Issues Trends & Challenges Facing The Food & Drink Industry

Issues, trends and challenges
facing the food and drink

industry forecasts to 2014
2009 edition
Page i
2009 All content copyright Aroq Ltd. All rights reserved.

Issues, trends and challenges facing
the food and drink industry -
forecasts to 2014

By Helen Lewis

March 2009

Published by

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Page iv Table of contents
Table of contents
Single-user licence edition .......................................................................................................... ii
Copyright statement ............................................................................................................... ii
Incredible ROI for your budget single and multi-user licences ............................................. ii
just-food.com membership ..................................................................................................... iii
Table of contents ........................................................................................................................ iv
List of figures .............................................................................................................................. vi
List of tables .............................................................................................................................. vii
Chapter 1 Introduction ................................................................................................................ 1
Report introduction ................................................................................................................. 1
Report methodology ............................................................................................................... 3
Aims of the report................................................................................................................... 3
About the author .................................................................................................................... 3
Chapter 2 Climate change (food miles, carbon footprints, going local) ................................... 5
ntroduction to 'environmental' terms used in this chapter ...................................................... 5
Issue overview ....................................................................................................................... 6
Food miles ............................................................................................................................. 6
Carbon footprints ................................................................................................................... 8
Carbon labelling ..................................................................................................................... 9
Challenges for the carbon label ............................................................................................ 11
Brand leaders ...................................................................................................................... 12
Implications for future NPD .................................................................................................. 14
Climate change and your marketing strategy ....................................................................... 18
Chapter 3 The global credit crunch .......................................................................................... 20
Introduction .......................................................................................................................... 20
Issue overview ..................................................................................................................... 20
Lack of consumer confidence ............................................................................................... 21
Regional economic prospects for 2009 ................................................................................ 22
Fluctuating raw material prices ............................................................................................. 23
Brand leaders ...................................................................................................................... 24
Private label ......................................................................................................................... 25
Worldwide economic expectations for 2009 ......................................................................... 27
Africa and Middle East ................................................................................................. 27
Asia Pacific and Australasia ......................................................................................... 27
Eastern Europe ............................................................................................................ 28
Latin America .............................................................................................................. 28
North America.............................................................................................................. 28
Western Europe ........................................................................................................... 29
Page v Table of contents
Chapter 4 Obesity and diet-related illness ............................................................................... 30
Introduction .......................................................................................................................... 30
Childhood obesity: the ticking time bomb ............................................................................. 31
Issue overview ..................................................................................................................... 31
Government intervention.............................................................................................. 31
Fat tax ......................................................................................................................... 33
Nutrition labelling ......................................................................................................... 34
Brand leaders ...................................................................................................................... 37
Future forecasts ................................................................................................................... 38
Chapter 5 Food safety ............................................................................................................... 39
Introduction .......................................................................................................................... 39
Issue overview ..................................................................................................................... 39
Peanut scare in the US ........................................................................................................ 40
Chapter 6 Evolving consumer demands: Focus on simplicity ............................................... 44
Introduction .......................................................................................................................... 44
Trend overview .................................................................................................................... 44
Manufacturers' steps towards the simplicity trend ........................................................ 45
Retailers' steps towards the simplicity trend ................................................................. 45
The simplicity trend in food and drink packaging .................................................................. 45
Brand leaders ...................................................................................................................... 46
Evolving consumer demands and your marketing strategy ................................................... 47

Page vi List of figures
List of figures
Figure 1: Pudding Lane in Australia has invested in reducing its carbon footprint to beat the food
miles issue ............................................................................................................. 16

Page vii List of tables
List of tables
Table 1: Diet-related food and drink market value forecasts, 2008-2014 (US$bn and %) ............. 38
Table 2: Drivers of brand simplicity .............................................................................................. 44

Page 1 Chapter 1 Introduction
Chapter 1 Introduction
Report introduction
This market research report explores the global food and drink market in
today's challenging climate with analysis of trends and conditions expected to
influence sales value and volume growth over the next five years.

Inevitably, the global economic downturn that made an impact in 2008 is
covered in the report. The credit crunch/recession will continue to rage in many
countries throughout 2009, and is expected to influence consumer purchasing
habits, food and drink sales and innovation over the next 12 to 18 months at
least.

Global branding in the food and drinks industry has never been more
challenging than it is today. Manufacturers are accustomed to working in a
fast-moving consumer goods industry but recently the pace of change has
altered and now varies widely between sectors and countries/regions.

In many established Western food and drink markets, competitiveness has
risen in line with falling margins (the latter being a result of market saturation
and rising raw material costs).

Retailers provide intense competition to brands with private-label ranges
offering the best of both worlds: from economy ranges to premium products.
Appealing to quality concerns, the premium offerings compete directly with
brands in terms of value and flavour appeal. The economy/discount ranges,
meanwhile, are proving invaluable during times of financial difficulty (the role of
private label is considered in Chapter 3).

Businesses are now forced to re-consider their growth strategies in the face of
internal and external factors to deliver on consumer expectations. Consumer
demands are evolving (Chapter 7) and manufacturers must re-formulate
strategies to deliver on these demands.

Over the next five years, consumers will become more marketing-savvy, wise
to, and sometimes increasingly sceptical of the branding and advertising
techniques employed by the food and drink industry (alongside other FMCG
sectors). Consumers provide instant feedback on a product they do not like by
not purchasing again, but they can also spread their dislike or disappointment
via the myriad online forums and websites encouraging product reviews.

Innovation will take on a different perspective over the next five years, as
companies initially scale back investment in line extensions to only focus on
key launches. The standard NPD strategy will become a lot more selective and
less 'risky'. Once the economy starts to recover, brand owners will need to be
ready to pick up on market opportunities and develop them to their advantage.
According to the Oxford Research Agency, care and consideration needs to be
taken in the NPD approach a company follows. It states: "In NPD, less is less
and more is more".

2009 will be an exciting year for food and drink, as new opportunities for better
products and ideas present themselves. With pressure on budgets, different
NPD strategies are being considered.

New research from the Oxford Research Agency shows that there are many
reasons for failure from internal issues (capacity restraints, sourcing issues,
packaging issues, lack of distribution) to external issues (competitor reaction,
price and own-label reaction damaging sales).

The company's analysis shows that the potentially bigger wins, with higher
volume and value predicted, tend also to be the riskier launches with lower
success rates. High-volume opportunities, especially in new categories to the
client, have a greater tendency to fail. They generally need a lot of support,
consumer education and trial, and if these do not cut through, the products are
reviewed out of store quickly. In some categories, brands have less than six
weeks to make an impression. It is important, therefore, to balance higher risk
NPD with the smaller but lower risk opportunities.

This report considers food and drink NPD and other vital branding, marketing
and sales strategies in the context of the following challenges, issues and
trends expected to influence over the next five years:
1. Climate change
2. Global economic downturn
3. Obesity and diet-related illnesses
4. Food safety and consumer trust
5. Evolving consumer demands influencing NPD: the simplicity trend
Report methodology
The author of this report, Helen Lewis, has eight years' experience of
researching, writing, and analysing trends and developments in the global food
and drinks market. During this time, she has developed an extensive contacts
list of industry experts and researchers. Helen conducted a programme of
secondary research specifically for this report, and just-food has analysed
numerous data sources, industry reports, corporate annual reports and
company literature. Also, primary research was conducted in the form of one-
to-one telephone and email interviews with professionals working within the
industry. These research techniques were combined to enable just-food to
make informed market estimates, trend predictions and forecasts to 2014.

Aims of the report
The primary objective of this report is to provide a snapshot of the current
issues, trends and challenges in the global food and drink market.
Investigation of the current market leads to forecasts and predictions for
trends, challenges and influences on the horizon to 2014 based on primary
and secondary research.

The report analyses growth strategies implemented by multinationals and
smaller players that can be used as a starting point for future strategy
development. NPD in key markets including Europe, North America and Asia
is investigated to provide insight into competitor activity, best-practice growth
strategies and potential opportunities for innovation. just-food has analysed a
selection of the major challenges/issues and trends in order to better
understand the future direction of the food and drink market.

About the author
Helen Lewis, a fully qualified journalist and PR, is the author of numerous just-
food and just-drinks reports and briefings published over the past five years on
subjects including Branded foods in BRICM (Brazil, Russia, India, China,
Mexico) forecasts to 2013 and Globalisation of the food retail industry
forecasts to 2013.

Helen's interest in the food and drink industry developed during her time as
head of publishing at Reuters Business Insight between 2001 and 2004. In
2005, Helen established food&drink towers (www.foodanddrinktowers.com),
an online media resource specialising in the creation of a communications
network for food and drink companies, journalists and public relations
specialists. Helen also works as a consultant on NPD, marketing and PR for
food and drink SMEs, and writes for a number of trade publications such as
The Grocer and Multiple Buyer & Retailer.

Page 5 Chapter 2 Climate change (food miles, carbon footprints, going local)
Chapter 2 Climate change (food
miles, carbon footprints, going
local)
Introduction to 'environmentaI' terms used in this chapter
Carbon footprint the total amount of carbon dioxide (CO
2
) and other
greenhouse gases (GHGs) that are emitted over the full life cycle of a product
or service. Carbon footprints are attributed to individual companies, products
and services, and also to people. It is typically expressed as grams of CO
2

(other GHG are allocated a CO
2
equivalent). Life cycle assessment (LCA) is
one of the established calculation methods, which has been standardised by
the International Organisation for Standardisation.

Carbon neutral equates to zero carbon emissions, i.e. a neutral carbon
footprint. This is achieved by reducing/eliminating carbon emissions, balancing
the burning of fossil fuels with renewable energy, and offsetting unavoidable
carbon emissions.

Carbon offsetting there are many ways of offsetting GHG emissions, such
as carbon trading schemes, which allow companies with higher emissions to
purchase 'credits' from lower emitting or carbon-neutral companies. Legal
bodies regulate these schemes, although some voluntary, non-regulated
carbon-offsetting schemes are emerging. Planting trees was one of the first
ways of offsetting carbon emissions.

