter, Harvard Business School

BARGAINING POWER OF

INPUT PROVIDERS

BARGAINING POWER OF

CUSTOMERS

THREAT OF NEW MARKET

ENTRANTS

THREAT OF SUBSTITUTE PRODUCTS

€

AMOUNT OF COMPETITION

IN THE MARKET

FIVE FORCES WHICH CAN DETERMINE ITS COMPETITIVE INTENSITY…

How intense is competition in the European market?


Source: Andrew Grove, Intel; Martyn Richard Jones, Groupe Bull

NGOs GOVERNMENTS CONSUMERSFINANCIAL

INSTITUTIONS

OTHER FORCES WHICH EXERT AN INFLUENCE…

How intense is competition in the European market?

Fuel – traditional sources becoming more expensive

Transport – lot of consolidation, limited capacity growth

Logistics – some consolidation, options limited

Packaging – plenty of innovation, competition and crossover

Pesticides – food safety crackdown limiting options

Seeds – major groups consolidating, but some competition

BARGAINING POWER OF

INPUT PROVIDERS


Input provider switching cost relative to your switching cost

Degree of differentiation of inputs

Presence of substitute inputs

Input provider concentration to your concentration ratio

Employee solidarity (labour unions)

ATTRACTIVEUNATTRACTIVE

=

SUPPLY CHAIN BECOMING EASIER TO CONTROL AND TO MONITOR

Barcodes gradually being replaced by newer technologies like DataBar and RFID– greater amount of information can be stored– supply and demand more easily balanced

NOT KEEPING UP WITH SUCH DEVELOPMENTS ELSEWHERE ALONG THESUPPLY CHAIN CAN PUT THE SUPPLIER AT A DISADVANTAGE...

TECHNOLOGY


INFLUENCE OF FINANCIAL

INSTITUTIONS

Lines of credit restricted, unlikely to be fully restored

Tax-payers bailing out failed banks


=

Buyer concentration to your concentration ratio

Your dependency on existing distribution channels

Your ability to bargain on price (especially with high costs)

The number of different buyers

Buyer switching costs relative to your switching costs

Buyer access to market information versus yours

Vertical integration in supply chain

Availability of existing substitute products

Buyer price sensitivity

Differential advantage (uniqueness) of your products


BARGAINING POWER OF CUSTOMER

€

=


RETAILERS

THE EXPANSION CONTINUES DESPITE THE ECONOMIC DOWNTURN

RETAILERS

Rewe Group (Germany) – Best Alliance contract farming projects

Tesco (UK) – establishing direct sourcing initiative

Asda (UK) – now owns International Produce

Conad (Italy) – sourcing agreements with dedicated suppliers

MOVES TOWARDS SECURING SUPPLY

TOUGH ON SUPPLIERS, BUT INCREASINGLY SEEING VALUE OF FRESH PRODUCE

But in order to supply them, companies increasingly require...

– CRITICAL MASS

– INTEGRATED SUPPLY CHAINS

– A RANGE OF PRODUCTS AND / OR SOURCES

– ALTERNATIVE DESTINATION MARKETS

eg. Univeg, Total Produce, The Greenery

GOING DIRECT

TRIMMING COSTS, BUT ALSO A NEED TO FIND THE RIGHT PRODUCTS

There is no point in having several teams buying for our individual country markets. We need experts in production who are close to our sources of supply, understand the difficulties associated with that production and know where to find the best products and suppliers.

“

”SANDY NORMAN – TECHNICAL MANAGER, TESCO

NINE TECHNICAL HUBS WORLDWIDE

North Africa / Mid East

Oceania

Asia-Pacific

EasternEurope

Central America

North America

South America Africa

WesternEurope

TESCO’S DIRECT SOURCING STRATEGY

MORE STREAMLINED

ECONOMIC NECESSITY, FOOD SAFETY, COMMITMENT TO QUALITY

A lot is said about short supply chains and localised food markets, but the future of food retail and needs of consumers are completely different. We want to guaranteee long supply chains of quality, bringing the excellence of Puglia's production, for example, to Parma, and vice-versa. Consumers go to modern retailers; that is the reality rather than the nostalgia.

