Plunkett Research Reports the 10 Major Trends Affecting the Food and Beverage Industry
Houston, TX. June 2, 2009
The nearly $1.57 trillion U.S. food industry encompasses retail food stores and supermarkets, convenience stores, restaurants, farming and more. Ten of the most important trends affecting this industry and more can be found in Plunkett’s Food Industry Almanac, 2009 edition.
“In the U.S., at the end of the Civil War in 1865, farmers made up about 55% of the workforce,” says Jack Plunkett, CEO and Editor of Plunkett Research. “Today, only about 2.5% of the U.S. workforce is employed on farms. The food industry is being stretched to the limit. The following 10 trends are those of the greatest influence to the food industry.”
Plunkett’s 10 Major Trends Affecting the Food and Beverage Industry:
1) Hard Discounters Target Low Income Grocery Shoppers - A new breed of supermarkets called “hard discounters” is rapidly emerging, particularly in down and out urban areas that are underserved by traditional grocery stores and the major discounters. Hard discounters are typically small stores (averaging a mere 16,000 square feet in comparison to the 40,000 to 80,000 square feet of modern supermarkets) which sell a limited selection of merchandise at prices so low that they undercut those at Wal-Mart, CostCo and other major discount retailers. The stores cater to shoppers with household incomes of less than $35,000 per year. Save-A-Lot (owned by Super-Valu, Inc.) and Dollar General Market stores (owned by Dollar General Corporation) are examples of hard discounters with prices up to 40% less than traditional supermarkets. Hard discounters target a market sector that has been increasingly underserved since the 1970s when most grocery chains shuttered their urban locations to open ever-larger supermarkets in growing suburban areas. In 2009, due to the global economic crisis, hard discounters are well positioned for growth as shoppers look for the most value for their money.
2) Agricultural Biotechnology Scores Breakthroughs but Causes Controversy/Selective Breeding Offers a Compromise - Global panic over quickly rising food prices in 2008, coupled with the global economic crisis, will finally give the genetically modified (GM) seed industry the boost it needs. Agribio (agricultural biotechnology) will become a top agenda item in government and corporate research budgets, and consumer acceptance of genetically modified food products will grow quickly. U.S. farmers have enjoyed greatly increased crop yields and crop quality thanks to GM seeds. By some estimates, as much as 70% of U.S. food may contain ingredients that have been grown with GM methods. In particular, U.S. farmers are reaping tremendous crops of GM soybeans (89% of the U.S. market), cotton (83%) and corn (61%). Although scientists have been able to engineer highly desirable traits in GM seeds for crops (such as disease-resistance and insect-resistance), and the scientific community has given GM foods a clean bill of health for years, such modified foods have faced stiff resistance among many consumers, particularly in Europe. While many areas of biotechnology are controversial, agricultural biotech has been one of the largest targets for consumer backlash and government intervention in the marketplace. Activists against GM seeds have serious questions about the quality of the foods and what health ramifications there will be for the people who eat such foods over the long term.
3) Ethanol Production Soared, But a Market Glut May Slow Expansion - Soaring gasoline prices, effective lobbying by agricultural and industrial interests, and a growing interest in cutting reliance on imported oil put a high national focus on bioethanol in America in recent years. At present, corn is almost the exclusive source for bioethanol in America. The U.S. Energy Act of 2005 specifically requires that oil refiners mix 7.5 billion gallons of renewable fuels such as ethanol in the nation’s gasoline supply by 2012. Ethanol production in the U.S. was fast approaching that level in 2007 due to the fact that capacity has already doubled since 2005. Although grain farmers enjoyed high prices at the onset, a glut of ethanol supply in late 2007 was causing prices to drop and slowing expansion and in mid 2007, ethanol prices fell dramatically. Environmentalists are concerned that genetically engineering crops for use in energy-related yields will endanger the food supply through cross-pollination with traditional plants. Other concerns regarding the use of ethanol include the fact that production is not as energy efficient as that of biodiesel made from soybeans; a great deal of energy is consumed in planting, reaping and transporting the corn in trucks; and the high demand for corn for use in biorefineries has dramatically driven up the cost per bushel dramatically, creating burdens on consumers.
4) Obesity Sparks Government Action - Obesity is increasing in nearly every country in the world. The problem is at its worst in the U.S., where obesity is unfortunately very common and has deep links to the high overall cost of health care. The alarming rise in obesity in the U.S. has brought about significant changes in the latest set of dietary guidelines from the U.S. federal government. Released in January 2005, the newer guide emphasizes counting calories and daily exercise over limiting certain foods such as carbohydrates or fats. The U.S. Surgeon General estimates that obesity results in 300,000 American deaths and $117 billion in health care costs each year. If obesity rates continue to skyrocket, some experts predict that the number of diabetics worldwide will triple in the years 2000 to 2015 to 320 million people. The impact of these numbers combined with an accompanying rise in heart disease, cancer, high blood pressure and cholesterol levels may wreak havoc on the health care system.
