Food manufacturers and retailers face substantial consolidation and internationalization over the next five years as they innovate with brands and retail formats to satisfy changing consumer habits and demands, according to a report released today by Cap Gemini Ernst & Young.
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“State of the Art in Food: The Changing Face of the Food Industry” draws its conclusions from a survey of 220 leading food executives from 19 countries in Europe, US and Asia Pacific, and detailed interviews with 65 senior-level executives.
The research shows that global brands will dominate and 20 to 25 global brands will emerge in various categories of fast-moving consumer goods. These brands will occupy a leadership position in more than 100 countries and will be owned by approximately ten global brand manufacturers. At the same time, manufacturers will “marry” global brands with “local jewels” to meet consumers’ growing demands for local products. In addition, retailers increasingly will brand their stores and wrest more control of the supply chain as they attempt to build stronger relationships with consumers.
“For an industry where change is typically measured in decades, the pace and magnitude has really accelerated,” said Fred Crawford, executive VP of Cap Gemini Ernst & Young’s Consumer Products, Retail and Distribution global practice. “The consumer is wielding unprecedented power and the need for establishing a powerful brand – whether retailer or manufacturer – grows as companies try to reach consumers in multiple regions. Understanding these trends and implementing strategies to deal with them effectively are shaping the future of the industry.”
Trend-setting manufacturers are looking beyond retailers to market directly to consumers. According to the report, 75% of manufacturers surveyed fear the consequences of the retail channel’s increasing strength.
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By GlobalData“The lines between the food segments are increasingly blurred as both sides vie for the consumer’s wallet,” said Roberto Iorio, VP of consumer businesses, Europe, for Cap Gemini Ernst & Young. “Improved customer relationship management and loyalty programs are key. Companies need to build and never deviate from their ‘brand pact’ with consumers.”
streamlined supply chains
The study also highlights the fact that streamlined supply chains can realize savings for companies. With better supply chain integration, Europe could realize cost savings of €8bn by 2010, while savings in the US could total as much as US$7bn if retailers and manufacturers worked together.
Both manufacturers and retailers agree that the industry needs a more reasoned approach to improving the supply chain through better cooperation with business partners, integrated technology that standardizes information, and greater focus on core business processes. But, according to the report, the absence of collaboration at the current time will make it difficult to realize significant cost savings. The study also finds that retailers could achieve greater efficiencies by partnering with other retailers on warehousing and distribution systems, something very few companies do right now.
end to conventional supermarkets
Economic conditions and market efficiencies are meanwhile leading to the end of the smaller conventional supermarket format, as factors such as high overhead, low volume and limited assortments take their toll, according to the report. At the same time, hypermarkets and larger supermarkets are expanding services and product mixes; discounters are moving in the direction of “quality discounting,” offering higher-quality products at the lowest prices; and convenience stores are catering to “eating moments.”
The report concludes that most food retailers have had little success utilizing the Internet as a viable option to reach the consumer. The research indicates that the e-commerce channel will remain a challenge and will represent no more than 5% of the global food business in ten years.
buying process evolution
As the balance of power continues to shift in favor of the retail segment, changes will occur in the buying process, primarily in the area of fresh and chilled products. Fully 83% of manufacturers and 96% of retailers expect the share of fresh products to increase, reaching as high as 60% of store sales.
Retailers will no longer buy individual products or assortments. Rather, they will buy – and control – the total process, from ingredients through production, ensuring that the finished product will meet the needs of consumers.
strengths and weaknesses vary
While companies face the challenges that accompany global growth, each region has strengths and weaknesses that are endemic to its home marketplace, according to the report. Western Europe, for example, ranked high for efficiency, but low on service and hospitality. Southern Europe, in contrast, received high marks for quality, yet was criticized for its labor intensity. The US scored highest in service and marketing, but did not fare well on operational logistics. Asia-Pacific was recognized for its service orientation but lacked overall efficiency.
Jan-Willem Grievink, VP, Cap Gemini Ernst & Young, who spearheaded the research project, points out that because each country struggles with its own set of weaknesses, it is important for global companies to look outside their home region to learn from the strengths of others. But the study revealed that very few enterprises know much about the strategies of foreign operators.