Climate change the term refers to changes in the modern climate, which
according to the Intergovernmental Panel on Climate Change (IPCC) are 90-
95% likely to have been in part caused by human activity.

Food miles the distance travelled from the origin of the food/drink to the
consumer. t is sometimes referred to as the journey from 'field to fork'. There
is a growing focus on how the food has travelled and not just the distance, i.e.
by road, by rail, by sea or by air. While this has been an important way or
raising consumer awareness of the environmental issue, the shelf-life of this
buzzword has arguably expired. There is a growing understanding that food
miles are just part of the overall issue. Carbon footprint is increasingly
regarded as a more accurate and encompassing way of assessing a product's
environmental impact.

Sustainability from an environmental perspective this refers to the potential
longevity of human ecological systems such as the climate and agriculture.

Sustainable development the development of economic systems that could
last indefinitely.

Issue overview
By 2050 the global population could reach more than 9bn compared to the
world's 6.7bn inhabitants in 2008. A growing target market may seem like a
good thing for a brand's future, but it's far from good news for our environment.
Greater use of fossil fuel-based energy, increased waste for landfills, and
depleting natural resources will result from the increased number of people per
mile.

A 700-page report by economist Sir Nicholas Stern, published by the UK
government in 2006, stated: "If we don't act, the overall costs and risks of
climate change will be equivalent to losing at least 5% of global GDP each
year, now and forever. If a wider range of risks and impacts is taken into
account, the estimates of damage could rise to 20% of GDP or more."

The report also stated that taking immediate action would cost just 1% of
global GDP. The IPCC based in Geneva believes that by the middle of the
next century emissions would need to be reduced by 60-80% in industrialised
countries. The Fourth Assessment Report (AR4) was completed by the IPCC
in early 2007. The assessment concluded that world temperatures could rise
by 1.1-6.4 C (2.0-11.5 F) during the 21st century and that sea levels will
probably rise by 18-59cm (7.08-23.22 inches).

Food miles
'Food miles' was a poignant catchphrase in the food and drink industry three or
four years ago, but in 2009 consumers perceive the environment as a more
far-reaching issue. Food miles are a part of, but not the whole problem.

Two in five consumers in the UK believed that producers and supermarkets
should provide more details about food miles on the products they sell,
according to research published by Mintel in June 2007. The survey also found
that one in five Britons (19%) at the time tried to avoid products with high food
miles by looking at where the products were grown. More than half (54%) said
there was not enough locally-produced food available in the store where they
regularly shop, while 53% believed that retailers needed to do more to develop
and promote UK production to reduce global sourcing. A similar consumer
trend was apparent in the US, where a Zogby Interactive poll published in early
2007 found that 88% of Americans wanted retail foods to be labelled with
country of origin details.

Research into the contribution of food miles in the overall carbon footprint
equation is ongoing and it is proving to be a highly complex issue. A study by
the University of Exeter (UK) and published in the journal Food Policy
1
has
found that shopping locally may not be as good for the environment as having
food delivered. The research group compared trips to a local farm shop with
deliveries made by companies that distribute organic vegetable boxes to their
customers. It also considered the carbon emissions produced by cold storage,
packing and the transportation of goods to a regional 'hub'. The researchers
calculated the total carbon emission and found that if the average car journey
made to a farm shop is a round-trip of more than 6.7km, then home delivery
was a better option even if the competing farm shop used no lighting, heating
or chilling. While a delivery van will travel up to 360km to deliver an organic
vegetable box, this trip will cover a large number of addresses so the carbon
emissions per customer is much lower.

David Coley from the Centre for Energy and the Environment at the University
of Exeter, lead author on the study, said: "People are becoming familiar with
the phrase 'food miles', but don't have a very clear understanding of what it
means. We need to look more thoroughly at the many factors that lie behind
putting food on our tables, before we can say what is better or worse for the
environment.

1
Coley et al. 'Local food, food miles and carbon emissions: A comparison of farm shop and mass
distribution approaches'. Food Policy, 2008; DOI: 10.1016/j.foodpol.2008.11.001
"Rather than focus on food miles, it would be more meaningful to look at the
carbon emissions behind each food item. While the concept of food miles was
useful in getting people to think about the issues around carbon emissions and
food transport, it's time for a more sophisticated approach."

Carbon footprints
Carbon footprints rather than food miles will be the environmental
catchphrase with the most influence over the food and drink industry over the
next five years. Manufacturers and retailers are taking steps to assess their
carbon footprint, either internally or by outsourcing the research to companies
offering methodologies such as Lifecycle Assessment (LCA). The major impact
areas (processes that contribute the largest volume of GHG emissions) will
vary by company and by product within a company's portfolio.

For many companies, the key impact areas are usually during the
farming/production stage. Distribution (i.e. logistics, transport use) and
disposal by the end-user can also be large impact areas. The carbon footprint
does not just refer to one stage within the production process; in order to get a
clear picture of a product's contribution to climate change, the entire life cycle
of the product should be considered from field to fork to disposal.

PepsiCo recently worked with the UK's Carbon Trust to certify the carbon
footprint of its Tropicana brand. The company said in January 2009 that a 64-
ounce carton of Tropicana Pure Premium Orange Juice is responsible for an
average 1.7kg of carbon emissions.

Neil Campbell, president of Tropicana in North America, said: "Tropicana will
use these findings to further prioritise our efforts to reduce our overall carbon
footprint. We will build on our already robust sustainability initiatives to further
reduce our carbon footprint in the coming years."

The aim of identifying a carbon footprint is to quantify the product's
environmental impact and then reduce emissions thereby reducing and
eventually eliminating the carbon footprint altogether. However, there are
criticisms of the system as big-budget companies are paying to offset their
emissions rather than actively lowering them through changes to the
production process/supply chain.

Offsetting through the planting of trees on a basic level, or by purchasing
carbon credits at a more complex level, can help to minimise a
company's/product's carbon footprint, but it can also be seen as another way
of easing the collective conscience rather than contributing any real value.

Companies such as Aurora, a private-label organic dairy company based in
the US, are promoting the fact they plan to measure and then reduce their
carbon footprint (the story makes for an excellent corporate social
responsibility media message). Aurora has chosen to create its own
measurement scheme and conduct the research in-house without relying on
standards used by other companies such as The Carbon Trust's assessment.
While this is undoubtedly a worthwhile exercise, the different routes to
calculating carbon footprints could end up causing more confusion in the
industry, particularly if they provide a wide range of different results for the
same product.

The company has developed its own scheme in conjunction with the University
of Michigan, and funded by the Colorado-based Aurora Organic Dairy
Foundation. The foundation's first grant of US$320,000 will be used to conduct
lifecycle and sustainability research at Aurora Organic Dairy's facilities,
including its High Plains organic dairy farm in Colorado and its Coldwater
organic dairy farm in Texas.

The research initially focused on developing an energy and carbon footprint
model in January 2009, creating a baseline against which Aurora Organic can
make improvements in its sustainability performance. The study will identify
those processes that contribute the greatest environmental impacts, focused
primarily on total energy consumption and carbon emissions.

Carbon labelling
Carbon labelling is still a niche concept but it is appearing on a gradually rising
number of food and drink products, particularly in the UK, where the Carbon
Trust is storming ahead with its labelling system. The aim of the carbon label is
to encourage consumers to count 'carbon emissions' as well as calories
pushing the environmental issue further into the marketing domain.

Outside of the food and drink industry, fashion is also showing an interest in
carbon labelling. In the US, for example, Timberland added a carbon label on
the bottom of two products in its footwear range: a wool-lined leather clog and
a grey fabric sneaker in 2006. The clog is the more environmentally-friendly
option of the two emitting 66lbs of GHG for its production versus 88lbs for the
sneaker/trainer. Timberland operates a ranking system for its shoes from 0
(less than 5.5lbs of GHG emitted) to 10 (220lbs or more emitted). The
information is detailed in marketing materials in the stores, on shoe tags, and
in the shoeboxes. Timberland now puts labels measuring eco-friendliness on
the boxes for all of its products and has a solar-powered distribution centre in
California.

The launch of the carbon reduction label in the UK in 2006 (developed by the
Carbon Trust and the Edinburgh Centre for Carbon Management) saw big
brands Innocent, Walkers and Boots signing up for the trial ahead of the
crowd. Research by the Carbon Trust in 2006 showed that there was a
demand for more information on packs: 66% of people wanted to know the
carbon footprint of products, and two thirds were more likely to buy from a
business with a low carbon footprint.

The logo was first seen on Walkers Cheese and Onion crisps, which was
Walkers' best selling variant in March 2007. Signing up to the agreement
means that if they fail to reduce their carbon footprint of the product carrying
the label within two years, the label will be withdrawn. Boots introduced point-
of-sale material with the label to accompany the launch of Botanics and
Ingredients range shampoos with a reduced carbon footprint in July 2007.
Innocent displays the logo for all smoothie recipes on its website. From
January 2008, the smoothie company started to sell its entire range in 100%-
recycled PET packaging.

When a company signs up to the 'reduce or lose' commitment, the Carbon
Trust ensures that they have the appropriate management systems in place so
that they are able to make good on their commitment. This includes the
measurement system to quantify their greenhouse gas emissions and having a
board member or senior executive responsible for achieving the reductions.

According to the Carbon Trust, the process of calculating a carbon footprint
can take several months for the first product or service, but it is faster for
subsequent products. Companies have to dissect numerous factors such as
their electricity usage, their transport, heating, their use of materials, and any
GHG emissions produced by processes in their manufacturing. The cost of the
process varies widely from one company to another, from several thousand
pounds to GBP10,000 or more. The Trust estimates that most companies
could trim at least 20% from their energy bills without major changes following
the identification of key impact areas.

While the Carbon Trust is UK-based, its influence is starting to be felt in other
parts of the world, namely the US. Based on a Carbon Trust assessment,
3.75lbs of CO
2
are emitted for each half-gallon carton of orange juice, which is,
interestingly, 20% higher than the previous internal estimate by PepsiCo. The
discrepancy primarily stemmed from under-estimating the beginning of the
supply chain. The Carbon Trust found that growing the oranges accounted for
a larger share about one-third than PepsiCo had expected, due to the
production and application of fertiliser. PepsiCo responded to the higher
results by agreeing to work with growers and researchers at the University of
Florida to find ways to grow oranges using less carbon.

