The Volatile Food Industry: Downward Giants & Upward New Brands

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Author: Mote Chan (WeChat: motechan)

Thanks to Bella, Vicky and Wilbur.

Introduction

Recently, many brands in food and beverage industry have published their 2016 financial statements. It can be seen that the developments of several traditional giants are declining or slowing down in different degrees in global or Chinese markets, and even some firms have experienced that for four years in succession. Most of them blame “the slow-down economy and insufficient consumption demand” or “the challenging macroeconomic environment” for this downward tendency. While in view of global and Chinese markets, there are some new products with surging growth rate despite of the existing obstacles. And more importantly, they are grabbing the market share against those big ones. Confronted with this contrast, there are a lot of questions: What is the fundamental problem, the downward market or the giants themselves? And how can the emerging brands make it in this hard time?

Outline:

1. The declination of F&B giants

2. The consumption demand is weakened, yes or no?

3. In recession, who is grabbing market shares?

4. Innovation—the way of building to last

The declination of F&B giants

According to the Nestle figures, its sales in 2016 were 89.5 billion Swiss francs. And excluding price factors, its growth in real terms only was 2.4%, which was well below the 5% goal. Compared with 2015, the sales of Nestle in greater China fell by 7.4% in 2016.

However, the situation of Coca-Cola was even worse. In 2016, its annual sales were down by 5.49% compared with that of the last year. And Coca-Cola’s global sales have been decreased for four years constantly.

It seems that other giants didn’t have strong performance, neither. The overal income of Mondelez International had dropped by 12%. Although it may be influenced by JDE-split, it was MDLZ’s continuous declination in the past 13 quarters. In addition, neither General Mills nor Mars have a good financial number, and Hershey’s performance was even worse in China’s market.

Chinese traditional giants’ performances are more worrying. Since 2014, Master Kong’s overall profitability began to drop constantly, with its first three quarters’ profits going down by 32% sharply in 2016. What’s more, Uni-President, Want Want China and Wahaha Group all encountered frustrations in 2014 and then began to experience declination till today.

As for the reasons, the most common answers showed in firms’ financial statements is“the slow-down economy and insufficient consumption demand“.

The consumption demand is weakened, yes or no?

It’s undisputed that the global economy is still weak, and even the economic growth in emerging markets is slowing down. China’s economic growth rate declined to 6.7% in 2016 from 10.6% in 2013.

Of course F&B industry is also implicated. Euromonitor’ data showed that the growth in the global F&B industry fell to the 10-year lowest point, only at 1.1%. Kantar’s data also showed that “In 2016, annual sales growth in Chinese fast moving consumer goods market was 2.9%, a 10-year low which was below the growth of 3.5% in 2015.

However, although the growth of global and Chinese market is slowing down, it still grows constantly rather than decline. Nielsen in the analysis of“2017 Consumption Trend in China“noted that“consumer spending makes a great contribution to GDP growth, up to 71%, which indicated the strong consuming willingness.“That shows China’s consumption demand not only is not weakened, but is on the rise overall. Euromonitor’s data also shows that some categories are growing fast.

With consumption upgrading, consumers pursue F&B products with higher-quality and healthier concepts. Thus in this seemingly recession period, there are still some category growing rapidly.

Snacks: trillion-dollar markets

It can be said that the snack market is surging in recent years, which runs counter to the overall F&B industry growth curve.

In the United States, with the influences of personalization, speeded-up life pace, and decrease of the number of dining units, Snackification is on the rapid rise. In China, the improvement of living standards and urbanization and so on also create a huge room for snacks to grow.

The scale of China’s snacks market is also amazing. Its retailing sales in China’s were 401.4 billion yuan in 2010, which can go up to 822.4 billion yuan in 2016 and is expected to reach at 1.2984 trillion yuan in 2020.

Alternative Beverage: whose sales would be tripled in the next three years

Main alternative beverage

ViaPlant-based water sales predicted to double by 2020 | Beverage Daily

Alternative drinks should be the highlight of the beverage industry growth.

Again, due to consumers’ pursue of healthier products which could replace traditional drinks containing high energy and sugar, alternative beverages are becoming more and more popular, and it gives priority to plants water and NFC juice currently. Reported by Zenith Global, Global alternative beverage sales surged by 21% in 2016, at $2.7 billion (Euromonitor forecasts for 2.2 billion dollars), and its overall market is expected to be doubled in 2020, whereas the same data five years ago was only $533 million.

NFC juice also has a huge potential for growth.In today’s world in which the NFC concept prevails, let’s pay attention to the opinions given by the man who operates NFC juices firstly in China.

Functional F&B: from monopoly to competition

Note: in this paper, the functional F&B refers to health-care foods, dietary supplements, energy drinks and other functional foods.

There is a close relationship between the rise of health food and functional food and the improvement of consumers’ income and self-health consciousness.

Orbis Research shows the global health food market is worth $183.8 billion in 2015, and is expected to reach at $295 billion in 2020.

According to Strategy, there would be a 100 billion yuan market size added to Chinese health food market in the next five years; the sales of functional food will exceed one trillion yuan.