“

”FRANCESCO PUGLIESE – GENERAL DIRECTOR, CONAD

The existence of barriers to entry (patents, rights, etc)

Economies of product differences

Brand equity

Switching costs

Capital requirements

Access to distribution

Customer loyalty to established brands

Absolute cost advantages

Learning curve advantages

Expected retaliation by incumbents


THREAT OF NEW MARKET

ENTRANTS =



THREAT OF SUBSTITUTE PRODUCTS

Buyer propensity to substitute

Relative price performance of substitutes

Buyer switching costs

Perceived level of product differentiation

=


Quality and number of competitors

Sustainable competitive advantage through improvisation


AMOUNT OF COMPETITION

IN THE MARKET =


DESTINATION MARKETS – POLISH APPLES

Source: WAPA / Prognosfruit

64%

36%

PROCESSINGFRESH

50%50%

2008/092004/05


INFLUENCE OFNGOs = Environmental – eg Greenpeace, WWF, Rainforest Alliance

Social – eg Oxfam, Fairtrade

Food safety – eg Greenpeace, Friends of the Earth


WATER USAGE (LITRES)

Source: FAO

0

50

100

150

200

one tomatoone potato

one orangeone apple

one glass orange juiceone glass apple juice

1325

5070

170190

WATER USAGE (LITRES)

Source: FAO

0

600

1200

1800

2400

one hamburger

2400


INFLUENCE OF GOVERNMENTS = EU funding for Producer Organisations

Individual EU members slow to act on healthy eating schemes

Generally not as powerful as the retailers


GOVERNMENTS

EU MARKETING STANDARDS – 1 JULY 2009

apricotsartichokesasparagusauberginesavocadosbeansBrussels sproutscarrotscauliflowerscherrieschicorycourgettescucumbers

garlichazelnuts in shellheaded cabbageleeksmelonsmushroomsonionspeasplumsribbed celeryspinachwalnuts in shellwatermelons

applescitruskiwifruitlettucepeachesnectarinespearsstrawberriessweet pepperstable grapestomatoes

NO MORE SPECIFIC MARKETING STANDARDS

SPECIFIC MARKETING STANDARDS REMAIN

BUT EXEMPTIONS CAN BE SOLD IF LABELLED

GOVERNMENTS

MANY FEEL STANDARDS REVISED IN RESPONSE TO PRESSURE FROM RETAILERS

Pisa, May 2009


INFLUENCE OF CONSUMERS = Money concerns pushing prices down but increasing competition

Food safety and CSR concerns increasing certification costs

Health concerns favouring increased consumption

Environmental concerns favouring local produce

Consumption levels decreasing


FORECAST RETAIL GROWTH IN EUROPE, 2008-2012

Source: Planet Retail

0

2

4

6

8

4.035.74

5.866.38

6.69

7.19

ForecourtsHypermarkets

SupermarketsConvenience

Cash & Carries

Discounters

%

IMPACT OF DISCOUNT TREND

SQUEEZING OUT VALUE!

Buy 1, Get 1

FREELATER


FRESH PRODUCE STILL IN DEMAND, BUT IT’S AN EVEN TOUGHER MARKET

Many Italian consumers want convenience, low prices and top-quality food. Whether rich or poor, they tend to save on non-food products such as detergents and then seem happy to spend what they have saved on high-quality food.

“

”VINCENZO TASSINARI – CHAIRMAN, COOP ITALIA


THOSE DOING WELL ARE THOSE PROVIDING VALUE

Sales of €5.7bn in 2008, up from €5.4bn

Sales growth forecast at 8.1 per cent

Food accounts for 78 per cent of sales

Regular discount offers – 30, 40, 50 per cent


OTHER RETAILERS FOLLOWING THE DISCOUNT TREND

Bis

Promotion offering 2 for 1

“Helping you make ends meet in a difficult period”


PRICE WARS BREAKING OUT ACROSS EUROPE

Madrid, November 2009


PRICE WARS BREAKING OUT ACROSS EUROPE


PRICE REMAINS MOST IMPORTANT; OFFERING VALUE IS ALL THE MORE CRUCIAL

LOSS LEADERS

Harry Potter and the Deathly Hallows*****************************************************

WHOLESALE PRICE:

Recommended retail price:

INDEPENDENT RETAILER:

ASDA:

LOSS:

*****************************************************

9.89

17.99

10.99

£

*****************************************************

8.87

1.02

WHAT MATTERS MOST TO RETAILERS IS GETTING SHOPPERS TO COME BACK

PER-CAPITA FRESH PRODUCE CONSUMPTION – EU

Source: Freshfel Europe / Eurostat

0

50

100

150

200

250

300kg

2002 2003 20042005

20062007

Fruit Vegetables

HOW ATTRACTIVE IS THE EUROPEAN MARKET?How intense is competition in the European market?