The company has agreed (January 2009) to post the results on its website but
is yet to decide whether it will include the carbon footprint on its packaging. It
would be one of the first beverage brands to do so in the US.

Challenges for the carbon label
There are a number of challenges the carbon label must face:
Running out of room for the expanding number of logos and labels is a
concern for some companies, although one that clearly needs to be
weighed up against consumer demand and the real purpose behind
the debate mounting climate change concerns.
Another concern is the reliance on assumed data, and there are fears
that methodologies and means of presenting the findings (i.e. carbon
labelling) will vary between companies, as has happened in the
nutritional labelling arena.
Educating consumers about what the label actually means will also be
a laborious process.
Gaining consumer trust, however, is the most challenging aspect of
the label initiative. Encouraging consumers to consider the carbon
label at the point of sale (and make comparisons with other products)
and encouraging people to trust that the label is based on reliable and
credible measurements are vital.

Aware of this need to be more publically transparent, the Carbon Trust
released its official standards for evaluating carbon sustainability in October
2008. Known as the 'Publicly Available Specification 2050', or PAS 2050, the
online resource outlines carbon footprint reduction criteria and emissions
standards that must be met by companies that receive Carbon Trust
certification and labelling rights.

The PAS 2050 standard is based on a 100-year lifecycle assessment of
greenhouse gas emissions for products. It was created by the British
Standards nstitution (BS) and the UK's Department of Environment, Food,
and Rural Affairs (DEFRA) following research on 75 product categories from
20 British companies including Tesco and Boots. The Department for
Environmental, Food and Rural Affairs (DEFRA) also tested the PAS 2050 on
100 food products to assess their impact, from production through distribution.

The Carbon Trust has also developed a Code of Good Practices on GHG
Emissions and Reductions Claims. The code is more marketing-friendly and
aims to show businesses how to communicate their GHG emissions savings.

Brand leaders
Tesco is the number one retailer in the UK and the third-biggest retailer in the
world by sales. It is perhaps unsurprising then that the retailer has decided to
adopt a series of 'green' strategies in the past three years.

Since the mid-1990s, Tesco has been investing in new markets overseas,
seeking year-on-year growth and long-term returns for its shareholders. Tesco
is currently operating more than 3,728 stores in 13 markets (China, the Czech
Republic, Hungary, Ireland, Japan, Malaysia, Poland, Slovakia, South Korea,
Thailand, Turkey, the UK and the US) and employs more than 440,000 people.

n 2006, Tesco opened its first 'green' store in Budapest, Hungary. The
company has also opened a 'green' store in Slovakia that is built with wood,
straw and wool. The first energy-saving Tesco in the Czech Republic opened
for business in 2007 and reportedly uses 30% less energy than other stores.
There are now more than 30 'green' stores (at the end of 2008) and the first of
its kind opened in the UK in Manchester in January 2009. The store created
230 new jobs (according to Tesco the jobs went first to local people who had
been out of work or on benefits for six months or more) and at 52,000ft
2
has a
70% smaller carbon footprint than a standard store of the same size.

Energy-saving strategies include the lighting system, which is capable of
dimming bulbs when it gets brighter outside. It also has a checkout packaging
area made from recyclable plastic. Natural carbon dioxide gas is used to cool
fridges rather than traditional fridge gases.

In April 2008, Tesco launched a trial carbon labelling scheme (still in place at
the time of writing in February 2009) on 20 products including potatoes, orange
juice, washing up liquid and light bulbs. The labels indicate how many grams of
CO
2
are created in the production, packaging, distribution and disposal of the
products.

Other retailers are keen to lead the way in terms of environmental action,
placing pressure on suppliers to fall in line with the corporate stand. In the
Chaoyang district of Beijing, China, Wal-Mart opened an eco store in October
2008. The 17,527m
2
outlet boasts LED and electromagnetic induction lights
throughout, timers, dimmers and motion sensors for low-traffic areas, high-
efficiency heating, ventilation and air conditioning (HVAC) systems, and a
waste-water reclamation system.

The move by the biggest retailer in the world followed pressure from 23 NGOs
including Friends of the Earth in 2007, which claimed in a report entitled Wal-
Mart's sustainability initiative: A civil society critique that Wal-Mart was
following an "inherently unsustainable" business model. "Wal-Mart can change
to more efficient light bulbs, but that doesn't change its carbon footprint or the
enormous social consequences of its globally unsustainable business model,"
said Ruben Garcia of the pressure group Global Exchange in November 2007
following Wal-Mart's publication of a series of environmental strategies.

In France, Casino announced in October 2007 that it would introduce carbon
labelling on 3,000 of its private-label food products, which was a first among
French supermarket chains. The colour coded labelling scheme was gradually
introduced from the end of 2008 showing the amount of carbon dioxide emitted
in the manufacturer of a product's packaging, the amount of packaging to be
recycled, and the amount of CO
2
emitted in transporting the product in terms of
truck kilometres.

Casino employed consultancy company Bio Intelligence Service to develop a
methodology to calculate the carbon footprint of each product and a feasibility
study was carried out with a dozen suppliers covering 15 very different food
products, including frozen fish, yoghurt, prepared salads, pizzas, juices, soups
and eggs.

In Japan, a number of retailers are reportedly planning to introduce carbon
footprint labelling (first reported in May 2008 by just-food.com). The idea was
to trial the voluntary system on certain products before implementing on a
wider scale from 2009.

Implications for future NPD
Over the next five years (and beyond) more companies will be brought under
the spotlight and encouraged to consider their environmental credentials. In
the UK, the Government's Carbon Reduction Commitment is committed to
reducing carbon emissions by 80% by 2050. This is an ambitious target that
will mean more and more companies will be answerable to the reduction
commitment. The emissions trading scheme will be mandatory for large non-
energy intensive organisations from April 2010. It applies to organisations that
have an annual electricity consumption of more than 6,000mW/h, so it will
impact retail chains and large food manufacturers and suppliers. The aim is to
cut carbon emissions by 1.2m tonnes each year to 2020. Financial incentives
are in place to encourage organisations to jump on the bandwagon sooner
rather than later.

As more and more companies are required to reduce emissions, those who fall
below the annual electricity consumption levels will also be called to action.
Consumers will become more aware of the proactive strategies being
implemented by supermarket chains (who will undoubtedly communicate their
efforts and achievements through advertising and marketing) and question
what other food and drink companies are doing.

Manufacturers that are already being proactive in establishing their
environmental credentials through a medium- to long-term reduction strategy
will be well placed to market their success to retailers and consumers.
Forward-thinking and strategic producers in Australia and New Zealand that
export to Europe have been aware of the need to implement a series of hard-
hitting reduction strategies to reduce/eliminate their carbon footprint. These
producers must fight against the negative food miles concept that could have a
detrimental impact on their export sales. The global economic downturn has
encouraged more and more consumers to amend their mindset regarding the
value and quality of products (i.e. you get what you pay for); however, the
environment continues to play a role in purchasing decisions for many people.
In Australia, Pudding Lane, which produces hand-made puddings for
Christmas and throughout the year, has recognised the need to invest in
strategies that will reduce its carbon footprint and position the brand as an
environmentally-friendly option for domestic and export sales.

In March 2009, a new pudding kitchen will open in Australia that has been
specifically designed to significantly reduce the company's already low carbon
footprint. While trebling production, the amount of natural gas used to fire the
copper boilers will be halved as soon as production begins. The new kitchen is
almost seven times larger than the original kitchen, which will enable Pudding
Lane to meet growing consumer demand for its quality puddings. Michael
Jameson, managing director at Pudding Lane, told just-food that the company
will not be passing on the extra costs to its customers or modernising its
traditional production method.

The family-run company shipped more than eight tonnes of puddings to the UK
in 2008 and sold out before Christmas. Kevin Stubbs, co-director of Pudding
Lane, told just-food: "We ran out of space in our current kitchen in 2007 as
demand started to exceed supply. We have built the new premises from
scratch to be stacked full of environmental measures, ensuring we are cutting
as much carbon footprint as possible from our production process. We already
took environmental concerns very seriously and this new kitchen enables us to
go even further. Last year, we produced approximately 70 tonnes of puddings
and we're looking at producing up to 200 tonnes each year in the new kitchen."

Figure 1: Pudding Lane in Australia has invested in reducing its carbon footprint to beat the
food miles issue

Source: Pudding Lane

Other environmental measures include: recycling water, doubling the insulation
in the new cooling room and using only energy-efficient lighting. Pudding
Lane's packaging is made from 100% recycled material and cloths are hand-
stitched by a local Australian charity group called The House with No Steps.
The only disposable part of the pudding-making process is a short piece of
cotton twine used to tie the pudding cloth for cooking. Pudding Lane recycles
100% of any cardboard and paper packaging (i.e. flour bags, fruit and egg
cartons) created in making the puddings. The company does not use any
automated processes whatsoever; there are no production lines, no electric
steam ovens, no plastic basins, plastic bowls or moulds to shape the puddings.
The team also supports as many local producers/businesses as it can such as
local bakeries (for fresh breadcrumbs) and free range egg suppliers.

Jameson added: "Pudding Lane is keen to expand the food mile debate in both
Australia and the UK, so people can also consider the environmental impact of
the entire product lifecycle from paddock to plate, rather than focusing solely
on food miles. Food miles are, of course, a major issue but the method of
production and origin of ingredients are imperative factors that many
companies appear to be overlooking, sending mixed messages to consumers."

The Australian Trade Commission's chief economist, Tim Harcourt, added:
"Pudding Lane is taking a product from regional Australia and competing
successfully in an incredibly competitive and saturated market. It is a pioneer
who has really listened to what the UK market wants and provided a product
with an unblemished and quality provenance. It is an innovator, at the forefront
of minimising its carbon footprint, and using that as a marketing point of
difference to a highly environmentally engaged UK customer. It's a model that
many Australian businesses could learn from and with the growing concern in
the UK and many European countries about food miles it's very important for
businesses wanting to compete there to be able to articulate their sustainability
position."

