Global food and beverage manufacturing outlook

Food and beverage industry is optimistic about revenue growth in 2011

Across the food and beverage industry, 59% of respondents are more optimistic about revenue growth for their company over the next 12 months as compared to the previous 12 months. Growth optimism of suppliers has increased by 2% as compared to 2010 results.

For buyers, positive growth expectations have decreased by 6%. The global food and beverages market has witnessed steady growth across different regions over the past decade.

The market is expected to continue its growth through to 2014 due to an increase in consumption volumes and a change in consumer preferences that now favour healthier alternatives such as organic and functional food and drink products.

ICD’s detailed panel survey report indicates that, across the industry, there is little differentiation between key expected changes in the business structure in 2010 and 2011. Survey respondents identified ‘expansion in current markets’, ‘improvement of operational efficiency’ and the ‘addition of new products and services’ as the most-expected changes in 2011.

The majority of respondents expect an increase in merger and acquisition (M&A) activity due to industry-specific reasons such as the lack of credit availability and weak liquidity positions of smaller companies.

Of the total number of respondents that anticipate an increase in M&A activity over the next 12 months, 64% indicate ‘expansion in current market’ as their top priority while 36% consider ‘expansion abroad’ as their future goal.

Food and Beverage industry is optimistic about market growth in India and China

Food and drinks manufacturer respondents consider India to be the most promising emerging market, whilst suppliers give high importance to China.

Both buyers and suppliers, however, consider India, China and the Middle East to be the most important markets for growth. It is interesting to note that respondents from large and small companies favour Brazil along with China and India to be the amongst the most promising emerging markets, while respondents from medium-sized companies consider Eastern Europe to be a lucrative market in the future.

Buyers identified the USA, Singapore, Taiwan, Hong Kong and the UK as the developed regions with the most potential. Supplier respondents identified Singapore, Taiwan and Hong Kong, the US and Australia as the developed regions with the most potential.

Overall, the most promising developed countries identified by buyers and suppliers irrespective of their location include the USA, Singapore, Taiwan and Hong Kong, Canada, South Korea, the UK, Germany and Australia.

Cost containment, responding to pricing pressure and market uncertainty remain leading concerns

‘Lower shelf prices’ and ‘rising commodity prices’ are significant concerns for manufacturers and suppliers. Companies expect potential cost reductions at every step of the processing chain and consider M&A to be the best way to solidify their position in the market and combat potential price challenges.

Buyers expect innovative products, reasonable prices and improved customer service from suppliers

Globally, 50% of buyer respondents expect ‘product innovation’ to be the key supplier action to help buyers’ businesses, followed by 43% of respondents who identify ‘customer service improvement’ and 42% who identify ‘reduction of costs’ as significant actions in 2011.

Product innovation and new product development have gained importance in suppliers’ minds with the goal of sustaining profitability and business growth.

Buyer respondents with procurement budgets of more than US$50 million identified ‘product innovation’ as the most important supplier action along with ‘price and costs reductions’, ‘engage in partnerships to optimise working capital and reduce costs’ and ‘provide support to generate new business.’

Average annual procurement budget of buyers increases to US$94 million

The average size of the global, annual procurement budget for food and drink manufacturing industry buyer respondents is estimated at more than US$100 million for 2011, compared to US$62.8 million in 2010.

While 39% of food and drinks manufacturers plan to allocate a procurement budget between US$250,000 and US$1 million, 17% of buyer respondents expect their budget to be between US$1 million and US$50 million.

The ICD Research industry survey reveals that, overall, buyer budgets are expected to rise by 9% over the next 12 months.

Food and drink manufacturers plan to increase expenditure on ingredients and additives, packaging and labeling equipment and research and development.

‘Ingredients and additives’, ‘packaging and labeling equipment’ and ‘research and development’ are the three product categories expected to register the strongest investment gains.

In comparison with the survey results from 2009 and 2010, it is likely that global food and drinks manufacturers expect to continue to consider expenditure on ‘research and development’, ‘ingredients and additives’ and ‘packaging and labeling equipment’ as the most important areas.

Supplier’s brand reputation, supplier’s knowledge of buyer’s markets and existing relationships with suppliers are critical factors for supplier selection

‘Supplier’s brand reputation’, ‘supplier’s knowledge of buyer markets’ and ‘existing relationship with supplier’ are the most important factors for supplier selection by buyers in the food and beverage industry, while ‘price’, ‘proximity of supplier operations’ and ‘supplier’s record for speed’ are considered least important.

Additionally, ‘reduction of internal operating costs’, ‘locate lower cost sources of supply’ and ‘drive to innovate and update inventory management’ are considered to be the important procurement objectives over the next 12 months.

57% of respondents confirmed acceptance of e-procurement, which demonstrates the potential for IT services in the food and beverage procurement market. The results show that IT service firms have a large scope for growth in the food and beverage procurement business.

 

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ICD Research is a full-service market research consultancy providing both online and offline research capabilities. Our areas of expertise include online research, qualitative and quantitative research, custom approaches and actionable insights.

Image courtesy of Sam Pullara.