Among them, energy drinks have always been a concern. According toSports and Energy Drinks Market—Global Annual Review-2016given by Mintel International Group, the sales of energy drinks continued to grow.The market of global energy drinks had increased by 10% in 2015.

Yogurt and dairy alternative beverages: a grander prospect

In the context of the overall decline in dairy alternative beverages, the rapid growth of Yogurt and dairy products is also noticeable. The global dairy market is on the downward trend, according to Euromonitor, the sales of global dairy dropped by 9% in retail market in 2015, and this trend also continued into 2016. And there are some introductions of yogurt and dairy alternatives.

According to Euromonitor, China’s yogurt market experienced a rapid growth. From 2015 to 2016, the sales of yogurt increased by 25.6%, the highest growth in the past 7 years. At the same time, in 2016, the sales of yogurt have been basically caught up with milk’s. The yogurt market size in 2016 was about 100 billion, and in 2020 it will reach at 190 billion.

Retailing sales performance of all sorts of dairy products in different regions globally

Viawhat’s New in Dairy in 2016: Dairy’s Resurrection as a Healthy Snack/ Euromonitor

Note: The absence of dairy alternative beverages in Asia is caused by the missing of data.

But the situation in Europe and America is different from what in the emerging markets. In Europe and America, the growth of yogurt is slowing down and even dropping in America. But it cannot be ignored that the sales of “Greek yogurt“in America in 2016 remained double-digit growth, which increased from 391 million dollars in 2010 to 3.7 billion dollars in 2015. To some extent, the sales of Greek Yogurt may account for more than 50% shares of yogurt market in 2016, and maybe in 2017, it would drive the overall growth of yogurt market in the North America.

Dairy alternative beverages

Almond Milk made by Califia Farms

ViaCalifia Farms — The Dieline – Branding & Packaging Design| thedieline

According to BCC Research, global milk alternative beverage market is expected to increase from 5.8 billion dollars in 2014 to 10.9 billion dollars in 2019, at a compound annual growth rate of 13.3%. And 50.4% of global market has been dominated by the Asia-Pacific market. In addition, according to Technavio, almonds milk is the product with the highest growth, and in the near future, its CAGR would reach at 15%.

Mo Xiaoyan, the marketing manager in Dupont, said:“In the past ten years, the sales and CAGR of vegetable protein beverages in China are 24.4% and 21.3% respectively. And in 2015, its annual growth of sales would go up to 28%, and in 2019, its market size would reach at around 159.4 billion yuan in China.“

On the one hand, it is downward giants, but on the other hand, it is the rising data. Who is leading the market growth on earth?

In recession, who is grabbing market shares?

The sharp growth of subdivision categories also creates the conditions for the emergence of the next food giant, and vice versa. With the slowing-down trend of the food industry, these emerging stars always attracts people’s attention. And they are also the brands which are grabbing the market shares against traditional giants crazily.

The emerging new brands

Snack: Three Squirrels

Snack market, no matter in the world or in China, has tremendous potentials. And in China, there are a lot of stars rising constantly, especially Three Squirrels, BESTORE, Be& Cheery and Lyfen, these brands develop fast and almost dominate the market. And among these emerging brands, it is Three Squirrels that has the shortest growing time but fastest growth.

On January 11, 2017, Three Squirrel announced that its annual sales in 2016 exceeded 5.5 billion yuan, and its net profit reached at 263 million yuan. Most importantly, it is just 5 years old, and its growth rate is doubled almost every year.

“Internet“,“e-commerce“,“young“and“word-of-mouth marketing“, all of them are this successful brands’ labels. The founder and CEO of Three Squirrels, Zhang Liaoyuan, said that,“The reason why Three Squirrels succeed is that it takes advantage of the development of the Internet perfectly.“

The growth momentum, the overall investment in supply chain and research and development, and the strategy deploying offline business make us see the possibility that it may become a tens of billions enterprise, or even a global corporation with hundreds of billions value.

Alternative beverage: Vita Coco

The most popular alternative beverage must be “Vita Coco”, and since 2006, it created a new wave.

Let’s see the data first:

In 2006, Vita Coco surged sharply and became the NO.1 in Tetra Park coconut water market in the North America.

In 2009, Vita Coco with more than 60% market shares was far ahead of the rest brands in this industry.

In 2014, Vita Coco cooperated with Reignwood Group and stepped into Chinese Market. In addition, its sales reached at one hundred million yuan in 2015.

In 2016, Vita Coco’s global sales can go up to 1 billion (according to Bloomberg), which almost accounts for 50% of market share.

There are some reasons for Vita Coco’ success: healthy, green and convenient packaging and star marketing.

Functional drinks: Monster

What led “Monster Energy” towards the top of energy drink market step by step is a series of strategies following. And there are several factors which make contribution to its success:

First, the far-sighted and enterprising transformation: It explored the field which was undervalued by the mass in 1997. Through making trail and error ahead, it adjusted the strategies.

Second, the extremely powerful name and impressive brand imagine.

