iEXPERT REPORT OD4628

Frozen Fruit & Juice Production

March 2020

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Frozen Fruit & Juice Production March 2020

Snapshot Total Revenue Annual Growth Annual Growth

2019 2014-2019 2019-2024

$3.2bn 1.2% 0.4%

Profit Margin Wages as a share of Revenue Number of Businesses
2019 2019 2014-2019

-0.1% 9.2% 1.5%

Industry Structure Level Trend Level Trend

Life Cycle Mature Regulation Level Medium Increasing

Revenue Volatility Medium Technology Change Medium

Capital Intensity Medium Barriers to Entry Medium Steady

Industry Assistance Medium Steady Industry Globalization Medium Steady

Concentration Level Low Competition Level Medium Increasing

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Key Industry Data

Products & Services

Segmentation

Cost Structure

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Industry Performance
Performance The Frozen Fruit and Juice Production industry has grown over the five years to 2019 despite
Summary restructuring of its key product segments.

This industry consists of two distinct product groups: frozen juice concentrates and frozen berries and
other fruits. These two segments experienced significantly different growth trajectories over the past five
years. The frozen fruit segment has benefited from rising health consciousness, new product
development and expanding shelf space in freezer aisles. Furthermore, the rapidly growing popularity of
ready-to-blend smoothie kits has helped drive demand for frozen berries and tropical fruit varieties from
the household market. In contrast, the frozen juice concentrates segment has contended with an overall
decline in per capita juice consumption and rising external competition from fresh juice producers. Thus,
over the five years to 2019, industry revenue is expected to increase an annualized 1.2% to $3.2 billion.

Although fruit products contain natural and added sugars, industry operators have rebranded and
reformulated goods over the past five years to cater to rising health consciousness. Producers of frozen
fruit have successfully commercialized the benefits of fruit as an essential part of a healthy diet. With the
help of trade associations, frozen fruit processors have also promoted the health benefits of frozen foods
relative to their fresh, refrigerated or canned counterparts. Niche operators offering organic, locally
sourced goods have also expanded during the current period. Despite these efforts, overall decrease in
consumer confidence is expected to decrease the industry revenue by 0.4% in 2019. Profit is expected to
drop in 2019 then recover over the outlook period.

The industry is anticipated to grow at a much slower rate over the five years to 2024, with strong demand
for frozen fruit varieties partially offset by continued weakness in the frozen juice segment. Additionally,
industry performance will continue to be constrained by external competition from fresh fruit marketers,
though consumer tastes and health consciousness trends are likely to remain favorable for the industry's
frozen fruit segment. Moreover, rising per capita disposable income will enable consumers to trade up to
organic and locally sourced goods, creating opportunities for new companies to enter the industry.
Overall, IBISWorld projects industry revenue will increase an annualized 0.4% to $3.2 billion over the five
years to 2024.

Industry Issues Threat

Consumers are incorporating more fruit into their diets as the cultural emphasis on healthy lifestyles
increases. Supporting this trend, some studies show that frozen fruit provides the same nutritional
content as its fresh counterpart. Therefore, an increase in per capita fruit and vegetable consumption
may benefit industry operators. Per capita fruit and vegetable consumption is expected to decline in
2018, posing a potential threat to the industry.

Opportunity
On average, frozen fruit and juice are less expensive than fresh fruit and juice. However, higher per capita
disposable income enables consumers to purchase a greater volume of industry goods and trade up to
premium products. Therefore, as income levels rise, industry revenue will benefit from the sale of more
expensive products. Per capita disposable income is expected to increase in 2018, representing a
potential opportunity for the industry.

Call Preparation Questions

Role Specific Sales & Marketing
Questions
How is your company affected by rising imports?

Over the past five years, imports have risen in value and have increasingly captured a greater share of
domestic demand.

Operators have been forced to price their products more competitively to stay afloat.

Have exports offered an opportunity for your company?

As the technology behind the transportation of frozen goods has improved, domestic operators have
been able to increase their overseas sales.

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However, a strengthening dollar has stifled export growth during the period.

Strategy & Operations

Has your company been exposed to volatile input prices over the past five years?

While the price of fruit, the key input into industry products, has not experienced volatility, it has been
consistently rising, negatively impacting industry profit.

Have you looked into setting up production facilities in lower-wage regions of the country?

While low-wage areas of the country are appealing to industry operators looking to cut costs, the best
way for operators to do so is to establish facilities close to farmers and downstream markets to reduce
shipping costs.

Technology

What steps do you take to safeguard your company's proprietary information?

While larger operators do invest in research and development, it is not a large factor among smaller
industry operators.

Still, operators ensure the proper steps are taken to patent their innovations.

Have you been able to reduce wage costs through automation over the past five years?

While operators have increasingly turned to automating operations to reduce wage costs, increased
investment in research and development has resulted in hiring more skilled workers, who command
higher salaries.

Compliance

How does your company stay ahead of regulations?

There are several national industry associations that assist operators in staying abreast of any regulatory
changes, while also lobbying on their behalf.

How have international tariffs impacted your ability to import and export products?

Tariffs are relatively high for this industry, prohibiting imports from capturing too much of domestic
demand.

Still, despite these tariffs, imports have increased over the past five years, and are forecast to continue
growing over the next five years.

Finance

How do your company's profit margins compare to your main competitors?

Larger companies with branding capabilities are able to generate a higher profit margin than smaller
companies or generic and private label frozen fruit producers.

Do you have any challenges with customers paying on time?

Customers paying on time is not a significant threat to the industry as producers typically sell products to
grocery wholesalers who are committed to secure purchasing contracts.

External Impacts Impact: Trade-weighted index

Questions Is your company involved in international trade? How has the TWI influenced your company's revenue?

A declining TWI reflects a dollar that is falling in relative value, making US goods more affordable for
international markets. This boosts exports, which contribute significantly to industry revenue. However, a
high TWI leads to fewer exports and thus negatively affects US producers.

Impact: Per capita disposable income

How do you stimulate demand when disposable income levels are low? How will rising per capita
disposable income benefit your company?

On average, frozen fruit and juice are less expensive than fresh fruit and juice. However, higher per capita

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disposable income enables consumers to purchase a greater volume of industry goods and trade up to
premium products.

Impact: Per capita fruit and vegetable consumption

Do you track the level of fruit and vegetable consumption? How do you plan for an expected decrease in
the consumption of fruit and vegetables?

Consumers are incorporating more fruit into their diets as the cultural emphasis on healthy lifestyles
increases. Supporting this trend, some studies show that frozen fruit provides the same nutritional
content as its fresh counterpart.

Internal Issues Issue: Ability to pass on cost increases

Questions Have you been able to pass on cost increases to customers? What has been customers' response to the
increases?

Given the volatility of commodity and energy prices, especially for sugar, successful companies are able
to pass unexpected cost increases down the supply chain to maintain profitability.

Issue: Ability to adapt to change

How hard is it to promote your company through word-of-mouth recommendations? How many of your
customers were referred to you by a satisfied client?

Successful producers are able to anticipate and respond to changes in consumer preferences in a timely
manner.

Issue: Ability to differentiate products

How do you monitor consumer trends? How quickly can you introduce products to cater to changing
consumer preferences?

Since frozen fruit and juice products are homogeneous in nature, successful companies must
differentiate their products to maintain market share and increase revenue, with the primary goal of
reducing direct competition.

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