The food and beverage sector includes companies that are involved in the production of packaged foods, meat or agricultural products; alcoholic and non-alcoholic beverages. The food and beverages industry is all companies involved in processing raw food materials, packaging, and distributing them. This includes fresh, prepared foods as well as packaged foods, and alcoholic and nonalcoholic beverages. Any product meant for human consumption, aside from pharmaceuticals, passes through this industry.


Industry Composition:

Deriving from the agriculture industry in our definition, the food and beverage industry is divided into two major segments. Those two segments are production and distribution of edible goods. Production includes the processing of meats and cheeses and the creating of soft drinks, alcoholic beverages, packaged foods, and other modified foods. The production segment of this industry excludes foods that were directly produced via farming and other forms of agriculture, as those are encompassed by our definition of the agriculture industry. Distribution involves transporting the finished food product into the hands of consumers. The industry is much more focused on technology and mechanical manipulation of raw foods to create more value-added food products than the agricultural industry. Under our definition of these industries, grocery stores are excluded as they are considered a retail store by our definition. Distribution includes companies that ship food to retail outlets, restaurants, or directly to consumers

According to Plunkett Research estimates. which is typically manufactured from petrochemical sources. Among the leaders are Unilever. High feed costs have been extremely damaging to poultry and livestock firms. from growing to processing to retailing. Yum! Brands is a true leader in this regard. in 150 nations around the globe. U. Kraft Foods Group. much of the food retailing in emerging markets is conducted by modest local markets. where it already operates more than 4. Inc.S.Food sales by restaurants are spreading very quickly in the emerging world as well. One major way that consumers are doing so is by purchasing more generic foods and making their own meals. Generic store brands are growing in market share while higherpriced name brands have suffered from slower sales. and the fast spread of stores in China owned by Wal-Mart and its competitors including Carrefour. Cadbury Schweppes. discount stores that sell food products. food production of all types from animal processing to packaged foods manufacturing (but not including the agricultural sector) will be an $850 billion industry employing 1. J. estimates that 150 million people per day purchase its products. operator of KFC and Pizza Hut. and it is already expanding in Africa. The large amount of obes The global processed food and beverages industry is dominated by a handful of multinational corporations. For example. is an extremely competitive field where profit margins are typically so low that it is often challenging to maintain profitability. Meanwhile. Also. General Mills and Nestlé.). Supermarket chains such as Kroger. For example. where the economies have been facing slow growth. outside of the major cities. Mendelez International (formerly part of Kraft Foods. evidenced by the rapid growth of Wal-Mart in Mexico and Latin America. has seen very high costs in recent years. This includes foods manufactured for export but does not include tobacco products. America’s leading drugstore chains. The entire food industry. Heinz. and Europe.Food and beverage sector overview of 2013: Due to the recent economic meltdown. Nonetheless. often run as family operations. due to many factors. consumers are looking to save as much money as possible. America’s Yum! Brands. are dramatically expanding their food and beverage departments. In the U. which is the next frontier in the emerging world. and fertilizer. food products and beverages in America and elsewhere are sold at a wide variety of stores other than supermarkets. Unilever. Safeway and HEB have been forced to modify their merchandising to meet the needs of cost conscious shoppers. However. a large portion of supermarket sales is made in non-food items such as drugs and personal care goods. are increasingly popular. Discount chain Target has put an increased emphasis on its grocery sales as well. smaller cities of growing importance. Estimates of industry revenues can vary widely.000 units in locations ranging from the giant metropolises such as Shanghai and Beijing to remote. ranging from Knorr soups to SlimFast diet meals. . not going out to eat. among other items. Food retailing is rapidly becoming more diverse and sophisticated in emerging markets. for example. H. modern convenience stores are widespread in major Asian cities. For example. is focusing its growth on China.565 million in 2013. and many types of non-food stores sell small amounts of specialty food products. consumers are shopping for bargains. such as the large number of highly popular 7-11 stores found in Thailand. The processed food industry worldwide has been hindered by high energy costs and changing consumer tastes. CVS and Walgreen.S.

