food trends and the impact on cpg companies

Food Trends and the Impact on CPG CompaniesBy Collaborative Fund

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Food and Agriculture

Investment into food and agriculture can have an outsized impact on food production, the environment, and rural poverty.

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Much of the food we grow is wasted…

One-third of of all food grown is wasted, which amounts to about 1.3 billion tons per year and one-quarter of all calories. Food and Agriculture

Source: Food and Agriculture Organization of the United Nations

20% wasted in supply chain

13% wasted during

consumption

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800 million

people are hungry

…but millions are hungry and malnourished


2 billion people suffer from

micronutrient deficiencies

>20% undernourished

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We’re not investing enough in food and agriculture


Agriculture6.4%

Industry30.4%

Services62.6% $0.4 $0.5 $0.5

$0.9

$2.4

$4.6

$3.6

2010 2011 2012 2013 2014 2015 2016

Agriculture is 6.4% of global GDP but represented only 3.5% of investments in VC-backed companies in 2015.

Global GDP by Sector, 2015 Food & Ag Investments ($bn)

Source: CIA World Factbook Source: TomKat Foundation

3.5% of $129bn invested in VC-

backed companies

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As a result, crop yields are steadily falling


Source: Cargill

100

125

150

175

200

1975 1980 1985 1990 1995 2002 2007 2013

+2.4% per year

+0.7% per year

Crop yields grew 2% per year from 1975 to 1985, but growth has slowed due to land degradation and lack of investment.

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And farmers are struggling

• There are 1.5 billion smallholder farmers in the world• Farmers have the highest incidence of poverty of any sector in

the global economy• Over 60% of people living in extreme poverty work in

agriculture• Helping small farmers raise yields by investing in

technological improvements could decrease rural poverty


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The Industrial Food System

The food system is one of the world’s largest industries, but is extremely concentrated and inefficient.

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The Food System is enormous…

• $7.8 trillion revenues• 10% of global consumer spending• 40% of employment• The world’s poorest spend 60% of their income on food


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…but highly concentrated


Top 10 companies control: Factory farms raise:

• 76% of seed market• 41% of fertilizer market• 95% of agrochemical

market

• 99.9% of chickens for meat• 97% of laying hens• 99% of turkeys• 95% of pigs

Big brands represent 54% of consumer product sales

Big brands54%

Midsize22%

Small15%

XS10%

Note: Company size is based on 2015 sales, excluding private-label sales. Large = more than $5B in salesSource: IRI, MULO C database; BCG and IRI analysis

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Millions of Americans don’t have access to fresh food

23 million Americans live in food deserts with no grocery store within 10 miles*. The Industrial Food System

*10 miles for rural areas, 1 mile for urban areasSource: United States Department of Agriculture Economic Research Service

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Consumer Trends

Consumers increasingly care about social impact and health versus traditional value drivers like price and taste.

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Consumer preferences are changing

More consumers care about evolving value drivers like social impact and health than traditional value drivers like price.

Evolving • Health • Safety• Social Impact• Experience • Transparency

Traditional• Price• Taste• Convenience

Consumer Trends

51%49%

Source: TomKat Foundation

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Consumers have more choice and information

Consumer Trends

Thanks to internet research and the prevalence of online reviews, consumers can find products that perfectly suit them.

0

5,000

10,000

15,000

20,000

25,000

1965 1975 1985 1995 2005 2015

Source: Mintel (left), Deloitte (right)

How Consumers Use Technology When Buying Products

29%

48%

55%

Try products based on online reviews

Compare prices

Conduct product research online

Total Number of New Food and Beverage Products in the U.S.

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Startups vs. Big Brands

As the food system and consumer trends change, startups are competing more with big, legacy brands.

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Startups are taking market share from big brands


56.3%

54.0% 53.6%

2011 2014 2015

Note: Company size is based on 2015 sales, excluding private-label sales. Large = more than $5B in salesSource: IRI, MULO C database; BCG and IRI analysis

Small and medium companies have taken 2.7% of market share from big brands since 2011, equivalent to $18 billion in sales.

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What’s driving this shift from big to small brands?

Lower barriers to

entry

More startups competing with legacy brands

M&A isincreasing

Uptick in VC investments Startups are

winning


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Lower barriers to entry for startups

ProductionThird party manufacturers have become ubiquitous (especially at smaller scales).

MarketingDigital marketing and social media have made it easier to reach a mass audience.

DistributionStartups can now sell products online or through increasing number of retailers who don’t charge slotting fees.

FinancingVC investors are providing more capital to early-stage food & beverage companies.


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How startups are better positioned than big brands


1. Consumer trends are shiftingConsumers are demanding more authenticity, personalization, and simplicity, and startups are better able to meet those needs than mistrusted legacy brands.

2. Big brands aren’t thinking localBig brands have been focusing on globalization over the past few decades, so startups are able to capture market share on a local level.

3. Startups are more innovativeExperimentation is discouraged among successful big brands, whereas startups are incentivized to make bold innovations to disrupt the status quo.

4. Customers have more informationIt’s easier than ever to find info and reviews online so customers can find products that are perfectly tailored to fit their needs.

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Appendix

"Poor nutrition is responsible for 45 per cent of deaths in children under five. The world’s 1.5 billion smallholder farmers have the highest incidence of poverty amongst all sectors of the global economy. Better technology in smallholder farming through aggregation, extension services, access to capital and other levers could increase yields and productivity, which would lower poverty rates. Halting all deforestation and reversing forest degradation could mitigate up to 10 per cent of total emissions globally by 2030. Product reformulation and other levers have the potential to lower obesity levels in 2030 from projected 41 per cent of global population to around 5 per cent, the level in Japan.”

- Valuing the SDG Prize in Food and Agriculture

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Contact Information

Collaborative FundWeb: www.collaborativefund.comTwitter: @collabfund

Sophie BakalarEmail: [email protected]: @sophiebakalar

Appendix

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Resources

“Valuing the SDG Prize in Food and Agriculture.” A paper from AlphaBeta commissioned by the Business and Sustainable Development Commission. Oct 2016.

“Food Systems at a Glance.” Tomkat Foundation.

Stent, Jeff, et al. “Is M&A the new innovation.” Exane BNP Paribas. 21 Oct 2016.

Brennan, Jim, et al. “How Healthy Foods Are Nourishing Growth in the CPG Industry.” BCG Perspectives. 20 Apr 2016.

“Food loss and waste reduction.” Food and Agriculture Organization of the United Nations. www.fao.org/food-loss-and-food-waste/en/

Appendix

food trends and the impact on cpg companies

Small Business & Entrepreneurship