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OFFICIAL PROGRAMME
Language: English
Number of pages: 167
Author: Global Strategy, Inc.
4250 Alafaya Trail, Ste. 212
Oviedo, FL 32765 USA
Tel: +1 407 951 6750
www.consultgsi.com
Other Reports: Are you interested in Reports for other
sectors and countries? Please find more Reports here:
www.switzerland-ge.com/study
Contents
INDUSTRY OVERVIEW__________________________9
4. REGULATORY ENVIRONMENT________________15
4.1. Authorities _____________________________ 15
4.2. Labeling _______________________________ 16
4.3. Certifications ____________________________17
8. DAIRY ____________________________________ 51
8.1. Life Cycle ______________________________ 52
8.2. Products and Markets _____________________ 52
8.3. Locations ______________________________ 54
Contents
Contents
1. Executive Summary
The United States is the worlds largest national economy, with a per capita GDP of $48,387 in 2011. The country has a
population of 311.9 million, with over 20 percent of the population living in the top eight urban centers.
The Food and Beverage industry is both large and extremely complex, consisting of multi-tiered supply chains. It is also
subject to extreme competition and a heavy regulatory burden. Keeping track of industry and consumer trends is critical. A
well-informed management team is the first line of defense in such an environment. The industry is fragmented, with
production divided among all types of companies.
Product Categories
In 2011, packaged food sales totalled US$331.86 billion in the United States. The top five categories were bakery, accounting
for 21 percent of total packaged food sales, dairy (16 percent), frozen processed food (10 percent), confectionery (10 percent)
and sweet and savory snacks (10 percent).
The fresh food market had a total volume of 77.5 million tons in 2011. Meat products dominate the market with 31 percent
market share, followed by vegetables (25 percent), fruits (23 percent), starchy roots (7 percent) and eggs (6 percent). During
2006-2011, the U.S. fresh food market was stagnant with a CAGR of 0.1 percent
The organic food market in the United States accounts for over 45 percent of the global organic food market. Organic food sales
totalled $29.2 billion in 2011, representing a CAGR of 9.7 percent between 2006 and 2010. Fruit and vegetables dominate the
market, with 38 percent share, followed by prepared food products (21 percent), dairy (15 percent), beverages (13 percent),
bread and grains (11 percent) and meat, fish and poultry (2 percent).
In 2012, the total U.S. dairy market was estimated at $89.3 billion and is projected to grow moderately during the five years to
2017, with revenue rising at an annualized rate of 0.7% to $92.3 billion. The dairy market in the United States accounts for 15
percent of the global dairy market. Cheese dominates the market, with 40 percent share, followed by milk (34 percent), yogurt,
cream cheese and cottage cheese (12 percent), spreadable fats (8 percent), cream (5 percent) and chilled desserts (1 percent).
Distribution Channels
Grocery retail sales were valued at $571 billion and foodservice sales were estimated at $477 billion in 2011. In 2010,
supermarket sales dominated the grocery retail market, with 36 percent share, followed by supermarkets (29 percent).
Grocery retail sales grew by a 2.2 percent CAGR between 2006 and 2011.
In 2010, approximately 46 percent of the foodservice market composed of fast food establishments and 49 percent of fullservice restaurants. The foodservice market was stagnant, with a CAGR of 0.6 percent during 2006-2011. However, this was an
improvement from the recession when the foodservice market was hit particularly hard.
Primary Demand Drivers
Demographics (particularly trends in population, age, household size, and disposable income)
Consumer trends
Profitability Drivers
Efficient operations
Superior service
Effective marketing
Market Potential
Total food consumption is forecast to increase by a CAGR of 3 percent during the five years to 2016, due to the growing U.S.
population. Food consumption in the U.S. is expected to reach $968 billion by 2016.
Canned food value sales are forecast to grow by a CAGR of 3.6 percent to 2016, driven by increasing consumer
demands for convenience.
There is high demand for frozen food products, particularly from supermarkets and restaurant chains. The frozen
food market is forecast to grow at an average annual rate of 1.5 percent, reaching $96.4 billion in 2016.
The organic food market is forecast to grow by a 9.7 percent CAGR between 2011 and 2016. The market is forecast to
reach $46.5 billion by 2016, which is an increase of > 50 percent since 2010.
The growth of the dairy market is forecast to slow, with a CAGR of 3.6 percent between 2011 and 2016, reaching $89.3
billion in 2013. The dynamic yogurt sector in the United States is expected to continue to grow, due to the on-going
trend towards healthier options.
The grocery retail market is expected to grow by a CAGR of 3.5 percent to 2016.
The foodservice sales are expected to grow by a 3.2 percent CAGR to 2015, reaching $562.5 billion. The highest
growth is forecast in foodservice establishments in travel locations (i.e. motorway service / rail stations).
Import Trends
Top food and beverage imports to the United States include beverages, with 17 percent share, fish (12 percent), fruit (10
percent), coffee, tea and spices (8 percent) and vegetables (7 percent). Canada was the United States largest import source,
with 18 percent share, followed by Mexico (15 percent), China (5 percent), Brazil (4 percent) and Thailand (4 percent).
2. Introduction
This research was carried out by Global Strategy, Inc. (www.consultgsi.com), a U.S. business development and market research
consulting firm on behalf of OSEC Business Network from March to May 2013.
Research Objective
The main objective of the study is to provide Swiss food & beverage exporters a solid understanding of historical, current and
future trends of the U.S. food & beverage market, focusing on the following topics:
Regulatory environment
Key segments
Forecasts and growth drivers
Market and consumer trends
Distribution
Recommendations on successful market entry
Trade events, publications and associations
Geography
United States of America
Period of analysis
2009 2012
Target categories
Functional foods
Processed foods
Dairy
Beverages
Private label
Foodservice
Methodology
Secondary research (in-depth analysis of published sources, government statistics, and in-house expertise) and primary
research with select information sources.