INPUTS CUSTOMERS NEW ENTRANTS & PRODUCTS COMPETITION NGOs GOVERNMENTS CONSUMERS BANKS

€


ELSEWHERE THE NEW MARKET

INCOME US$16,000+FROM 352m IN 2000 20302,100,000,000

DEMAND SET TO OUTSTRIP SUPPLY

9,100,000,000WORLD POPULATIONSET TO RISE BY 40% 2050

ARABLE LAND LEFTIN THE WORLD FAO12% MAINLY IN RUSSIA

Source: Bidwells Agribusiness, FAO,

+70-100%FOOD DEMANDSET TO DOUBLE 2050

ECONOMIC GROWTH FORECASTS 2010

5.5%ASIA-PACIFIC (EXCL. JAPAN)

4.4%MIDDLE EAST & NORTH AFRICA

0.6%EUROPE

3.1%SUB-SAHARAN AFRICA

2.4%LATIN AMERICA

2.4%NORTH AMERICA

Source: Economist Intelligence Unit

EMERGING MARKETS

CHINA

Massive market, high-value outlets in Beijing, Shanghai, Hong Kong

Retail sales and investment still growing, albeit more slowly

Tesco, Wal-Mart, Carrefour attracting more customers from wet markets

Government investing in infrastructure – Yn4 trillion stimulus package

Fall in sales during 2008 and early 2009

Notable slowdown during the Olympics, followed by credit crunch

Yuan holding strong, hurting exports, favouring imports » tougher market

Grey trade slowly disappearing, increased shipments direct to north

Increased quarantine hurdles and more formal duty structure

FRESH PRODUCE TRADE – EU AND CHINA

Source: CSO / Istat

0

200,000

400,000

600,000

800,000

Tonnes

2003

2008

EU > CHINA CHINA > EU

INDIA

EMERGING MARKETS

Interest from big industry players – Total Produce, Capespan, Del Monte

Bharti Wal-Mart, Reliance, Birla targeting back-end improvements

Foreign direct investment up to 100 per cent allowed

Growing preference for imported fruits, particularly among middle class

Per-capita spending on fruit and vegetables up 8-9 per cent each year

Supply chain and infrastructural deficiencies

Domestic production continuing to expand and improve

Retail development slowed by public suspicion of modern formats

Organised retail still only accounts for less than 1 per cent of sales

Investment tends to be more focused on front end, rather than supply chain

INDONESIA

EMERGING MARKETS

Consumption growing, especially for fruit imports

Imports of citrus, apples, pears and tropicals all increased 2006-2008

466,000 tonnes imported last year, against 72,6000 tonnes in 1994

Average annual growth of 39 per cent in imported volumes

Modern retail sales due to rise 15 per cent in second half of 2009

Double-digit growth in retail sector sales since 2003

Major competition on import trade from China (65 per cent share)

Quality of local production increasing, providing tougher competition

Domestic crop doubled from 7.2m tonnes in 1998 to 16.6m tonnes in 2007

Tighter rules on imported produce, stricter MRLs coming into play

PHILIPPINES

EMERGING MARKETS

Together with other ASEAN nations, market of almost 600m people

Philippines – Zespri spending 20 per cent of SE Asia marketing budget here

Philippines – Turkish citrus imports growing, Aksun 200+ containers

Vietnam – major growth in tourist numbers, foodservice

Vietnam – grocery sales reported up in first half of 2009

Malaysia – expansion of modern retail sector, foreign investment

Malaysia – target market for Dutch onions, European kiwifruit, Washington apples

FTA between Australia, NZ and ASEAN increasing competition in SE Asia

Philippines – tight controls on shipments following recent illegal imports

Vietnam – inflation in second half of 2008 dampened demand

Malaysia – Tesco and Carrefour competing aggressively on price

Strong competition from local and Chinese produce

VIETNAM

MALAYSIA

EMERGING MARKETS

MAJOR SUPPLIERS TURNING ATTENTION TO OTHER PARTS OF THE WORLD

Our competition has already realised that Asia is the growth market of the future. Leave behind the staid and traditional old UK, move on from the frustrating EU and forget about the self-sufficient US. Asia is hungry, ready to buy and eat, and rocketing forward in wealth. It is the fastest-growing market in the world. There is risk but there is also money to be made.