Whether consumers will continue to be as concerned about environmental
(and other 'lifestyle' issues) during times of financial difficulty is an important
question up for debate in the food and drink industry. An economic downturn
usually encourages people to question the value and quality of the products
they're spending their hard-earned money on. People can become more
selective and fussy about food and drink purchasing. Premium brands can still
flourish in times of a recession, although frequency of purchase may fall,
people still like to treat themselves to a little indulgence from time to time.
Maintaining control is important for consumers at a time when it can feel like
everything else (unemployment levels, price of food, utility bills etc) is out of
their hands.

So, what does this mean for ethical products such as Fairtrade and organic?

The situation in 2009 appears to be wavering with consumers who have
already bought into the ethical concept continuing to purchase organic
products, albeit less frequently or in smaller volumes than perhaps a year ago.
For those who dipped in and out of the ethical food and drink range, or who
usually added the occasional item to their shopping basket, are more likely to
be trading down to cheaper products
.
The number of British shoppers who buy ethical food including Fairtrade and
locally-sourced has increased since 2006 according to a survey in the
Shopper Trends 2009 report published by the Institute of Grocery Distribution
(IGD) in February 2009. However, the number of consumers opting for organic
products has fallen. Shoppers supporting high animal welfare standards had
also increased between 2006 and 2008. Almost half of the people surveyed
mentioned animal living conditions when asked about food production
concerns, compared with 30% in 2006. Organic products were the only ethical
food area where the number of shoppers had fallen. The IGD believes this
swing towards other ethical options by more casual organic shoppers has had
a knock-on effect on organic sales. The survey confirmed that shoppers are
now more price-sensitive but that they are not relinquishing their ethical
concerns.

The Soil Association insisted in February 2009 that although the recession had
destabilised organic sales the impact had not been catastrophic. However, in
August 2008, The Guardian published an article stating that organic food sales
had fallen, following research collected by market research company TNS on
behalf of the UK national newspaper. The data showed that the decline was
most profound in eggs, but was also reported dairy, fruit and vegetables and
chicken.

The article stated that some farmers were quitting organic production to cut
costs and others appeared to be delaying meeting the standards necessary to
enter the market leading to concerns that it could take longer to build up
sales when demand recovers.

Climate change and your marketing strategy
Key marketing messages implemented by food and drink businesses include:
being green can save money;
reduce food waste use leftovers to create new dishes;
freeze and store unused ingredients;
simplicity is key;
ethical purchasing can heighten the sense of community that is
important for many people during difficult times;
buying more ethical/environmental products helps consumers to take
back some control and responsibility.

During uncertain times, companies that are bold, proactive, quick to react and
keen to invest in green strategies will perform better than those who choose to
rest on their laurels and ride out the recession. The trick is to identify the gaps
and opportunities in the market that the more reluctant brands are missing.
Environmental messages have a powerful opportunity to enhance a brand's
image and not just with a minority group of consumers as long as the
messages are clear and understandable (waffle and jargon should be avoided
at all costs!). The brand must communicate credible reasons as to why a
shopper should make the purchase by addressing more than just price/value.

Page 20 Chapter 3 The global credit crunch
Chapter 3 The global credit crunch
Introduction
The economic downturn has already made a far-reaching impact on the global
food and drink industry and will continue to change the way consumers shop,
manufacturers invest and retailers promote over the next two to three years.
Forward-thinking functional companies are already planning for the recovery,
as well as how to deal with the inevitable decrease in frequency of purchase of
more premium products during the recession. Consumers are more likely to
consume fewer higher-priced goods before trading down to cheaper products
in general.

Issue overview
No two recessions are the same so companies that are reviewing past activity
and making direct comparisons, i.e. between the 1990s and now, will find it
difficult to make assumptions. The organic food and drink market is steadfast
in its opinion that consumers that have already bought into the concept and
were previously purchasing organic produce on a regular basis will not reduce
ethical consumption because of the recession (for as long as it is financially
viable for them as a household/individual).

During a recession, it is more important than ever to monitor consumer
behaviour and identify new strategies (in terms of consumption occasions,
ingredients etc) to unlock opportunities. Brands that are empathetic to the
situation consumers find themselves in during a recession (without being
patronising!) will resonate with existing and potential customers more than
those that continue with a 'business as usual' attitude during a recession.

Some companies are seriously struggling during the global economic
downturn. In September 2008, Nestl in the UK withdrew its functional
smoothie range, Boosted, just four months after its launch. Poor sales and a
lack of supermarket listings reportedly forced the decision. The economic
downturn has, according to Nestl, seen the smoothies category move into
decline and consumers are switching to cheaper options such as chilled juice.
According to Jon Walsh, Nestl UK's managing director of new business (in a
media statement released in September 2008), it was difficult to establish
functionality the key point of difference in the market.

Lack of consumer confidence
The fall in spending affecting many economies originates from heightened
uncertainty. Households are deferring purchases and companies are
postponing investments. Governments are being called upon to reduce
uncertainty by putting strategies in place to boost the economy, but policy
changes and political debate are having little positive impact on markets such
as the UK (at the time of writing).

In Europe, consumer confidence appears to be fairly buoyant according to a
survey conducted in December 2008. The survey of consumers in 13
European countries suggested that confidence hit a low in 2008 when oil
prices were heading for the peak reached in July. The survey, conducted for
the French consumer credit company Cetelem, was based on information from
10,000 people and showed a small drop in the percentage of people who
expect to raise their spending this year. Italian consumer morale rose
unexpectedly in January 2009, after three consecutive falls recorded in
monthly surveys by research institute ISAE, which suggested that the fall in oil
prices was the key influence.

It seems it all rather depends on which survey/company you consult. Business
and consumer confidence in both the European Union and the eurozone fell to
a new low in January, according to a monthly survey by the European
Commission (29 January 2009). It fell by 1.5 points in the 16 nations that share
the euro to 68.9 and by 3.3 points to 64.9 across the entire EU.

Confidence dropped sharply in Germany, Britain and Poland according to the
report. Spain was the only EU country to buck the trend with people becoming
more optimistic about the economy in January than in the previous month. The
services and construction industries were less hopeful than the previous
month, while retail confidence froze.

Elsewhere, consumer confidence is falling month on month. US consumer
confidence fell to a new low in January 2009. The Case-Shiller house price
index showed valuations were still falling at a record speed across the country.
Another report by The Conference Board's research centre showed the
unemployment rate rising in all 50 states, reaching 10% in two Detroit and
Rhode Island.

Regional economic prospects for 2009
The outlook for the global economy seems to get gloomier with every month
that passes. The collapse of housing markets, which began with the US sub-
prime mortgage sector in 2007 and duly spread to other countries, was faster
and more damaging than predicted. Equity and financial markets were soon
starting to feel the pinch. In early 2009, daily news stories of companies going
into administration or making redundancies made depressing reading.

French business went into hibernation on 29 January 2009, as millions of
workers reportedly stayed at home to avoid a nationwide public sector strike in
protest at President Nicolas Sarkozy's handling of the global economic crisis.
Industry lost millions of euros thanks to the unofficial public holiday. Unions
had promised to make the President eat his words after he joked last summer
that "these days, when there is a strike, nobody notices".

With unemployment in France rising to 2m, unions and left-wing opposition
parties are urging the President to boost pay and welfare benefits after
pledging a EUR26bn stimulus package aimed at helping industry.

The International Monetary Fund (IMF) predicted in January that the global
economy will fall by 2.8% in 2009 with the UK experiencing a more damaging
decline than the US, Western Europe or Japan because of the country's
reliance on the financial sector. The US economy is predicted to fall by 1.6%,
France by 1.9% and Germany by 2.5% according to the IMF. The average
drop among advanced economies will be 2%.

The MF's World Economic Outlook, published at the end of January 2009,
said the world economy would suffer its worst year since the Second World
War, with growth coming "to a virtual halt".

The Institute of Fiscal Studies also warned in January 2009 that British
taxpayers were facing a GBP20bn a year bill (tax rises and public spending
cuts) to get the country's finances back on track, which is equivalent to
GBP800 per household per year.
Fluctuating raw material prices
Falling oil and (certain) raw material prices are expected to help ease the
pressures on grocery prices over the next year; however, the threat from
discount retailing, particularly in Europe, will have a knock-on effect on the
mainstream grocery sector. "If you can't beat them, join them" may well
become the ethos for retailers over the next year with discounting expected to
make a huge impact.

Oil prices have fallen back to below US$50 following a peak at more than
US$150 just a year ago. International dairy prices continued to fall in February
2009 (at the time of writing this report), although at a slower pace than
previously recorded.

The world's biggest dairy exporter, New Zealand's Fonterra, reported in
January that the average selling price for whole milk powder (WMP) was
US$2,017 per tonne, down 9.3% on December 2008. Prices ranged from
US$1,920 per tonne to US$2,140 per tonne. Spot prices rose 1.3% above
those for the December trading event. The fall in dairy prices has been
attributed to:
the lag between supply and demand responses;
the global financial crisis and recession.

Since July 2008, WMP prices have fallen 54%, within the range of decline for
other dairy commodities. During the same period, globally-traded cheese,
butter and casein prices have all fallen by between 45% and 55%.

However, in other categories, companies have already fallen foul of rising raw
material costs: the damage has already been done for the likes of Ajinomoto,
LDC and Lnnen Tehtaat:
Ajinomoto: The Japanese food company posted a net loss of
JPY4.8bn (US$4.8m), down from JPY28.5bn in the previous year.
Rising raw material costs were blamed for the huge fall, despite the
Japanese food company's efforts to extensively reduce costs and
strengthen the business structure.
LDC: The French poultry company reported a drop in half-year profits
to 31 August 2008 due to falling domestic poultry consumption and
rising raw material prices. The company reported net income of
EUR16.8m, down from EUR21.8m a year earlier. The company said it
expected raw material prices to ease in the second half of its fiscal
year.
Lnnen Tehtaat: The Finnish food group issued a profit warning in
December 2008 due to a downturn in its fish products and vegetable
oil divisions. Profits were hit in Sweden and Norway, due to higher raw
material prices.

