food production and distribution: threats, ... 4 market share and growth emerging markets 6% 11%...

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Food Production and Distribution: Threats,

Vulnerabilities and Global Issues

Jon Seltzer, Assistant Director NCFPD

Alabama Food Safety and Defense Conference Montgomery, Alabama

May 13 - 14, 2008

Food Production and Distribution: Threats,

Vulnerabilities and Global Issues

• Distribution (Retailing/ Consumer)

• Food Production and Distribution: Threats and Vulnerabilities

• Global Issues (Melamine)

The Food Industry at 35,000 Feet

Jon Seltzer Corporate Resource, Inc.

Montgomery, Alabama May 13, 2008

(952) 926-4602 [email protected]

Jon Seltzer

The Consumer!

Today’s Topic

• Consumer expectations and demands are changing

• In response, retail, supermarkets and restaurants are changing

• There is more square footage at retail and more new items than before

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Today’s Topic • Consumer expectations and demands

are changing

• In response, retail, supermarkets and restaurants are changing

• There is more square footage at retail and more new items than before

Today’s Topic • In my opinion, increases in food prices

and concerns about the economy will accelerate the impact of the above trends

Scale and Scope of the Food Industry • $1.24 trillion sector

$457.4 billion grocery (FMI)

• $476 billion food service (NRA)

• $60.5 billion exports

• $58.5 billion imports • 12% GDP • 17% workforce

Manufacturer Shipments and Retail Sales Equivalent (2006)

Expected Time to Prepare A Meal

60 30 15

150

0

50

100

150

200

M in

ut es

20001950 19701930

Lifestyle: Less Time for Cooking

Household Composition

25% hh - single person

11% hh - single parent

20% hh - married couples no kids at home

26% hh - married couples with kids at home

3

0%

20%

40%

60%

80%

100%

Pe rc

en t o

f D ie

t

1-12 19-29 40-49 60-64 Age

Other

Someone Else

Fast Food/Pizza

Resturant

Store

Source of Food by Age Measured in Grams

Source of Food by Age Evolution in How We Eat

• Eating occasions, not meals

– 50% of people eat while working

– 42% eat while watching TV

– 19% eat in the car

• Strong desire for “simplification”

“Generally, America no longer “cooks.” In fact many young Americans view words like ‘menu’ and ‘recipe’ as computer, not kitchen, terms.”

– Ira Blumenthal Meal Solutions Mania

Convenience

Rank Company

Retail Banner Sales, 2004 (USD mn)

Estimated Share of Private Labels,

2004 (%)

Estimated Private Label Sales (USD

mn) 1 Wal-Mart 310,576 37.0 11,491,312 2 Carrefour 112,458 32.0 3,598,656 3 Ahold 88,179 23.0 2,028,117 4 Metro Group 80,621 13.0 1,048,073 5 Tesco 68,164 45.0 3,067,380 6 Seven & I 58,757 27.0 1,586,439 7 Kroger 58,647 24.6 1,442,716 8 Rewe 55,216 25.0 1,380,400 9 Target 53,949 46.0 2,481,654 10 Costco 51,199 12.0 614,388 11 Auchen 50,751 25.0 1,268,775 12 AEON 50,746 17.0 862,682 13 Casino 50,064 40.0 2,002,560 14 Schwarz Group 46,448 63.0 2,926,224 15 Aldi 46,430 95.0 4,410,850 16 ITM (Intermarche) 46,355 35.0 1,622,425 17 Supervalu/Albertson's 41,975 17.0 713,575 18 Edeka 39,676 10.0 396,760 19 Walgreens 39,458 11.0 434,038 20 Safeway (USA) 39,112 24.0 938,688

Total 1,388,781 31.9 44,315,712

Private Label Share - World's Top 20 Grocers

4

Market Share and Growth

11%6%Emerging Markets

5%2%Latin America

5%4%Asian - Pacific

7%16%North America

4%23%Europe

5%17%Worldwide

Growth Rate Private Label % of Distribution/Share

Country of Origin

Importance of a Retailer’s Own Brand

• All the experts agree

– According to McKinsey, a “shift to value” among consumers should inspire retailers to differentiate with a “superior private label”

– FMI recommends offering “multiple tiers to reach new consumers and build loyalty”

Importance of a Retailer’s Own Brand

– M&M Planet Retail foresees almost 50% sales growth for private label in the food industry by the year 2020