“

”ANDREW FENTON – PRESIDENT, HORTICULTURE NZ

473,820 tonnes 474,232 tonnes

ITALIAN KIWIFRUIT

Source: CSO / Istat

61% 71%

2004/05 2008/09

286,260 tonnes 335,440 tonnesPRODUCTION

EXPORTS

EMERGING MARKETS

RUSSIA

Huge focus on food retail, sales accounting for 40 per cent of consumer spending

Consumer confidence and retail sales expected to recover in 2010

In major urban areas, 67 per cent of consumers buy groceries at supermarkets

Rising foreign retail investment – Metro, Auchan, Rewe (Billa, Selgros), Globus, Lotte

Kesko due to introduce grocery format in 2010

Possible entry for Schwarz (Lidl), Coop Norden, Wal-Mart?

Import sector shaken up by economic downturn, loss of key players eg. Sorus, Sunway

Very hard to know who to deal with and who to trust

Retail sector still dominated by a small number of local players

As economy develops, consumers could spend more on luxury items, less on food

Long-term approach to development is required

Modern retail beyond major cities still in its infancy

EMERGING MARKETS

RUSSIA

OCTOBER 2008

Russia’s three largest fruit importers estimated to account for as much as 85 per cent of the Russian market

15%

20%

30%

35%SunwayJFCSorusOther

Source: Samokhval / Sales Business Journal

EMERGING MARKETS

RUSSIA

NOVEMBER 2008

Sorus files for bankruptcy, having defaulted on two loan payments

MAY 2009

Sunway suffers a similar fate, partly due to a rapid fall in demand for exotic fruit

EMERGING MARKETS

RUSSIA

JFC HOLDS STEADY

• Increased focus on strong categories like bananas, mangoes, pineapples• Fewer financial risks – bank support to help fund coldstorage development

0

12.5

25

37.5

50

End 2007 End 2008 Q1 2009 Q2 2009 Future...?

% s

hare

Source: Uralsib

EMERGING MARKETS

BRAZIL

MEXICO

Brazil – Major investment from big retail players including Wal-Mart

Brazil – growth in demand as currency strengthens, more demand for imported fruit

Brazil – exporters with experience of supplying now turning their expertise to imports

Brazil – expected to be world’s fifth-largest economy by 2014, boosted by new oil revenue

Mexico – with 110m people, a significant market despite broad range of domestic produce

Mexico – 44 per cent of population under 20, bodes well for modern retail development

Mexico – positive attitude towards eating fresh fruit and veg, buoyed by healthy eating schemes

Brazil – New oil revenues likely to make imports cheaper but exports more difficult

Brazil – domestic producers and supplier looking to grow their sales at home

Brazil – unemployment high at around 7.6 per cent

Mexico – fairly fragmented retail sector, top five account for just 30 per cent

Mexico – modern retail investment fell by more than half in 2010 to US$1.3bn

EGYPT

EMERGING MARKETS

IRAN

Egypt – strong retail growth of 5-15 per cent per annum over past decade

Egypt – consumers “beginning to expect cleanliness, quality and a wider variety of products”

Iran – one of world’s top 10 fruit consumers, but still a net importer

Iran – long-standing tradition of fruit consumption, frowned upon not to offer guests fruit

Both markets set to become more used to modern retail outlets (especially hypermarkets)

Improving economies, inflation coming under control, consumer spending set to increase

Middle Eastern markets generally receiving more attention from major suppliers

Potential for political upheaval means foreign retail investment could be hampered, especially Iran

Iran – Carrefour due to enter in 2009, but pulled out in September

Tough phytosanitary protocols for imported produce

Strong local production, with potential for future development

Both major producers themselves, Egyptian suppliers able to compete and meet high standards

EMERGING MARKETS

TURKEY

Univeg acquisition of Alara Agri – development of import structures

Some slow but positive steps towards European Union membership

World’s 15th largest per-capita GDP (PPP), generally good growth

Retail sales grew by 11 per cent to €118bn in 2008

Good levels of investment over past 15 years following EU trade agreement

Young and urban population (66.5% aged 15-64; 70.5% living in cities)

Some doubts remain over possible EU accession

Retail sector remains relatively under-developed

Majority of food sales remain through independent retailers

Strong domestic production, which could certainly expand

EMERGING MARKETS

SOUTH AFRICA

World Cup 2010 set to give economy huge boost

Well-developed infrastructure supporting efficient distribution of goods

Affirmative action and empowerment schemes helping raise productivity and earnings

Big opportunities for Southern European and North African grapes and stonefruit

Increasing volumes of imported berries and cherries appearing

Imported kiwifruit from Italy and New Zealand gaining in popularity

November to early February – imported avocados and citrus

Around a quarter of the population unemployed

Development is localised and leaves large swathes of country untouched

Volatile and unpredictable currency – strengthening post-World Cup

Rush to supply country during June-September has led to quality concerns

Despite some retail markets weakening, the long-term outlook remains positive for investors in the world's key emerging markets. Growth is expected to gather momentum again in 2010, providing both retailers and suppliers with attractive long-term investment opportunities.