Brand leaders
Big brands such as Innocent Smoothies have quickly adopted a number of
strategies (at the end of 2008 and early in 2009) to ride out the economic
downturn. Such successful companies are in a strong branding, marketing and
financial position to cope with a different economic climate. Smaller and start-
up companies are able to keep in touch with the grassroots (wholesalers,
consumers and retailers) but they are in a weaker financial position to adopt
new strategies such as increased promotional activity.

Smoothies have been one of the drinks products worst hit by the UK's slide
into recession. Innocent, which is the market leader, told just-drinks.com in
September 2008 that like-for-like sales had fallen by around 20% in value
during the previous six months.

A spokesperson told just-drinks.com in January 2009 that the company's
smoothie market share had bounced back to around 70%, the same as in
March 2008, after fending off increased competition.

The company introduced 'Veg Pots' in September 2008, marking a completely
new venture into the food sector, having built up a reputation as a soft drinks
brand. The new range launched in September 2008, at a time when smoothie
sales were facing a decline.

Each pot contains vegetables, pulses, wholegrains and sauce providing three
portions of vegetables in each pot. With no colourings, flavourings or artificial
additives, there are five variants available in major multiples in the UK:
Moroccan Squash Tagine, Tuscan Bean Stew, Pea & Broccoli Rice, Thai
Coconut Curry, and Sweet Potato Chilli.

Private label
More consumers are switching from branded goods to discount private-label
products, particularly in certain categories, to cut back on the weekly food
shopping bill.

During times of recession, consumers are likely to stick to the same familiar
brands and products, according to research by Mintel. Brands that have
developed customer loyalty and trust will fare better in the recession as
consumers become wary of unfamiliar products.

People will trade down to budget-friendly products to save money, which will
boost private-label volume sales over the next year. Consumers will continue
to occasionally spend more on affordable luxuries as treats and rewards for
not going out to restaurants and bars as much as they previously have done.
This means it will be the middle-ground market that will feel the biggest
squeeze over the next two years. Brands will increasingly choose to position
themselves in one of two ways: as the budget-friendly option, or as the
affordable indulgence/alternative to going out.

Demand for private-label products has provided a boost to brand owners who
also choose to produce retailer brands. In Spain, for example, chocolate
manufacturer Natra reported elevated profits in the first nine months of 2008 to
EUR5.1m. The company cited growing demand for private-label products as
the primary driver behind the 46.7% growth. Natra said its business of
supplying retailer-brand products, success in passing through rising raw
material costs, plus the 'defensive' nature of the chocolate sector, which
traditionally sees sales rise in a downturn, had all boosted its cocoa and
chocolate division. On a group-wide basis, Natra said consolidated sales were
up 25.1% to EUR336.1m.

Retailers are increasing investment in private label to appeal to cost-conscious
consumers during the recession. In Netherlands, Super de Boer, the second-
biggest retailer in the country, confirmed that it will continue to focus on pricing
and promotions in 2009 including the enhancement of its private-label range,
store refurbishments and the closure of loss-making outlets.

In the UK, online retailer Ocado launched a 21-strong private label Everyday
range of 'shopping basket staples' at lower prices than Waitrose private-label
equivalents in December 2008. Waitrose and Ocado have built up a reputation
as more premium alternatives to the major multiples such as Asda and Tesco.

"In March we were quick to spot the early signs of recession introducing Tesco
Price Match on branded goods to give increasingly cost-conscious shoppers
improved value," said Jason Gissing, co-founder of Ocado. "Our new Everyday
range improves that value further still, providing customers with greater choice
and control when shopping with us. It's all about making the online shopping
experience even more varied and convenient."

Despite the recession, the future forecast for food is not all doom and gloom
over the next few years. Food will be one of the fastest-growing retail sectors
in the UK in 2009, according to a survey by Verdict in January 2009.

The food and grocery sector will grow by a predicted 3.1% in 2009, against a
0.6% decline across the retail market as a whole. "Inflation driving higher
prices, the fact food is an essential purchase and more consumers eating at
home, have all boded well for the market," said Matthew Piner, an analyst at
Verdict. "Moreover, food is the one area in which shoppers are likely to
continue permitting themselves the occasional, more expensive 'treat'."

At the start of 2009, amidst the endless stories of redundancies and strike
action in UK industry, the retail market made more positive headlines. Asda
announced plans to create around 7,000 new jobs by the end of the year.
Sainsbury's will create a further 2,000 jobs in the next year and Morrisons is to
create 5,000 new jobs, as part of its target of increasing selling space by 1m ft
2

over three years. Tesco is also planning to create up to 10,000 positions.

Building and maintaining customer loyalty trust will be imperative to brand
success in the recession. Kellogg launched its quality campaign in November
2008 to discourage consumers from trading down to private-label versions of
its key products such as Corn Flakes. The advertising campaign, valued at
GBP11.4m, ran from mid-November to January 2009 and focused on the
quality and value of its branded Corn Flakes. The signature of the cereal
company's founder, WK Kellogg, was shown in the advert beside the strapline,
'none genuine without this signature', which was first used 100 years ago to
differentiate the brand from its competitors.
"Our research tells us that 41% of people actually claim to have eaten more
cereal in the past six months," said Kellogg's UK head of sales, Mike Taylor.
"The opportunity for growth in the category remains solid as consumers turn
away from more expensive breakfast additions like smoothies.

"We know in a time of recession, people turn to brands which offer consistent
reassurance, backed by a strong pedigree. That's why our heritage features so
strongly in this activity."

Promotional activity will also be prevalent over the next two years to boost
consumer spending. UK shop price inflation rose 1.1% in January 2009
according to the BRC Nielsen Shop Price Index, up from 0.5% in December.
Food inflation was also up in January, rising to 7.5% compared to 6.2% in
December.

Promotional activity by retailers in December temporarily reversed the trend for
decelerating inflation (which had been witnessed since the summer 2008).
BRC director general Stephen Robertson said: "Retailers' margins are taking a
hammering as they hold down prices to encourage hard-up customers. But the
effects of the weak pound are starting to filter through to the costs of imports,
contributing to pushing up the prices of some food products. In particular the
fall in sterling has increased overseas demand for UK beef and pushed up the
price of some imported commodities."

Worldwide economic expectations for 2009

Africa and Middle East
This region is not expected to suffer from the global economic
downturn in the same way as Europe and North America. Gulf states,
for example, have managed to accumulate huge budget surpluses
which will allow them to absorb losses in 2009.
South Africa is the country most likely to succumb to the global
economic crisis.

Asia Pacific and Australasia
Analysts do not expect many of Asia's developing economies to fall
into recession in 2009 although, of course, there will be an inevitable
economic slump thanks to global market conditions.
The IMF forecasts economic growth in developing Asia will be around
5% in 2009.
Countries likely to be hardest hit by the global economic downturn are
India, Pakistan and Taiwan.
Japan and New Zealand entered recession in 2008. Australia is
expected to weather the storm better than in New Zealand during
2009.
Most job creation in 2008 came from South Asia, Southeast Asia, and
East Asia according to the ILO. The three regions accounted for more
than half the new jobs (57%) created during 2008.
East Asia boasted the lowest unemployment rate in the world at 3.8%
in 2008.

Eastern Europe
A significant economic slowdown has been predicted in Central and
Eastern Europe during 2009.
Central and Southeast Europe, as well as the former Soviet Union
countries, ended 2008 with a jobless rate of 8.8% according to the
International Labour Organisation (ILO).
Following months of denial by the Polish government in 2008, in late
January 2009, Prime Minister Donald Tusk acknowledged that Poland
"will not be an island resistant to trends outside its borders". The Prime
Minister announced a budget-saving plan for 2009 to cover a likely
shortfall in state revenues.

Latin America
Corporate and government borrowing is rising and investment is
slowing.
There will be a drop in exports, which will lead to a drop in the region's
economic growth in 2009.
The IMF predicts regional GDP to rise by 2.5% in 2009 from 4.5% in
2008.
The falling price of oil will have an adverse impact on countries such
as Brazil.
North America
Economists predict that real GDP in the US will decline by 0.7% in
2009. Canada is unlikely to escape recession with analysts forecasting
a -0.4% decline in the economy for 2009.
The Canadian economy lost 71,000 jobs in November 2008, which
was the biggest recorded fall in 25 years. The unemployment rate rose
0.1% to 6.3% in the month.

Western Europe
The UK and Germany have been pinpointed to experience some of the
worst effects of the recession this year: the UK because of its reliance
on the financial market and its housing downturn, and Germany
because it is the world's largest exporter and vulnerable to the
downturn in other countries.
n December 2008, the EU agreed on a 'stimulus plan', which is hoped
to provide a degree of damage limitation in 2009. Countries in the EU
had to waive existing requirements for fiscal discipline in its stability
and growth pact until the emergency is deemed to have passed. The
plan is valued at EUR200m.
Page 30 Chapter 4 Obesity and diet-related illness
Chapter 4 Obesity and diet-related
illness
Introduction
Obesity and morbid obesity are measured using the body mass index (BMI).
Obesity defined as a person having a BMI of 30-39 and morbid obesity is 40-
50. Although some obese people are relatively healthy with no major
complications such as diabetes, most obese and morbidly obese people also
experience serious medical conditions.

The US morbid obesity rate is growing much faster than the obesity rate
according to a study by the non-profit institution RAND. From 2000 to 2005,
RAND economist Roland Sturm found that the US obesity rate increased by
24%. The number of people with a BMI over 40 grew twice as fast. The
number of people with a BMI over 50 grew three times as fast.

Worldwide, the World Health Organisation (WHO) estimates that there are
currently 1.6bn overweight adults, and at least 400m of them are classified as
obese. The WHO predicts that by 2015, approximately 2.3bn adults will be
overweight with more than 700m classed as obese.

Rates of obesity vary among different demographic/ethnic groups and on a
country-by-country basis. The WHO estimates that the average adult BMI
levels in Africa and Asia are 22-23, while the average is 25-27 in North
America, Europe, parts of Latin America, North Africa and certain Pacific
countries.