Importance of a Retailer’s Own Brand

Global Trends in Private Label Food Sales, 1995-2020

0%

5%

10%

15%

20%

25%

30%

35%

1995 2000 2005 2010 2015 2020

Concentration of Competition

• The Wal*Mart Influence

– Wal*Mart’s supply chain cost savings equate to saving U.S. customers $20 billion/year

– Now sells 30% of nation’s household staples

– Opening 335 new stores

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Concentration of Competition – Reaction of competition

• Strive to match supply chain efficiency, cost cutting

• Acquisitions and Mergers to gain critical mass

Concentration of Competition • Result

– Some real gains in efficiency – digital technology

– Diminishing cost savings – Loss of innovation – new products,

topline growth – Profitability crunch – Vicious cycle

Top 4/5 Retail Food Store Companies U.S.

Total Sales (%)

5.

4.

3.

2.

1. Wal-MartKrogerKrogerA&P

50411617

SafewayAlbertsonsNational Tea

CostcoSafewayWinn-DixieSafeway

KrogerAholdSafewayKroger

SupervaluWal-MartAmericanAmerican

2006200019901930

Concentration

Concentration Plus

Format Proliferation

Dollar Stores • Dollar stores are experiencing

unprecedented growth

• Most of the top consumer packaged goods manufacturers have incorporated them into regular sales planning and distribution

• About one-third of all U.S. households shop at a dollar store monthly

6

More Stores • In 1995, 625 supermarkets and 818

convenience stores served the Chicago area

• Ten years later, groceries could be obtained at 781 supermarkets, 2,030 convenience stores, 338 mass merchandisers such as Wal-Mart and Target, and 29 wholesale clubs, such as Costco and Sam's Club

Non-Traditional Retailers Lower Average Food Prices

Specialty/Gourmet Food Stores Increase Health

Food Options

How We Shop • Grandparents went to a supermarket

once a week and likely went back time and again to the same supermarket.

• Today we“shop on average more than twice a week and in a month, shop at seven different food distributors, from warehouse clubs to drugstore chains”

How We Shop • “So even though we say we're busier

than ever, we will make time to go to a secondary location for value.”

Value and Quality

• $100,000 households vs. < $20,000

– 2x as likely to patronize a warehouse club

– 9% more likely to frequent a mass- merchant

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Value and Quality

• $20,000 households

– 74% more likely to shop at dollar stores

– 42% more likely to patronize a gas/ c-store

– 21% more likely to frequent a supercenter

Too Many Items to Fit on the Shelf

• 200,000 + UPC / Bar Codes

• 45,000 in most stores

• 500 in the average home

New Items Keep Coming

• 95% of the 15,000 plus new items introduced every year in the U.S. do not last 12 months

Trade Promotions in the U.S. • Over a third of Consumer Packaged

Goods volume is sold on promotion in the U.S.

• Both manufacturers and retailers have made it very clear that feature ads, displays, and temporary price reductions are a huge part of how goods are sold in the grocery, drug and mass merchandiser channels

2004

1991

Obesity Trends* Among U.S. Adults BRFSS, 1991, 1996, 2004

1996

(*BMI ≥30, or about 30 lbs overweight for 5’4” person)

No Data

8

Small is Big Today • Kraft Foods has begun selling 100-

calorie packages of its Chips Ahoy! Sales of these mini-packs are brisk, with Kraft taking in $75 million since introducing its 100-calorie line last summer

• I want it healthy, I want it delicious—and I want it now

Going for Satisfaction • Single-serve portions can enjoy

greater quality control, than a multi- serving bag that’s been open a while

• There’s something great about being able to say, “I ate the whole thing!” without then having to say, “Oops!”

• Who benefits? • Production/yield

– BST/BGH – Roundup ready – BT corn

• Benefit “realized” by the consumer

Technology/Science

Biology Genetics Chemistry

It’s the Economy!

• Housing

• Property taxes/ municipal financing

• Credit availability

• The dollar

• Rice prices on world markets have jumped 50% in the past two months and doubled since 2004

• Sam’s and COSTCO are limiting how much rice customers can buy because .. "recent supply and demand trends"

Concerns About Food Prices and Availability

Food Production and Distribution: Threats,

Vulnerabilities and Global Issues

Jon Seltzer, Assistant Director NCFPD

Alabama Food Safety and Defe