just-food's review of 2013: Food firms eke out growth in down environment
By Katy Askew | 6 January 2014
Continued evidence of the global slowdown has meant that food companies faced a year of weak consumer sentiment in 2013. This impacted demand across global markets. The food industry responded by increasingly looking to pockets of growth to maintain sales momentum. Katy Askew takes a look at which categories presented the greatest opportunities to expand the top line in mature markets.
2013 has not been an easy year in which to operate. The global economic outlook has remained mixed and the slowdown has been particularly evident in the developed markets of Europe and North America.
In Europe, the value of the euro has continued to appreciate and the German economy is setting the pace for the region's growth. The US has benefited from a significant housing rebound and manufacturing has also showing signs of a modest improvement. As a result, GDP in a number of mature markets has picked up, giving cause for optimism.
Underemployment, unemployment and youth unemployment in particular have remained persistent issues. But unemployment does, on the whole, seem to be retreating from the highs of recent years.
Despite these positive signals, consumers have on the whole remained cautious - and with good reason.
2013 has been a year of turmoil in Washington, as partisan conflict scorched the ground and resulted in a partial shutdown of the US government. Austerity policies adopted in Europe in response to the financial crisis continued to take a savage toll.
After weathering years of financial crisis, recession and slow recovery financially wary-and weary-consumers across these market have continue to adopt conservative food spending and eating patterns. Behavioural changes - including tight pantry management and continued uptake of private label - have proven enduring. Constrained consumer spending has been in evidence and, in this slow growth environment, food manufacturers have been forced to seek out pockets of growth.
In developed markets, some key high-growth product categories have emerged and food companies have zeroed in on the opportunities presented.
Despite generally downbeat consumer sentiment, it has become clear that consumers are willing to pay more for premium products in some areas. Nowhere has this been more evident in 2013 than in the infant food sector and competition has stepped up accordingly.
Consumer interest in organic baby food has gained momentum. According to data from Euromonitor, the top ten markets for organic baby food in 2012 included the US, Germany and the UK, followed by the likes of France, Austria and Australia.
In the US, which accounts for 44% of the global organic food market, organic baby food sales were up 34% in the first-half of the year, research firm SPINS suggests. According to a recent report from the UK's Soil Association, three in four British babies are now fed organic food and sales of organic baby foods have risen 20% over the last year.
Euromonitor has issued forecast data for sales in the top ten organic baby food markets until 2015. All, except Germany, are forecast to continue see sales climb solidly, providing an attractive niche for those already in - and new to - the sector.
Interest - and competition - in organic baby food has stepped up in 2013, fuelled by an unusual flurry of M&A this spring. Within the space of a month, US food group Hain Celestial, the company behind the Earth's Best organic baby food brand, moved to boost that part of its portfolio with the acquisition of UK-based Ella's Kitchen. Hot on the heels of this deal came news that Danone, which has Cow & Gate in its roster alongside a significant global infant formula business, had made its first foray into the organic baby food sector with its move to buy a 90% stake in US business Happy Family. Rounding off the bout of deal-making, Campbell Soup Co revealed the takeover of US organic baby food business Plum Organics, which had itself merged with unrelated UK entity Plum Baby earlier in the year.
Free-from sales, and sales of gluten-free products in particular, have surged this year. Gluten-free sales have witnessed particularly strong growth in the US, UK, Germany, Canada and Australia. Demand is being driven by rising diagnosis rates for coeliac disease and a growing awareness of gluten intolerances. The adoption of gluten-free diets - and a growing number of consumers who try to avoid or cut back on gluten - has also been spurred by celebrity endorcement and various popular weight-loss diets, such as the Paleo diet
Demand for gluten-free has spiked as a consequence. According to a recent study from market researchers NOP, carried out this year, 30% of US consumers agreed with the statement: "I'm trying to cut back or avoid gluten in my diet."
This demand is being met by growing distribution and improved availability. Companies have also focused on product development, which has aimed to improve the taste and texture of products. Niche players who focus exclusively on gluten-free products, such as Dr Schar and Genius, have strengthened their businesses during 2013. Dr Schar has achieved this by focusing on expanding its offering, while Genius acquired the free-from business of UK baker Finsbury Foods.