The US has previously been known as the most overweight nation in the
world, but in October 2008, a report found that it had been outstripped by a
shock contender: Australia. The comprehensive obesity study indicated that
26% of adult Australians almost 4m are now obese, 1m more than
previously identified in the AusDiab study in 1999. The report, entitled
Australia's Future Fat Bomb, was published in time for the Federal
government's obesity inquiry. t showed the results of height and weight
checks of 14,000 adult Australians nationwide. The report found that 9m adults
have a BMI over 25, making them overweight or obese, an increase from 7m.
4m are obese, up from 3m. Middle-aged Australians are most likely to be
obese with seven out of ten men and six out of ten women aged 45- to 64-
years-old now registering a BMI of 25 or more. The report called for a national
weight loss strategy similar to smoking and skin cancer campaigns, including
subsidising gym memberships and personal training sessions.

Childhood obesity: the ticking time bomb
Childhood obesity is a huge problem with one third of children expected to be
obese by 2012 in Europe. Some 35% of children will fall into the obese
category according to research by Datamonitor published in July 2008. Above-
average consumption of energy-dense indulgent food and drinks are blamed
for this rise, along with a lack of exercise and an over-reliance on cars to travel
to out-of-town leisure and retail parks. In the UK, it is estimated that 37.5% of
five- to 13-year-olds will be overweight or obese, equating to 2.3m children, by
2012. In Italy and Spain, the Mediterranean diet is being replaced by fast
processed food, prompting a rise to 47.5% and 45.3% respectively in the
number of obese children by 2012. In the US, more than 40% of children aged
five- to 13-years-old will be classified as overweight or obese.

The food and drink industry is repeatedly called into question when the issue
of obesity arises. Manufacturers have been encouraged to reformulate and
reposition products that are regarded as unhealthy. Many companies have
responded to the rising obesity levels by reducing salt, sugar and
saturated/trans fat content. This chapter considers recent moves by the food
and drink industry, government interventions, and industry-wide strategies that
are likely to become more commonplace over the next five years in relation to
diet-related illness and obesity.

Issue overview

Government intervention
Globally, governments have invested in public campaigns with the aim of
increasing awareness and understanding of healthy eating. The cost of these
campaigns is negligible compared to the huge cost of obesity and diet-related
illness on public health services. The UK has pioneered a number of
campaigns in recent years; the latest (February 2009) targets saturated fat.
The Food Standards Agency launched a campaign including television and
print advertising to encourage consumers to eat less saturated fat with the aim
of reducing the number of deaths from heart disease and strokes.

According to the FSA, UK consumers eat on average 20% more saturated fat
than the recommended maximum level. The FSA recommends eating leaner
meat, less cheese and choosing lower-fat milk and healthier snacks, while
cutting down on cakes and biscuits.

The Food and Drink Federation was, as always, quick to defend the efforts of
producers to date. A spokesperson said: "Changing the recipes of much-loved
British brands so that they are lower in saturated fat is a complex task, as it
needs to be done in a way that does not impact functionality, quality or price.
But our members have been rising to this particular challenge for a number of
years and are now leading the world when it comes to the reformulation of
popular products."

At the end of 2008, the UK government introduced its Change4Life anti-obesity
programme, including a number of partnerships and initiatives aimed at
generally reducing obesity levels across the country. From an industry
perspective, such initiatives provide brands with the chance to show off their
healthier credentials. After the huge investment and hassle of reformulating a
product, re-branding can be an additional and costly expense that can be
overlooked. Consumers may actually be oblivious to the recipe changes that
make their favourite product more 'healthy indulgent' than indulgent; however,
campaigns such as this help to boost general awareness and encourage
people to question the ingredients of their staple purchases.

The Change4Life initiative is focused around a multi-stranded programme with
business involvement vital to its long-term success. The Government
recognises the need to engage with businesses rather than go it alone, as has
been the case for previous public health campaigns. The Business4Life
coalition is a key part of the initiative. It is a group of some 33 food companies,
retailers and media firms brought together under the auspices of the
Advertising Association. Business4Life will contribute some GBP200m worth of
advertising to the campaign. Meanwhile, individual food companies are also
getting involved. Kellogg is supporting the Breakfast4Life push, while PepsiCo
is backing Play4Life. The initiative is also linked to the convenience store
sector where impulse purchases are often high in calories, saturated fat and
sugar for quick and easy energy refuelling to increase the number of c-stores
in deprived areas offering fresh fruit and vegetables.

Food and drink brands will be able to use the Change4Life logo and jump on
the bandwagon by engaging in branding relating to the initiative; however, the
Department of Health asserts that there are strict entry requirements and that
activity will be monitored to make sure it does not become over-used. All
companies must commit to publicly supporting the aims of the campaign; to
carry messaging relating to diet and activity; to contribute to behavioural
change; to undertake incremental activity; and to use the Change4Life
branding in certain specified ways.

While activities are occurring on a country-by-country basis, Europe-wide anti-
obesity programmes are also being developed. The European Parliament
confirmed support in September 2008 for a comprehensive plan to tackle
childhood obesity in particular. The Parliament backed the introduction of an
EU law that will insist upon easily-understood front-of-pack nutritional labelling,
helping children (and parents/gatekeepers) to make wise dietary choices.
MEPs also supported framing an EU regulation that would introduce
restrictions on commercials for unhealthy food that specifically target children.
The parliament also agreed to an EU-wide ban on artificial trans-fatty acids,
and called for a lowering of European VAT rates on fruit and vegetables.

In July 2008, the European Commission proposed a voluntary EU-wide
scheme to provide free fruit, milk and vegetables to school children: the
proposal has since been approved (in November 2008). Starting in the
2009/2010 school year, the free distribution scheme for children aged six- to
ten-years-old will total EUR90m of EU funding annually. This money will be
matched by national and private funds in the member states choosing to adopt
the programme.

Fat tax
The 'fat tax' has been controversially debated in many countries around the
world for years but, unsurprisingly, never manages to make it into the
regulatory system. The implementation of a 'fat tax' would be extremely
polemic and complex.

In 2004, the UK government was urged once again to consider a tax on foods
such as cakes and biscuits. According to an article in The Times newspaper in
February 2004, the "signal to society" was necessary following numbers
pointing to a sharp rise in the number of obese Brits in the previous 20 years.
However, the government has never committed to such a tax.

The following are a selection of arguments against a 'fat tax':
it would hit lower income families who are known to spend a higher
proportion of their household income on food and drink;
government would be seen as patronising and dictating to the public;
the idea of a 'nanny state' is generally frowned upon in democratic
society;
the concept lacks any kind of coherence or structure and would be
incredibly difficult to implement and monitor.

More recently, the idea of a 'fat tax' has been challenged and discarded in
France and the US. In October 2008, French Health Minister Roselyne
Bachelot said the government would not vary the rate of value-added tax
(VAT) on foods based on their nutritional quality. As one of 80 measures
considered in a parliamentary report on obesity, the step was rejected but the
idea of reducing VAT on fruit and vegetables from 5.5% to 2.2% was seen as a
more positive idea but one that was not being currently considered.

In the US, New Yorkers opposed a plan put forward by Governor David
Paterson to introduce a 'fat tax' on regular soft drinks. The independent survey
by Quinnipiac University published in January 2009 found that 64% disagreed
with the tax versus 32% of supporters. Paterson believes that brands such as
Coca-Cola and Pepsi would be hit by an 18% sales tax if the proposal was
agreed. He added that a tax could save the health service US$539m annually
by 2010-2011.

Nutrition labelling
Nutrition labelling is yet another controversial subject and one that divides
the industry, governments and consumers on a regional basis. Nutritional
labelling is now not only an issue for discussion within the retail market but
also the foodservice industry. States, cities, and counties in the US are
beginning to ratify their own food laws, including bans on trans fat in restaurant
foods and nutrition labelling of restaurant foods. McDonald's first introduced
on-pack nutrition information to its products in Italy in 2006 during the Winter
Olympics in Torino. The labelling has since been adopted in other countries
including the UK alongside the website www.makeupyourownmind.co.uk that
addresses a number of issues brought forward by the media (such as
qualifications for staff, quality of meat and nutritional value of children's Happy
Meals).

In New York, those restaurants that are part of a chain of 15-plus outlets are
required to publish calories on menus and menu boards. Jumping ahead of
regulation, KFC, Taco Bell, Pizza Hut, Long John Silver's and A&W (all owned
by Yum! Brands Inc.) have committed to publishing calorie data by 2011.
Critics argue the regulation violates the First Amendment; however, the federal
appeals court in New York rejected this claim in February 2009 (the rule was
introduced in the city in July 2008). The calorie rule, the court wrote,
"mandates a simple factual disclosure of caloric information and is reasonably
related to New York City's goals of combating obesity".

The court pointed to research showing the difficulties consumers have
assessing the calorie count of many foods: "A smoked turkey sandwich at
Chili's contains 930 calories, more than a sirloin steak, which contains 540.
Two jelly-filled doughnuts at Dunkin' Donuts have fewer calories than a
sesame bagel with cream cheese."

According to the New York State Restaurant Association, which represents
7,000 foodservice establishments, sales have fallen at most restaurants since
the calorie count regulation was introduced (however, the recession is
inevitably a major cause of this decline).

A similar regulation was implemented in February 2009 in King County, which
includes Seattle. California will require restaurant chains to post caloric
information by 2010, but they will be able to provide the information on pre-
printed brochures or menus until 2011, when the listings will have to be on
their menus. A stricter regulation was passed in Philadelphia where chains will
be required to show the calorie count as well as the amount of saturated fat,
trans fat, carbohydrates and sodium in meals from the beginning of 2010.

In the retail sector, a lack of coherent direction on a regional/country-wide
basis has prompted a raft of different nutrition labelling systems from retailers
and brand owners. In Europe, the voluntary Guideline Daily Amounts (GDA)
labelling system is being/has been adopted by numerous big name brands.

However, the range of different labels is apparently not causing as much
confusion for consumers at the point of sale as may have been anticipated. A
survey by the European Food Information Council (EUFIC) published in
February 2009 found that only 18% of European consumers check processed
foods for nutrition. The study also showed that many consumers are aware of
schemes such as the traffic light system but that they are open to "some
misinterpretation", with 73% of people believing that a 'red' light indicated they
should avoid eating a product.