“”

EMERGING MARKETS 2009, PLANET RETAIL

GENERALLY POSITIVE AND IMPROVING OUTLOOK

EMERGING MARKETS

DUBAI

US

CANADA

ABU DHABI

BUT DON’T FORGET… DEVELOPED ALTERNATIVES

JAPAN

HONG KONG

SINGAPORE

SOUTH KOREA

EMERGING MARKETS

COMPANIES EXPANDING BEYOND THEIR TRADITIONAL MARKETS

Fruit is a commodity, service is the differentiating factor

“Suppliers must evolve to provide world-class products & service”

South African sourcing no longer enough – must be global, 365-day

Developing strong partnerships crucial to retaining advantage

CASE STUDY - CAPESPAN

FIGHTING BACK WITH A NEW STRATEGY

Source: Louis Kriel presentation – Eurofruit Congress Southern Hemisphere 2009

• Global sourcing

• Superior supply

• Financial competitiveness

• Innovation & sophisticated systems

Global customers demand:

Present in 60 countries worldwide

Global volumes down just 0.1 per cent to week 41

Overall returns forecast up NZ$0.47 per tray

Forecast returns for Green down NZ$0.07 per tray

Forecast returns for Gold up NZ$1.97 per tray

Strong, sustained marketing campaign

Drive towards more efficient, streamlined business

CONSOLIDATION – GOOD OR BAD?

NEW ZEALAND KIWIFRUIT

Source: Zespri Kiwiflier – October 2009

Industry deregulation has led to fragmentation

Several smaller growers and exporters out of business

44 individual exporters supplying fruit to Europe

Heavily reliant on one market – the UK

Now investigating possibility of national branding as well as

ways to consolidate arrivals and streamline operations

CONSOLIDATION – GOOD OR BAD?

NEW ZEALAND APPLES

Source: Pipfruit NZ – August 2009

CONSOLIDATED MARKETING – CROSS-COUNTRY

BLUEBERRIES FROM THE SOUTH – CHILE, ARGENTINA & URUGUAY

CONSOLIDATED MARKETING – CROSS-CATEGORY

SOUTH AFRICA – MAJOR CAMPAIGN FOR STONEFRUIT, GRAPES & TOPFRUIT

WHAT TO EXPECT…

• FURTHER CONSOLIDATION– All areas: retail, category management, logistics, transport, R&D Don’t let the crisis pass you by!

• RETAIL– Discount trend slowing down, but still advancing– Renewed focus on direct sourcing and shorter supply chains– Doubts over practicalities of direct sourcing in short term, but some will be tempted– Retail consolidation advancing as drive to open new markets and cut costs continues

• MARKETING– Major shift towards country- and region-based marketing, as well as cross-category– Time for geographical indications / denominations of origin to come to the fore?– Support of governments essential, but investment in agriculture more likely

• EMERGING MARKETS– Some have slowed, but their emergence will continue– Need to spread the risk now even more urgent– Reduce reliance on traditional markets and investigate, trial, conquer new ones

TOP FRESH PRODUCE TRENDS FOR 2010

• HEALTH– Even more valuable to consumers in a downturn

• INNOVATION– New varieties, products, services to escape the commodity trap

• INPUTS– More cost increases especially for fuel, but input and service providers under pressure to trim costs– Technology and packaging companies compelled to innovate and help reduce costs / boost efficiency

• ENVIRONMENT– Continued need to respect and act upon environmental issues– Some will coincide with economic necessity, others will require investment– Big emphasis on sustainability from retailers and leading suppliers

• FINANCE– Gradual restoration of confidence and credit lines– Agriculture seen increasingly as a good investment

TOP FRESH PRODUCE TRENDS FOR 2010

P s. ’OP S. . .O

PREPAREDPROGRESSIVEPROMOTING

ORGANISEDORIGINALOVERSEAS

PO

on screenin printEurofru i t

in person· ·Mike Knowles· Editor, Eurofruit Magazine· [email protected]· +44 20 7501 3702

mailto:[email protected]

mailto:[email protected]

Globalisation of Fresh Produce Markets

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