5) Organic Food Sales Growth Slows- U.S. sales of organic foods hit an estimated $16.9 billion in 2006, up 22.1% from $13.8 billion in 2005. In fact, organic food has been one of the fastest-growing segments of the U.S. food industry. However, the global economic crisis is slowing organic food sales, as shoppers switch from higher-cost organics to cheaper, traditionally grown foods. Organic foods tend to sell for an average of 15% more than traditionally grown foods. The problem with growing demand for organic foods is that U.S. producers are less and less able to meet it and retailers must look elsewhere for suppliers. U.S. farmland production is comprised of 0.2% organic foods and 99.8% traditionally grown foods, while U.S. consumption is 2.5% organic and 97.5% traditional.
6) Food Labeling Gets Further Federal Backing - As of January 1, 2006, several major changes affect the labeling of food in the U.S. Labels must include the amount of trans fat present, and they must list any of the following allergens if present: milk, eggs, peanuts, tree nuts, fish, shellfish, soy and wheat. Other changes relate to “whole grain” products and allow food companies to make claims about the health benefits of a product based on scientific study. Additionally, food labels are being altered to include total calories per package in addition to serving sizes and calories per serving. Calorie counts are listed in bold type that is often larger than that used for other information. The changes are the result of the FDA’s meetings with consumer groups, which on the whole supported new labeling regulations, and food manufacturers, which were largely against them. Opponents to the changes, generally food manufacturing companies, argued that there was already enough information on food labels.
7) Food & Commodity Prices Are a Major Global Problem for Consumers & the Food Industry Overall - The upward march of prices for food commodities was so relentless through early 2008 that the cost of food has become a major concern on a global basis. Those feeling the most pain from rising food prices were consumers in low-income nations where food purchases account for a very large portion of monthly household budgets. For decades, improving farm technologies and high-output genetically modified seeds had consistently dampened food costs. The International Monetary Fund (IMF) calculates a food prices index that shows real food prices, adjusted for inflation, fell by nearly 75% between the years of 1974 and 2005. Today, however, low-cost food is now a thing of the past. The United Nations food price index rose by about 40% during 2007 alone. At the same time, growing prosperity in nations such as India and China drove food demand and thereby prices in recent years.
8) Food Safety Becomes a Massive Consumer & Industry Issue - The onslaught of food safety concerns seems endless. While consumers have long been accustomed to hearing of occasional outbreaks of E. coli in ground beef or salmonella in limited quantities of food, bad news has grown more frequent, more worrying and more diverse over recent years. Concerns about food safety were highlighted yet again in the U.S. in late 2008 and early 2009 when salmonella-tainted peanut butter hit the market, and was held responsible for the deaths of six people and the hospitalization of 107. The U.S. government is taking steps to regulate food safety more closely. In August 2008, the FDA announced a new policy under which food producers may irradiate fresh spinach and iceberg lettuce to kill e-coli and salmonella. As of January 2009, the FDA was listing 130 products containing peanut butter for recall including candy, frozen cookie dough, dog biscuits, chicken satay and stuffed celery. Major food companies such as Wal-Mart and McDonald’s are also implementing new safety policies by adopting European safety standards for food quality.
9) Manhattan’s FreshDirect Sets the Pace in Grocery Sales Over the Internet - Online grocery selling is such an appealing target because of the sheer size of the retail grocery market. Food retailing, with its highly perishable inventory, is a low-profit-margin enterprise—one in which consumers tend to make multiple trips to the market each week to select and purchase first-hand. The most closely-watched online grocer in the industry today is FreshDirect, a unique business launched in 2001. The firm offers more than 3,000 products to online shoppers in the New York City area. It operates from a 300,000 square foot processing facility, has a customer base of more than 250,000 and its fiscal 2007 revenues totaled approximately $200 million. A major factor in its success is the nature of its highly urban market, where supermarkets are scarce and parking spots are even scarcer. Additional online grocery delivery services to watch out for include Peapod, which works in conjunction with major retail grocery chains such as Giant and Stop & Shop in Boston, Massachusetts; Chicago, Illinois; northwest Washington, D.C.; Long Island, New York; and other areas; and Amazon.com, which offers more than 14,000 non-perishable items including high-end regional brands or items with limited appeal.
10) RFID Drives Inventory Management Evolution - The biggest technology breakthrough in inventory management is RFID (radio frequency identification)—the placement of microchips in product containers, cartons and packaging, combined with the use of special sensors in warehouses or on store shelves that alert a central inventory management system as to shipment arrivals, product purchases and the need to restock inventory, communicating via wireless means. From loading docks to store shelves to cash registers to parking lots, RFID readers have the potential to wirelessly track the movement of each and every item of inventory. Bar codes will be replaced by Electronic Product Codes (EPC), which are stored in RFID microchips. In retail stores, the chips could even eliminate the need to scan each item at checkout. Checkout stations will be equipped with receivers that automatically calculate purchases a cart full at a time, rather than each individual item. These systems can lead to great reductions in shoplifting and the elimination of costly manual inventory counts.
Additional information is available in “Plunkett’s Food Industry Almanac 2009”, as well as on our web site, www.PlunkettResearch.com.
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