However, growing availability of gluten-free options has also been fuelled by activity from mainstream food manufacturers. General Mills' Rice Chex became the first mainstream breakfast cereal brand in the US to carry gluten-free labelling in 2008. The group now offers gluten-free options for a variety of other cereals, including Corn Chex and Honey Nut Chex. Other brands, such as Betty Crocker bakery mixesm have also been extended into the category. Likewise, PepsiCo has ramped up its gluten-free offering and a number of the group's leading snack brands - including Lay's Classic potato chips and Fritos Original corn chips - are now available in gluten-free varieties.
Tremendous growth in 2013 has also been witnessed in the protein snack and sports nutrition sector. According to data from Euromonitor, sales of sports nutrition products rose by an average of 7% from 2007 to 2012 as the category shedded its link to beefy bodybuilders in the minds eye and entered the mainstream.
Eager to capitalise, food manufacturers have stepped up their activity in the category and protein has become a watchword for the health conscious.
Acquisitive Post Holdings, the US cereal manufacturer, completed two acquisitions to beef up its presence in the category during the year. The group purchased Dymatize, a manufacturer of protein powders, bars and nutritional supplements, just three months after taking on branded food and beverage business of Premier Nutrition Corp., a maker of products like vanilla shakes. Commenting on the acquisitions, Post suggested that active nutrition is an "exciting" category with "organic growth and consolidation opportunities."
It would seem that B&G Foods - another active consolidator in the US - would concur. The firm snapped up newly-launched protein snack brand Rickland Orchards, a manufacturer of snacks and bars coated in Greek yoghurt, for US$57.7m in October.
Other food manufacturers have looked to leverage this trend by adding protein to existing products - Kraft launched Philadelphia spread with added protein, General Mills launched a protein yoghurt aimed at children as well as Fibre One and Nature's Valley protein varieties and Fibre One protein bars.
A final area that has caught the eye of food manufacturers in 2013 is yoghurt in the US. Demand for yoghurt in the US has jumped in recent years, buoyed by increased interest in healthier products and the success of manufacturers to convince consumers of the health attributes of the dairy product.
Per capita yoghurt consumption in the US remains well below the European average and the sector - which is believed to have plenty of room to grow - and rising sales have been driven by the meteoric rise of thicker Greek-style products.
Greek yoghurt is the fastest expanding segment of the $7.6bn yoghurt category in the US, where it accounts for 43% of the total US yoghurt market, data from Nielsen shows, compared to just 2% in 2007. And, notably, it is Greek yoghurt that is maintaining the growth of the whole category. Sales of non-Greek yoghurt have been declining since 2011.
The category was largely build by pure-play Greek yoghurt manufacturer Chobani, which launched its first product onto the market in 2007. In 2011, Chobani accounted for 39% of sales, according to Euromonitor. Competition around Greek yoghurt has stepped up as the likes of Danone and - somewhat late to the party - General Mills have expanded in the category.
In the last 12 months, General Mills has focused on playing catch-up in the sector and has rolled out new Greek yoghurt products in the US, including a 100-calorie Yoplait line and the relaunch of its Greek offering. But the group's dominant competitors have not rested on their laurels. Chobani has added to its yoghurt range with new lines and flavours. Meanwhile Danone, the second largest player in the sector, launched a Greek line in collaboration with Starbucks while also broadening its US yoghurt offering through the acquisition of YoCrunch, the leading player in the yoghurt topper line.
Earlier in the year, PepsiCo and Quaker announced their intention to enter the fray through the formation of a joint venture, US Muller Quaker Dairy. While it remains to be seen how sales of the businesses conventional and Greek-style yoghurts have faired in what is an increasingly competitive category, it is certainly true that the business should benefit from PepsiCo's extensive distribution network, coupled with Muller's expertise in the dairy sector.
The down economy has prompted food majors to leverage growth opportunities presented by high-growth - but frequently niche - sectors. However, fierce competition in these areas looks set to continue into 2014.
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