The study, which questioned 17,300 people in France, Germany, Hungary,
Poland, Sweden and the UK, in supermarkets and at home, found that people
spend an average of 30 seconds selecting a product (UK lowest: 25 seconds
per product, and Hungary highest: 47 seconds per product). In comparison to
previous studies, the amount of time has actually increased.

"While there are several nutrition labelling schemes across Europe, our
findings show that people recognise them and generally know how to use them
to make informed nutrition choices," said Professor Klaus Grunert of the
University of Aarhus, Denmark, who conducted the study. "Nutrition labelling
should be seen as a key element in a rounded public health strategy."

Sweden, which uses a keyhole logo to identify the healthier products in a food
category, had the highest awareness of any labelling system at 95%. When
questioned about the fat, sugar or salt content of foods, the majority of
respondents were able to answer correctly. On average, respondents in the
UK, Hungary and Germany got 70% of the answers right, with scores of 60%
in Sweden and France, and 57% in Poland.

The EU is currently considering regulation that would require dietary
information to be featured on food labels "in the principal field of vision" and in
a minimum print size of 3mm. The regulation is attracting criticism from
industry bodies including the Confederation of the Food and Drink Industries of
the EU (CIAA), which claims that it would be impractical due to the size or style
of certain packages. There are also concerns in the industry that large labels
detailing nutritional information will overwhelm brand identity. Nutrition labelling
will continue to fuel debate within governments around the world, while the
industry moves on regardless with many companies adopting voluntary
labelling schemes.

Brand leaders
Many companies have voluntarily reformulated and re-launched products to be
healthier. Others have joined forces to tackle obesity strategically. In July
2008, Britvic, Coca-Cola and PepsiCo joined 22 other companies (retail,
media, advertising and healthcare) to encourage healthy diets and physical
activity ahead of the London 2012 Olympics. Led by the Advertising
Association, the group will contribute more than GBP200m to the initiative.
Industry will integrate messages into branded communications and activities
and use broadcast media to amplify the central campaign theme, according to
the association. There are also plans for a series of industry coordinated public
events to be held across the UK.

Here is a list of key issues to consider when considering future NPD:
Be up-front and honest on packaging. Have clear labelling go above
and beyond the call of duty.
Consider your role in the portion control debate is your product
simply a smaller serving in a bigger pack to appeal to people
monitoring their calorie intake or has it been reformulated to offer the
best quality and healthiest ingredients available?
Communicate the healthy benefits of your product (if possible) on the
front of packs. UK shoppers are six times more likely to look at the
front rather than the back of the pack, according to research from the
European Food Information Council (EUFIC) in September 2008.
Despite 80% of UK consumers being aware of Guideline Daily Amount
(GDA) and Traffic Light (TL) labelling schemes, the research found
that only one in four shoppers looked for nutrition information on food
packaging in supermarkets.
Trust is the most important goal for branding and marketing of
healthier products, and it is imperative in the diet and weight
management sector. Nurture trust by being approachable, open and
honest.
Natural and whole ingredients are preferable for consumers wanting to
lose weight. Additives and preservatives are off-putting for those
looking to be healthy overall and not just in terms of their weight.
Consider your brand's role in education about exercise and nutrition.
How can the brand be associated with more positive lifestyle
messages without appearing to preach or contradict other brand
communications?

Future forecasts
The total US and European diet-related food and drink market is predicted to
reach a value of US$128.5bn by 2014. Growth in Europe between 2008 and
2014 is forecast at a CAGR of 3.4%, just behind the US at 4.1%.

Growing concerns regarding obesity are particularly prevalent in the US, which
is one of the 'fattest nations' in the world. As such, diet-related foods are
predicted to increase in popularity to an estimated value of US$52.5bn by
2014. However, Europe is not without its problems, and Eastern Europe is
following the pattern witnessed in West Europe with increasing numbers of
children and adults becoming obese. The European market will grow at a
slightly slower pace compared to the US but represent an overall larger market
value US$76bn by 2014. Shakes (positioned as meal replacements) and
bars (to alleviate hunger especially targeting afternoon and evening snacking
occasions) will continue to take the largest share of this value. However,
innovation in diet/weight management shakes is required, as the primary
flavours continue to be vanilla, strawberry and chocolate, offering little variation
in taste profile. The quality (and natural goodness) of ingredients are also
being called into question in diet and weight management food and drink.

Table 1: Diet-related food and drink market value forecasts, 2008-2014 (US$bn and %)
2008 2009 2010 2011 2012 2013 2014
Growth
2008-
2014
CAGR
2008-
2014
US 40.0 42.0 44.0 46.0 48.5 50.5 52.5 28.4% 4.1%
Europe 60.0 62.0 65.0 67.5 70.0 73.0 76.0 24.1% 3.4%
Total US
and
Europe
100.0 104.0 109.0 113.5 118.5 123.5 128.5 25.8% 3.7%
Source: just-food estimates

Page 39 Chapter 5 Food safety
Chapter 5 Food safety
Introduction
Food safety stories are never far from the global headlines. There are many
challenges facing the modern food and drink industry concerning safety that
continue each year primarily due to the huge scale of the processed industry.
Globalisation of the food and drink industry has led to a rising number of
international recalls and outbreaks as the food supply chain grows longer and
longer. At the other end of the scale, there are ongoing concerns of the
possibility of bioterrorism and economic/chemical terrorism that would have a
huge impact on food safety on a global scale.

On a smaller scale, however, local food is not without its food safety
challenges. Regional and local produce is not necessarily guaranteed to be
free from the flaws of products produced on a more global scale. Regular
inspections are a necessity and smaller and start-up producers should be
subjected to rigorous health and safety checks before the products are
available for general purchase and consumption.

Issue overview
E. coli strains and animal to human contamination are also major food safety
issues in today's modern food and drink market. Dioxin in rish pigs and
melamine in Chinese chickens are just two examples of food scares in the past
year that have had a detrimental effect on consumption patterns (albeit
temporarily) and a longer-term impact on the category's reputation.

Awareness of food safety issues can now spread quicker than the problem
itself thanks to modern communication channels. News of a food scare in one
part of the world can be immediately traced on the internet on the other side of
the world.

Counterfeiting is another major problem in the global food industry. It is
estimated that fraudulent activity is valued at US$50bn each year (according to
the Michigan State University's Food Safety Policy Centre in 2008). Food fraud
is predicted to increase in line with food price rises. Not all fraudulent food
trade represents a health risk i.e. falsely labelling a product as Fairtrade; some
activity can be completely unsafe.

Product recalls can be hugely detrimental to a brand's reputation and image
from a retail and consumer perspective, as well as result in a drop in sales.
The effect can sometimes be short-lived but it can also drag on depending on
the scale of the recall and the amount of media coverage it receives. A study
from Reading Scientific Services Ltd (RSSL), published January 2009 pointed
to incorrect allergen labelling rather than food quality/safety as the most
common cause of food recalls in the UK and US. Analysis of data published by
the UK Food Standards Agency, the US Food & Drug Administration and the
US Food Safety & Inspection Service found that 50% of recalls in both
countries during 2008 were caused by packaging that failed to alert consumers
to the presence of one or more allergens included in a product.

Other causes of food recalls however provided an insight into the major
differences between two of the biggest food and drink markets in the world:
microbial contamination caused 33% of recalls in the US and only 11%
in the UK;
foreign bodies caused 5% of recalls in the US and nearly 20% in the
UK.

Peanut scare in the US
Peanuts have been a source of a major food safety scandal in the US in early
2009, proving that the origin of such problems is not limited to developing and
emerging countries.

A nationwide salmonella outbreak, which by 12 January 2009 had caused 399
people in 42 US states to become ill, has prompted thousands of high-profile
brand recalls (not just in the US but as far afield as the UK, Haiti, Korea and
Trinidad thanks to the prevalence of exported products) by the time of writing
(end of February 2009).

Later in January, the peanut butter salmonella outbreak was widened to
include all peanuts and peanut products produced since the start of 2007 at
the Peanut Corporation of America (PCA)-owned plant in Georgia. By the end
of January the outbreak had been reportedly linked to at least nine deaths.

The PCA supplies more than 70 companies including food manufacturers
General Mills and Ralcorp Holdings and retailers Kroger and Safeway, all of
which have had to recall products.

The US Food and Drug Administration claimed PCA had found salmonella
contamination at the plant on 12 occasions but had the products retested
and shipped out to market. An FDA report identified ten "observations" of
instances when PCA failed to keep equipment clean, store food correctly and
maintain the plant. The PCA responded with a statement that it did "not agree
with all the observations noted, and there are some inaccuracies".

Following the scandal (which continues to cause illness in the US as people
consume products that have been stored in their homes new products on
shelves are reported to be safe for consumption), the US Senate passed a
food-safety Bill (Senate Bill 80, passed 18
th
February 2009) that requires food
testing for contamination in some cases. Food processors would be given the
option of creating and following food safety plans that would have to be
approved by the state.

Senate Bill 80, which passed 50-0, was introduced in response to the
nationwide salmonella outbreak traced to tainted peanut butter. Under an
amendment, which was passed, a food processor could be exempted from the
Department of Agriculture's testing rules if it submits a safety plan and the
state approves it. The Food Policy Institute of the Consumer Protection
Federation has said that the Bill does not provide standards for such safety
plans and leaves it to the individual company to determine the level of testing it
wants to do, which could be less rigorous than the regular testing the state
wants to perform.

Food safety is not the responsibility of one brand over another: it is now the
collective responsibility of all members of the food chain from the primary
producers to the manufacturers, distributors, wholesalers and retailers. Brands
that are at the forefront of food safety issues, however, are those which
recognise the need to share best practice strategies and experiences with the
global food and drink market. Conferences such as the Dubai International
Food Safety Conference 2009 (which took place over 24-26 February 2009)
help to spread this critical knowledge to improve food traceability and incident
management.
Regardless of the causes of product recalls or global food safety issues,
managing consumer perceptions is a hugely difficult task for manufacturers
and retailers. A US consumer survey found that 93% of people had recently
read or heard reports of food safety issues and recalls. Almost a quarter of
Americans said the recalls will change their long-term purchasing behaviour.
The study of US consumer attitudes about food safety was published in
February 2009 by Burson-Marsteller and Penn Schoen & Berland Associates.

