Food Production and Distribution: Threats, Vulnerabilities and Food Production and Global Issues Distribution: Threats, Vulnerabilities and • Distribution (Retailing/ Consumer) Global Issues • Food Production and Distribution: Jon Seltzer, Assistant Director NCFPD Threats and Vulnerabilities Alabama Food Safety and Defense Conference • Global Issues (Melamine) Montgomery, Alabama May 13 - 14, 2008 Jon Seltzer The Food Industry at 35,000 Feet Jon Seltzer Corporate Resource, Inc. Montgomery, Alabama May 13, 2008 (952) 926-4602 [email protected] Today’s Topic • Consumer expectations and demands are changing The Consumer! • In response, retail, supermarkets and restaurants are changing • There is more square footage at retail and more new items than before 1 Today’s Topic Today’s Topic • Consumer expectations and demands • In my opinion, increases in food prices are changing and concerns about the economy will • In response, retail, supermarkets and accelerate the impact of the above restaurants are changing trends • There is more square footage at retail and more new items than before Scale and Scope of the Food Industry Manufacturer Shipments and Retail Sales Equivalent (2006) • $1.24 trillion sector $457.4 billion grocery (FMI) • $476 billion food service (NRA) • $60.5 billion exports • $58.5 billion imports • 12% GDP • 17% workforce Lifestyle: Less Time for Cooking Expected Time to Prepare A Meal 25% hh - single person 200 11% hh - single parent 150 150 20% hh - married couples Household Composition no kids at home 100 60 26% hh - married couples Minutes 30 with kids at home 50 15 0 1930 1950 1970 2000 2 Source of Food by Age Evolution in How We Eat Source of Food by Age Measured in Grams 100% • Eating occasions, not meals 80% Other – 50% of people eat while working 60% Someone Else – 42% eat while watching TV Fast Food/Pizza 40% Percent of Diet Resturant – 19% eat in the car 20% Store 0% • Strong desire for “simplification” 1-12 19-29 40-49 60-64 Age “Generally, America no longer “cooks.” In fact many young Americans view words like ‘menu’ and ‘recipe’ as Convenience computer, not kitchen, terms.” – Ira Blumenthal Meal Solutions Mania Private Label Share - World's Top 20 Grocers Retail Banner Estimated Share of Estimated Private Sales, 2004 Private Labels, Label Sales (USD Rank Company (USD mn) 2004 (%) mn) 1 Wal-Mart 310,576 37.0 11,491,312 2 Carrefour 112,458 32.0 3,598,656 3 Ahold 88,179 23.0 2,028,117 4 Metro Group 80,621 13.0 1,048,073 5 Tesco 68,164 45.0 3,067,380 6 Seven & I 58,757 27.0 1,586,439 7 Kroger 58,647 24.6 1,442,716 8 Rewe 55,216 25.0 1,380,400 9 Target 53,949 46.0 2,481,654 10 Costco 51,199 12.0 614,388 11 Auchen 50,751 25.0 1,268,775 12 AEON 50,746 17.0 862,682 13 Casino 50,064 40.0 2,002,560 14 Schwarz Group 46,448 63.0 2,926,224 15 Aldi 46,430 95.0 4,410,850 16 ITM (Intermarche) 46,355 35.0 1,622,425 17 Supervalu/Albertson's 41,975 17.0 713,575 18 Edeka 39,676 10.0 396,760 19 Walgreens 39,458 11.0 434,038 20 Safeway (USA) 39,112 24.0 938,688 Total 1,388,781 31.9 44,315,712 3 Market Share and Growth Importance of a Private Label % of Retailer’s Own Brand Country of Origin Growth Rate Distribution/Share • All the experts agree Worldwide 17% 5% – According to McKinsey, a “shift to Europe 23% 4% value” among consumers should North America 16% 7% inspire retailers to differentiate with Asian - Pacific 4% 5% a “superior private label” Latin America 2% 5% – FMI recommends offering “multiple Emerging Markets 6% 11% tiers to reach new consumers and build loyalty” Importance of a Importance of a Retailer’s Own Brand Retailer’s Own Brand – M&M Planet Retail foresees almost Global Trends in Private Label 50% sales growth for private label in Food Sales, 1995-2020 35% the food industry by the year 2020 30% 25% 20% 15% 10% 5% 0% 1995 2000 2005 2010 2015 2020 Concentration of Competition • The Wal*Mart Influence – Wal*Mart’s supply chain cost savings equate to saving U.S. customers $20 billion/year – Now sells 30% of nation’s household staples – Opening 335 new stores 4 Concentration of Competition Concentration of Competition – Reaction of competition • Result • Strive to match supply chain – Some real gains in efficiency – digital efficiency, cost cutting technology • Acquisitions and Mergers to gain – Diminishing cost savings critical mass – Loss of innovation – new products, topline growth – Profitability crunch – Vicious cycle Top 4/5 Retail Food Store Companies U.S. 1930 1990 2000 2006 1. A&P Kroger Kroger Wal-Mart Concentration 2. American American Wal-Mart Supervalu 3. Kroger Safeway Ahold Kroger 4. Safeway Winn-Dixie Safeway Costco 5. National Tea Albertsons Safeway Total 17 16 41 50 Sales (%) Dollar Stores • Dollar stores are experiencing unprecedented growth Concentration • Most of the top