If there is any truth at all to the axiom ‘what doesn’t kill us makes us stronger’, the food industry should be in better shape now than it was 12 months ago, because it has certainly had to endure an arduous year. Ben Cooper takes a look back at 2008.


The past year has certainly been a fascinating one for food industry watchers. But given that most of what made it an absorbing year for us has made it a gruelling one for food companies, assailed by adverse economic conditions, food safety scares and debates over food and health, those actually working in the industry may be praying for duller and less eventful times.


The year began with the industry facing rampant commodity cost inflation, caused in part by the impact of the biofuel boom on agricultural commodity markets. As early as January, just-food reported on the debate the growth in biofuels has provoked within industry, academic, campaigning and political circles.


Even though 2008 was eventually to see a calming of the inflationary pressures, the problems that were already sown for the industry were felt throughout the year.


The impact of the credit crunch – effectively compromising the borrowing capabilities of already financially extended companies – exacerbated the problems for many food producers during the year. Couple that with the general global economic downturn, which has led to price pressure in so many retail markets, and it is little surprise that the term ‘perfect storm’ has been somewhat overused during the past 18 months.

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The sector where the pressure of higher grain prices has been most acutely felt is the US meat processing industry, underlined most recently by the collapse of US poultry firm Pilgrim’s Pride in December.


And the problem has not been confined to the US. In October, UK food group Premier Foods also had to defend itself from speculation that it might not be able to meet its debt covenants.


Other notable corporate developments in food manufacturing this year included Mars’ US$23bn takeover of Wrigley, which was completed in October, and the demerger of Cadbury Schweppes’ confectionery and drinks businesses.


The year also saw some extremely significant changes in personnel. In April, Paul Bulcke officially took over as CEO at Nestlé. Meanwhile, Unilever appointed Nestlé’s Paul Polman as its new CEO, and Carrefour named another ex-Nestlé executive, Lars Olofsson, as its new chief. In November, Wal-Mart announced that Mike Duke, currently head of its international businesses, would replace Lee Scott as president and CEO, with effect from 1 February 2009.


On the retail front, things may not have been quite as bleak as in manufacturing but it is fair to say that 2008 has hardly been a year of glittering success for food retailers. Arguably, the retail constituency that has fared the best is the discount sector, also something of a reflection of the current state of the market.


In the UK, not only has the discount sector grown, but mainstream retailers, such as Tesco, Asda and Sainsbury’s, have augmented their value lines and increased the emphasis on price in response. TNS released figures in August showing that Aldi’s sales had risen by 19.8% in the 12 weeks to 10 August, while Lidl had seen 12.3% growth.


Further evidence of this trend was provided in October by market research group Mintel which reported that over the past 12 months 41% of shoppers that it had surveyed said they had switched to cheaper goods, 34% were buying fewer premium products and two-thirds were looking for promotions and deals more often than at the same time last year.


Tesco continued its international expansion during 2008 but the general view appears to be that it has found its attempt to take on the big US food retailers in their own backyard a tougher proposition than was first anticipated.


However, if imitation really is the sincerest form of flattery, some evidence that Tesco has given its US competitors food for thought was provided by the launch of Wal-Mart’s Marketside chain of convenience stores in October. Wal-Mart said the new stores would feature a range focusing on fresh foods and prepared meals at ‘everyday prices’, which certainly follows the Fresh & Easy model.


Back in the UK, food retailing saw further consolidation in 2008 with the acquisition of Somerfield by The Co-operative Group, with the acquisition gaining regulatory approval in October. In an exclusive interview with just-food in July, Co-op chief executive Peter Marks said the deal would take the company into the “Premiership of food retailing”.


Even before the ‘big four’ became the ‘big five’, the power of UK retailers had been a concern to campaigners and supplier lobbies. Indeed, in February the Competition Commission (CC) published its proposals following its two-year inquiry into the UK grocery sector. Following a short consultation period, the CC announced reforms relating to both planning and supply chain management, but the review was condemned by campaigners for not going far enough.


The UK was not the only country to see a major review of the level of competition among its food retailers this year. In August, an inquiry by the Australian Competition and Consumer Commission (ACCC) received much the same response as the CC inquiry, with campaigners and groups representing smaller retailers and suppliers suggesting the authorities had been too influenced by the arguments of the major players.


Meanwhile, in France, retail deregulation was on the political agenda. In February, a wide-ranging review of French economic strategy undertaken by a commission led by Jacques Attali looked to have presaged significant retail reform, advocating the repeal of the loi Galland, which has made below-cost selling illegal for the past ten years, and the 30-year-old retail planning restrictions of the loi Raffarin, which imposes strict conditions on the expansion of larger retailers.


Staying with regulatory matters, food safety agencies have certainly had their hands full this year, with a plethora of food scares to deal with, including the recent Irish pork contamination, the Chinese melamine-in-milk scandal and the biggest salmonella outbreak in the US for ten years, which hit the tomato sector in June and by August had resulted in 1,304 reported illnesses and 250 hospitalisations. Reform and funding of the US Food and Drug Administration remained a much-discussed issue throughout the year.


Broader health issues have also been a subject of considerable news and comment over the past year, underlining once more the influence that debates over health and diet have over the industry. This year, the key issues of junk food and childhood obesity, advertising to children, food additives and nutritional labelling have appeared regularly on the news and feature pages of just-food.


This feature is based on extracts from the just-food annual review, published this month as part of just-food’s management briefing series. To download the review in full or for information on any other management briefings, go to www.just-food.com/briefings