Today. food prices are likely to remain relatively high. some observers think that rising temperatures could increase the growing season and agricultural output in regions that currently have cold climates. Snack food makers are likewise offering more and more reduced fat items. soda manufacturers and marketers assumed that there was limitless worldwide growth to be enjoyed in soda sales. India and elsewhere. One potential problem is that higher temperatures may lead to increased drought in many agricultural areas. Companies that rise to this challenge will have significant competitive advantage.S. drug stores and mass merchandisers) grew 3. However. For decades. streamline operations. Steve Long. However. As a result. according to the Private Label Manufacturers Association. has conducted open field trials of enriched carbon dioxide amounts in conjunction with the U. in 2011 over the previous year. private-label sales (in supermarkets. the real growth in beverages lately has been in bottled waters and energy drinks. Another potential problem is growing levels of greenhouse gases such as carbon dioxide and ozone. as consumers were less likely to want or even have the money to pay the higher prices. Europe and elsewhere. Department of Agriculture Research Service Rising costs of factors of production are a major factor to this industry as well. McDonald’s’ soaring success with salads is an excellent example. Meanwhile. At one time. high food prices are a stark contrast to the cheap food era of 1974 through about 2000. including fuel and fertilizer.S. producers and retailers of foods (including restaurants) are now faced with the challenge of positioning their brands to represent consistent quality and food safety. Since commodity prices went up in the past year. and distribute new products as a result of these mergers In North America. Droughts also have a dramatic impact on global food prices. American food processors are dramatically altering their strategies to serve consumers who are concerned about better nutrition and fewer sugars and fats in their foods. Nonetheless. some scientists are predicting much lower crop yields in some areas due to higher average temperatures as global warming worsens. 2009-10 saw dramatic regrouping at PepsiCo and Coca Cola when the firms announced their intent to acquire the massive companies that did much of their bottling under license agreements. Asia. Numerous factors are at work in recent price increases. These soft drink giants have attempted to cut costs. other scientists have a different opinion. Not to be overlooked when considering food industry trends is the potential effect of global warming on agriculture. genetically modified seeds had consistently dampened food costs. the soda industry is going though immense changes due to consumer trends. improving farm technologies and highoutput. While some observers believe that growing amounts of carbon dioxide in the air will increase plant growth.Overall. food companies have had to increase prices of the final product as well. . remain at high prices.92% to reach $92. including higher demand for meat as well as great demand for foods in general by rapidly growing middle classes in China. this affected them two-fold. Many chain restaurants are likewise seeing excellent sales from lower-calorie foods. On the other hand. While the United Nations predicts that food production needs to increase by as much as 70% by 2050 due to a much larger world population and growing demand for food in nations with increasing household incomes. a researcher at the University of Illinois at UrbanaChampaign. particularly if agricultural supplies.7 billion in the U. low-cost food is now a thing of the past. With the economic collapse.

With the increase in competition. Sector industries. coffee. with respect to the safety and quality of product. soybeans. This will constitute an additional factor of risk for smaller companies lacking the financial management tools to protect themselves against such risks. research has shown that consumers do not trust their food suppliers as much as they used to and nearly half of them have switched brands in the past year. particularly confectionery. orange juice. These outbreaks have to major potential consequences: loss of consumer confidence and increased regulation. Consumers are now very concerned with the reputation of a company. the only way companies can separate themselves from others is by brand recognition. climate change and water scarcity can have the following impacts on the sector:  Raise agricultural commodity prices and increase price volatility by decreasing yields. In addition. Already. . either to save money or because they believe the new food will be safer.The industry also has to deal with their reputation. Climate change and water scarcity will have a big impact on the food and beverage industry in Asia. especially poultry and pork-based dishes. are ultimately expected to hedge their supply needs on a yearly basis to limit the impact of such price increases on their margins. Health risks constitute another element of uncertainty with some industry segments particularly exposed. and cocoa (attributable to poor weather fears of supply shortages. or their brand image. as there have been incidents of unsafe food being released in the past. due mainly to the changes in growing conditions for key agricultural inputs. Very high raw material price volatility has been a factor of uncertainty affecting inputs for several years. and corn and spectacular growth of the prices of sugar. tea. as consumers are trying to stretch their dollar further and competition is increasing. The resulting lack of visibility is exacerbated by exchange rate fluctuations with raw material prices denominated in dollars or pounds sterling. strong demand. While price declines have largely benefited the industries in 2009 the trend has tended to reverse since autumn with upturns in the prices for wheat. Government control of the food process has increased with the passage of new laws as well. corporate and brand reputations are expected to become increasingly important. and the growing proportion of arable land devoted to raw materials intended to substitute for fossil fuels).