consumer packaged Plus goods manufacturers have Format Proliferation incorporated them into regular sales planning and distribution • About one-third of all U.S. households shop at a dollar store monthly 5 More Stores Non-Traditional Retailers • In 1995, 625 supermarkets and 818 Lower Average Food Prices convenience stores served the Chicago area • Ten years later, groceries could be obtained at 781 supermarkets, 2,030 convenience stores, 338 mass merchandisers such as Wal-Mart and Target, and 29 wholesale clubs, such as Costco and Sam's Club Specialty/Gourmet Food How We Shop Stores Increase Health • Grandparents went to a supermarket Food Options once a week and likely went back time and again to the same supermarket. • Today we“shop on average more than twice a week and in a month, shop at seven different food distributors, from warehouse clubs to drugstore chains” How We Shop Value and Quality • “So even though we say we're busier • $100,000 households vs. < $20,000 than ever, we will make time to go to a – 2x as likely to patronize a warehouse secondary location for value.” club – 9% more likely to frequent a mass- merchant 6 Value and Quality Too Many Items to Fit on the Shelf • $20,000 households – 74% more likely to shop at dollar • 200,000 + UPC / Bar Codes stores • 45,000 in most stores – 42% more likely to patronize a gas/ • 500 in the average home c-store – 21% more likely to frequent a supercenter New Items Keep Coming Trade Promotions in the U.S. • Over a third of Consumer Packaged • 95% of the 15,000 plus new items Goods volume is sold on promotion introduced every year in the U.S. do in the U.S. not last 12 months • Both manufacturers and retailers have made it very clear that feature ads, displays, and temporary price reductions are a huge part of how goods are sold in the grocery, drug and mass merchandiser channels Obesity Trends* Among U.S. Adults Small is Big Today BRFSS, 1991, 1996, 2004 (*BMI ≥30, or about 30 lbs overweight for 5’4” person) • Down-sized packages of product that 1991 1996 travel easily and contain fewer calories than traditional formats • Earthbound Farms now makes a 2-oz. 2004 mini-pack in addition to their 12-oz. family pack No Data <10% 10%-14% 15%-19% 20%-24% ≥ 25% 7 Small is Big Today Going for Satisfaction • Kraft Foods has begun selling 100- • Single-serve portions can enjoy calorie packages of its Chips Ahoy! greater quality control, than a multi- Sales of these mini-packs are brisk, serving bag that’s been open a while with Kraft taking in $75 million since introducing its 100-calorie line last • There’s something great about being summer able to say, “I ate the whole thing!” • I want it healthy, I want it without then having to say, “Oops!” delicious—and I want it now Technology/Science It’s the Economy! Biology Genetics Chemistry • Housing • Property taxes/ municipal financing • Who benefits? • Credit availability • Production/yield – BST/BGH • The dollar – Roundup ready – BT corn • Benefit “realized” by the consumer Concerns About Food Prices and Availability • Rice prices on world markets have Food Production and jumped 50% in the past two months Distribution: Threats, and doubled since 2004 Vulnerabilities and • Sam’s and COSTCO are limiting how Global Issues much rice customers can buy Jon Seltzer, Assistant Director NCFPD because .. "recent supply and Alabama Food Safety and Defense Conference demand trends" Montgomery, Alabama May 13 - 14, 2008 8 NCFPD Vision Broad Academic Collaboration DEFENDING the SAFETYof the FOOD SYSTEM through RESEARCH and EDUCATION Diverse Industry and Collaborating Across Agencies Association Collaboration State/Local Agencies Security/Safety/Defense Security/Safety/Defense • Food Security • Food Defense – Supply sufficiency – access to – System resiliency – reducing the nutritionally adequate and safe food impact of system attacks • Food Safety • Food Protection – System reliability – reducing – Global food supply system exposure to natural Safety/Defense “umbrella” hazards/errors/failures 9 Food Safety vs. Defense Food Safety Events • Food Safety • Food Defense • Hundreds of food product recalls occur on – System failure – System attack an ongoing basis, but over the past year – Microbial and – Microbial and there have been several very high profile chemical agents chemical agents – Known agents – Unexpected agents incidents that have captured national – Reasonably likely – Unlikely attention September February April – Accidental – Intentional 2006 2007 2007 – Low levels/ – High levels/ concentration concentration – FDA / USDA – FBI Tracking Consumer Some Findings Confidence • The pet food incident had the highest • Preliminary research consisted of three level of consumer awareness, although surveys conducted to measure the impact