The study also found that while two-thirds (68%) of Americans believe that
instances of food contamination have increased in the past five years, 87%
continue to somewhat or strongly agree that the US has one of the strongest
food safety systems in the world.

More than two out of five consumers believe food processors are to blame for
recent food contamination issues. One in four consumers blames regulators
for recent food contamination issues. Nearly half of consumers believe that
regulators bear the responsibility for protecting the public.

Bill Zucker, managing director and food issues expert at Burson-Marsteller,
said: "Now is the time to perform a check-up on your crisis communications
plan. The good news for food companies is that there are some key actions
they can take to regain the trust of consumers should an outbreak occur. But
those actions require advanced preparation."

The study found that companies with strong brand awareness are more likely
to withstand an incident of food contamination than less well-known
companies. An incident of contamination at a familiar company is more likely to
be judged as an isolated event than a similar incident at a lesser known food
company. The study also identified some actions companies could take to
reassure the public during a contamination outbreak. For example, consumers
look for information such as the brand names involved and what precautions to
take if a family member becomes exposed.

"Consumers have high expectations about what food companies and
regulators should do to ensure their safety," said Amy Leveton, senior vice
president at Penn Schoen & Berland Associates. "This study shows that this is
a critical time for the industry as there is a window of opportunity for
companies and the industry to demonstrate that the safety of their products
continues to be their top priority."

Food safety will always be an issue for the food industry as more robust
regulations and inspection systems are repeatedly called for, particularly in
fast-developing countries such as China and India. The draft Law on Food
Safety continues to be reviewed in China by members of the National People's
Congress (NPC) Standing Committee at the time of writing (February 2009)
after being removed from the agenda of China's top legislature in December.
The draft Law on Food Safety has already been revised several times with the
most recent changes being made following the latest dairy safety scare which
led to the death of Chinese infants and the illness of thousands of babies and
young children.

Even in mature and developed markets wide-scale food safety scares continue
unabated, such as the tainted peanuts issue (mentioned previously in this
chapter) in the US. Clearly, monitoring every aspect of food manufacturing is
impractical and impossible, and as with any human process, accidents and
mistakes will happen.

As imports and export rates rise and the market becomes more globalised
than ever before over the next few years, keeping track of the origin of
products will become more difficult. Countries are expected to take a more
proactive interest in protecting their citizens from unsafe imported food and
drink products. In January 2009, for example, the US FDA opened its first
office outside the US. The office in China is part of the FDA's global strategy to
protect US food imports at their source rather than at the US border. The FDA
will also implement new rules requiring country-of-origin labelling from the end
of April 2009 for fresh produce and fruit imports. The 2008 Farm Bill expanded
the list of produce subject to the labelling to include chicken, goat meat,
pecans and macadamia nuts (fish and shellfish have been included since
2005). The new rules do not include processed foods.

Page 44 Chapter 6 Evolving consumer demands: Focus on simplicity
Chapter 6 Evolving consumer
demands: Focus on simplicity
Introduction
The food and drink industry must strive to keep up with consumers' changing
needs, shopping and purchasing patterns and spending habits. Reflecting the
major challenges and issues highlighted in this report (climate change, the
global economic downturn, weight management and food safety), just-food
predicts 'simplicity' to be a hugely influential trend for branding, marketing and
NPD strategies to 2014. For some brands, the original key messages are
gradually diluted over time, as companies attempt to expand their target
audience/boost sales. This strategy, which often happens over time without
any deliberate intention, can result in mixed messages for consumers and a
lack of identity in an extremely crowded marketplace.

Trend overview
Simplicity will be a major trend in the food and drink market over the next year
because consumers are looking for brands that have been stripped back to
basics and that will offer real, genuine and honest values (and will deliver on
flavour and the other claims particularly health claims). Trust is vital in
today's market and promoting simplicity as part of the overall company ethos
can help to encourage and maintain customer loyalty and confidence.

Table 2: Drivers of brand simplicity
Consumers Retailers Manufacturers
Less time to shop Labelling regulations (voluntary) Labelling regulations (voluntary)
More online shopping (less impulse
purchasing)
Restricted space in store for new
products
Growing competition from global
market
Growing interest in private label
products
Lack of space for point of sale
merchandising
Restricted room on packs for brand
claims/messages
Food safety scares prompting trust
issues
Comparisons made with local and
farmers' markets
Lack of control over position in stores,
particularly for online retailing
Quality concerns for lower priced
products

Source: just-food

Manufacturers' steps towards the simpIicity trend
These steps include:
refining brand values;
refining and clarifying brand communication;
going back to original/traditional packaging and marketing straplines;
focusing on brand heritage;
remembering the original brand message;
making front and back of packaging clearer;
creating simpler formats;
reducing on-pack claims;
reducing confusing messages (at the point of sale versus advertising
versus website etc);
avoiding launching new products/line extensions for the sake of
innovation;
fine-tuning and improving the production process;
reducing the number of ingredients (and sources of ingredients) in a
product.

RetaiIers' steps towards the simpIicity trend
These steps include:
clear signposting in store;
avoiding large-scale point of sale merchandising;
minimising changes of the store layout;
making private-label products more clearly differentiated from branded
items;
considering best-practice strategies from local and farmers' markets.

The simplicity trend in food and drink packaging
The emerging trend towards simplicity in packaging complements the
convenience megatrend and the trend towards reduced and lightweight
packaging. Simplicity in packaging involves formats that enable consumers to
focus on the product rather than the packaging or exterior. This involves
features involving 100% transparent packaging which enables people to see
exactly what they are buying, such as Tesco's New Potatoes, which are
packaged in Amcor SelfVent VSS. The film enables customers to clearly see
the potatoes in a simply designed, unfussy pack, but also to put the pack
straight into the microwave oven without having to remove the product, or
tear/puncture the pack.
Removing excess packaging will be a driving force behind the simplicity trend.
Simplicity signifies a focus on the product rather than the packaging and
relates to brands that strip away all unnecessary and excess packaging. By
removing surplus packaging producers, manufacturers can make things
simpler for the consumer (less to carry home from the store, less to store in the
kitchen and less to throw away after use).

Simplicity of packaging design is something that looks easy to achieve but is
extremely difficult to pull off successfully. It is, however, a major growth area in
2008 for contemporary brands that are prepared to invest in achieving a high
level of simplicity that must align to the overall brand image.

Brand leaders
The simplicity trend can be seen in many guises from new product launches to
marketing and advertising campaigns. In September 2008, for example,
Campbell Soup Company in the US launched 44 lines under the Campbell's
Select Harvest soups range. To simplify this large-scale launch, the company
vowed to introduce 'clean and simple' labels to attract shoppers.

At the time of the launch, Colin Watts, Campbell general manager said in a
media statement: "These new soups demonstrate our continued commitment
to reducing sodium, with each of the 44 soups meeting the Government's
healthy sodium guidelines. You can expect more in the way of cleaner, simpler
labels and lower sodium products."

The company has flagged ingredients on packs that may be unfamiliar and
include a definition next to the overall ingredients list. None of the soups will
contain MSG, high fructose corn syrup, hydrogenated oils or artificial flavours.

n the retail sector, Asda committed to 'clearing the clutter' by cutting back on
the number of branded products in its average store. In February 2009, the
retailer announced plans to remove up to 30% of branded items from certain
categories in a cost-cutting campaign.

From February 2009, ten grocery categories will be put under the microscope
to see which products can be taken out. Darren Blackhurst, chief
merchandising officer at Asda commented that the brands that are truly great
will stay, and have more space: "It makes it simpler for stores to operate and
saves us money." Asda plans to remove unnecessary product duplication and
in certain ranges it will take out 20-30% of SKUs to free up room for "key value
items".

Managing the NPD process by restricting product launches to those that have
been rigorously tested for consumer and market viability is a step towards
brand simplicity. With NPD failure rates continuing to be extremely high within
the food and drink industry, it is not only the cost of a failed new product
launch that can be detrimental but the damage to the reputation of the brand
responsible (from a consumer, retailer and wholesaler perspective).

All companies have a limit (budgetary, human resources, etc) on the amount of
NPD the can produce. Finance, capacity and retailer demand for new ideas
play a major role in the NPD process and in terms of economic difficulty these
facets are even more limited. However, regardless of the current economic
crisis, identifying the correct NPD strategy for brands and the overall company
are essential to maintain share and growth through the good times and the
bad.

Evolving consumer demands and your marketing strategy
Ideas are easy, but coming up with an idea that is truly innovative is much
more difficult. For companies looking to create a big impression, creating an
innovative product is essential to success. The most important strategy for
success is to know your market well enough to be able to foresee the future
impact of evolving consumer demands. It is imperative to appreciate that your
current target audience will evolve in terms of needs, desires, purchasing
habits and taste preferences. Very little is constant in the world of food and
drink.

Brand owners need to get the investment back before it can make a profit on a
new product launch and the pace of profitability is down to the individual
business. Changes can be made to efficiency systems and organisations to
help people become more productive, but ultimately it is all about the idea and
the identification of a product that will tap in to current and evolving consumer
demands.

Identifying and understanding your target market is an important stage of the
NPD process. Consumer insight is imperative and can be gathered in a variety
of ways. Regardless of how innovative, unique or interesting the new product
may be, if it does not appeal to consumers, it will fail.

Many organisations claim to conduct consumer research and apply consumer
insight techniques to their product development process; however, the high
failure rate implies otherwise. Either companies are neglecting consumer
insight or not dedicating sufficient time, energy and financial resources to this
vital stage. Focus groups, surveys, direct consumer feedback at the point of
sale, trade/consumer shows and exhibitions, sampling and blogs are just some
of the methods used by food and drink companies to gain access to consumer
feedback at this stage.
Become a member of
just-food.com and get:
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