Third, sponsoring the coolest sport, and emphasizing “the release of wild”. And this is more consistent with American culture so that it wins numerous young loyal fans.

Fourth, Coca-Cola holds 16.7% shares of Monster Beverage and that enables Monster to use Coca-Cola’s globally solid distribution networks. Thus it can take on the world and achieve purchasing convenience quickly.

Yogurt: Chobani

In 2016, Chobani launched its new product Drink Chobani

ViaIn 2016, Chobani Launched its New Product Drink Chobani

Also, consumers’ consumption habits contribute to Chobani’s success. Nowadays, more and more consumers pursue healthier and higher quality products. And Chobani orients itself precisely as high-quality, high-end and health yogurt which makes up the huge blanket in the yogurt market.

Its founder, Hamdi Ulukaya from Turkey, is as persistent as Jobs who is extremely fastidious about products. And he is strict with every detail in a rigorous attitude. Due to this, he overturned the yogurt market completely. So what are the changes?

First, explore the best product.

Second, pursue perfect packaging.

Third, choose a way which is different from traditional Greek yogurt’s, and targeting at the mass market.

Fourth, the skillful marketing method is used to take advantages of the word-of-mouth marketing.

Fifth, fully master the supply chain to lower costs and build barriers

Every careful step and series of measure combinations both contribute to Chobani’s success, and make it become one of the most successful food companies in North America in recent years.

And these successfully emerging companies and their reasons for achievements predict the deep reform in food industry and consumers.

The overwhelming trend

Behind these keywords, such as upgrading consumption, high-end quality, healthier, younger, and e-commerce, there may be a bigger secret that the millennial generation has become the main consumers. They receive a good education, pursue personality, pay more attention on quality of the consumption and know more about the Internet, more importantly, they have a sustainable income and are strengthening the middle class.

The different consumption concepts and lifestyles which the new generation shows are the feature deserving most attention in this trend, because it is telling the most fundamental reason for giants’ decline. Now, do you still believe that “the slow-down economy and insufficient consumption demand” is the answer?

The suggestion following may be helpful for food companies’ sustainable growth.

Innovation—the way of building to last

Innovation，innovation and innovation

What represented by Chobani, Monster, Vita Coco and Three Squirrels are not only the upgrade of consumption, but also the successful companies which insist innovation in different segments. Making a conclusion of their great achievement, besides the far-sighted founders and business strategies, there are also some common factors deserving learning:

“All-around innovation“

Innovation should not be restricted to products themselves, but also should cover packaging, brand image, marketing and even the comprehensive upgrade of manufactures and supply chains.

“Innovation“is the hot word in recent years, but what should be at the forefront of innovation is“science and technology“.

Science and technology drive innovation to realize dreams

Research and development is the Foundation of an industry, but science and technology is the foundation of research and development. The birth and growth of a category, without exception, need breakthrough and large-scale applications of science and technology. The advance of technology makes innovation and imagine break through the boundaries of tradition. From a business perspective, the breakthrough of technology and large-scale application is the key point of seizing the high ground in markets.

Science and technology: overturn and create industry

In history, aseptic processing and packaging technology played a subversive role in the reform of the food industry, and even it created a new industry.

If dairy revolution is the past of Tetra Pak, then the revolution of alternative beverage is its great development which is ongoing.

Giving a glance at main coconut water brands in market today, Vita Coco, Zico, Malee Coco, ONE and Kero Coco, it seems that all of them are packaged in Tetra Prisma Aseptic. So Tetra Pak contributes a lot to the emergence of coconut water.

Besides UHT, freeze-drying method and decaf technology and so on change the food industry all the time.

And now, the utilization of the Internet, the Internet of things, medical science and biology in food manufacture are accelerating the development of the food industry.

The integration among food, nutrition, health care and Internet

The integration of food and health care might be the most significant one and have a far-reaching influence.

More in-depth technical researches and cross-border integrations will be the major trend of food industry research, and overturn the food industry faster and completely in the future. This speed may be as fast as e-commerce which sweeping the globe, caught off guard and unpredictable. For food companies, there is no doubt that if they want to occupy the commanding heights in the future, they must have the most advanced technology.

How to build to last—the value and mission of the company

Any word which seems favorable for consumers, such as health, nutrition, nature, joy and simple, should not be regarded as the hype conceptions. By contrast, they should be the real mission of all food companies.

It cannot be denied that food companies play an increasing important role in people’s diet, nutrition and health and even their mood. So for food companies, they face both opportunities and challenges.

From a business perspective, the way to seek next best sales is nothing but to dig, explore and satisfy the needs which are really good for consumers.

If all food companies regard providing consumers higher-quality and healthier products continually as their missions and bring consumers more joy, why are they afraid of changes?

References

There are 109 messages and news articles and the news related to 27 mainstream enterprises’ annual reports, which are referenced in the writing process. Since the article is too long, some references cannot be displayed. The information above may be helpful for insiders who are interested in researching the current trend of food industry, and you can obtain them by contacting the author.

This article is written by FBIF originally.

Author: Mote Chan (WeChat: motechan)