TRENDS: These trends gave an impetus to frozen foods as wel as niche areas such as organic foods and diet foods. favorable demographics and rising income levels are expected to be key drivers in developing countries. • Emerging economies are expected to offer maximum opportunity for growth in the F&B industry. Hence. mainly led by rising population and income levels. with various governments taking an active role in agricultural development. Sales of frozen foods thus jumped after the financial crisis as these foods are cheaper and can be made at home made easily. Create food safety challenges and conflicts with local communities over resource use Analysis: Growth Drivers of F&B companies • Growth drivers of the F&B industry in developed countries are different from those in the developing countries. population growth in developed countries is expected to remain almost stagnant. nutritional products and pre-packed and home-cooked food. • In addition. the G8 countries pledged to spend $20 billion USD for agricultural development over the next two years. In line with this. In addition.With the influx of large international players in the retail industry of developing countries. Affected by the global slowdown. While growing population.F&B players will focus more on product differentiation to increase market share. rising health consciousness and increasing need for convenience foods are expected to drive growth in developed countries.The food retail business is largely driven by consumer preferences. Government Role in the Industry Driven by the recent rise in food prices and food scarcity faced by various countries. often lower margin products.3types Trends in Heath Food . the scarcity of fossil fuels worldwide is spurring the use of biofuels such as ethanol. • In developed countries.  Increase processing costs through operational disruptions and treatment costs. leading to a dilution in distributor’s earnings. smaller and fragmented domestic players are likely to expand as well as consolidate to stave off international competition and capture the rapidly growing domestic market. food security has begun to gain importance.Customers are now purchasing less expensive. At the same time. This trend will give an impetus to food players involved in the production of corn or similar agricultural raw materials that are used for the production of biofuels. consumers have become price conscious and prefer convenience foods. • The retail business is a mature industry in developed countries with the presence of many large retail chains. rising food and oil prices(leading to increased cost of transportation) are also eating into margins of distributors. consumer preferences are expected to shift toward high quality.unlike developing nations. Trends in Food Retail large companies with abundant cash reserves in the current fiscal year were able to continue expanding as well as acquire middle market companies that were struggling to raise funds for expansion.

while Japan and Korea are the largest consumers of stevia.However.Going forward.• Diet Food: opportunities in the health and wellness sector in developed countries In line with rising health awareness. Cadbury.Currently. China is the largest producer of stevia globally. Trends in Premium Food • Premium Chocolate: The premium chocolate segment recorded an 18 percent rise in sales last year despite the economic recession.Most global chocolate makers such as Hershey’s. consumer demand for convenience foodand increasing health consciousness are expected tocontinue driving growth in this sector. Trends in Low Cost Food • Frozen Food: as they minimize wastage and reduce trips to the supermarket. great taste and nutritional benefits. items Stevia: increasing acceptance as it is a natural (herbal) sweetener and has a low-calorie count. A wider range of premium chocolates. French retailer Champion and Booja Booja have presence in this sector . Key players in this sector include Japan-based Nichirei Corporation and Belgium-based PinguinLutosa. these countries are emerging as the new market for premium chocolates. • Coconut Water: of the $19 billion USD6 global market for sports recovery drinks driven by its natural hydrating qualities. health benefits. Frozen foods are also easy to make. Mars. led by the rising urban population in Russia and China. most major food companies such as Nestlé and Unilever are revamping their product offerings to also concentrate on nutritional.