Information Sources
U.S. Census Bureau, U.S. Department of Agriculture, U.S. Food & Drug Administration, U.S. Environmental
Protection Agency
Trade associations
Company reports
Expert interviews
Currency rate
Languages
Religion
Food
Native American food includes various breads, soups and wild green salads. Colonists from Europe brought their own culinary
traditions.
America became a melting pot for people from all over the world. Today, food in the USA reflects this cultural diversity. The
Spanish influence is particularly evident in parts of the country colonized by Spain.
The American food industry is internationally known for fast-food chains such as McDonald's. American-style cookies, muffins
and bagels have also made an impact on the international snack food market.
Economy
The United States is a leading industrial power with a highly diverse and technologically advanced economy.
The US has benefited from a wealth of resources. It has enormous tracts of fertile land suitable for supporting livestock and
growing timber and crops (barley, maize, oats, wheat, potatoes, groundnuts, fruit, cotton and tobacco) and possesses huge
resources of coal, petroleum, natural gas, iron, gold, silver, copper, lead, phosphates, zinc, magnesium and uranium. A large
labour force runs its industries: iron and steel, paper, chemicals, motor vehicles, aerospace, electronics, computer hardware,
telecommunications, computer software, clothes and food processing.
Entrepreneurial skills combined with scientific knowledge and technological advances have put the US at the fore of world
industry and commerce. An early example of American know-how combined with commercial success was the production of
the Model T Ford and Henry Ford's factory in Detroit.
The US has led the world in research and development, for example, in the space industry. In 1958 NASA, the National
Aeronautics and Space Administration, began operating at Cape Canaveral. The facilities at the Cape grew to become the John
F Kennedy Space Centre. The Centre has led to aircraft and electronics manufacturing becoming an important sector of the
economy.
The services sector is by far the largest earner of the country's Gross Domestic Product. Tourism is an important industry
within services. Tourists from abroad are attracted to the US by theme parks and National Parks. With its long coastline the US
has some good beaches. In the winter, skiing is available in a number of States, for example, Colorado and Utah.
In October 2008 US financial institutions experienced one of the worst disasters since the Great Depression in the 1930s. The
US Treasury was forced to initiate a huge billion dollar financial bail-out plan. However, economists stated that the country
had learned how to avoid a situation similar to the Depression but others pointed out the future uncertainty.
Sports
Sports is important in the US and is part of American school and college life. Team sports include baseball, basketball,
American football, soccer, hockey and lacrosse. Other popular sports include tennis, swimming, ice skating and skiing.
Rodeos and car racing are both very American activities. Fishing and hunting are traditional outdoor pursuits.
Holidays
New Year's Day, Inauguration Day, Martin Luther King Jr. Day, President's Day, Memorial Day, Labor Day, Independence
Day, Columbus Day, Veterans' Day, Thanksgiving and Christmas.
States and Territories
There are 50 US states and 1 district: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware,
Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New
York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming, and the District of Columbia,
(Washington, DC), the capital. New York is the largest city.
The Commonwealth of Puerto Rico, in the Caribbean, is a dependent of the USA but retains commonwealth status. The United
States Virgin Islands is a US Caribbean Territory. The US also has Territories in Oceania.
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Region 1 (Northeast)
Division 1 (New England) Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut
Division 4 (West North Central) Missouri, North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa
Region 3 (South)
Division 5 (South Atlantic) Delaware, Maryland, District of Columbia, Virginia, West Virginia, North Carolina, South
Carolina, Georgia, Florida
Division 8 (Mountain) Idaho, Montana, Wyoming, Nevada, Utah, Colorado, Arizona, New Mexico
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Food retailing is rapidly becoming more diverse and sophisticated in emerging markets. For example, modern convenience
stores are widespread in major Asian cities, such as the large number of highly popular 7-11 stores found in Thailand. Also,
discount stores that sell food products, among other items, are increasingly popular, evidenced by the rapid growth of WalMart in Mexico and Latin America, and the fast spread of stores in China owned by Wal-Mart and its competitors including
Carrefour. Nonetheless, outside of the major cities, much of the food retailing in emerging markets is conducted by modest
local markets, often run as family operations.
The entire food industry, from growing to processing to retailing, is an extremely competitive field where profit margins are
typically so low that it is often challenging to maintain profitability. The processed food industry worldwide has been hindered
by high energy costs and changing consumer tastes. High feed costs have been extremely damaging to poultry and livestock
firms, and fertilizer, which is typically manufactured from petrochemical sources, has seen very high costs in recent years.
In the U.S. and Europe, where the economies have been facing slow growth, consumers are shopping for bargains. Generic
store brands are growing in market share while higher-priced name brands have suffered from slower sales. Supermarket
chains such as Kroger, Safeway and others have been forced to modify their merchandising to meet the needs of cost conscious
shoppers.
In the U.S., the supermarket industry is under attack by discounter Wal-Mart in particular, as well as by Costco and
Target. (Wal-Mart gets more than one-half of its U.S. revenues from grocery sales.) Vast changes are sweeping through the
supermarket sector as a result, as major firms such as Safeway and Kroger have cut prices and lowered operating costs
dramatically, while Albertsons sold itself to private investors. Wal-Mart has by far the leading market share of American
supermarket sales.
Meanwhile, Americas leading drugstore chains, CVS and Walgreens, are dramatically expanding their food and beverage
departments. Discount chain Target has put an increased emphasis on its grocery sales as well.
Overall, private-label sales (in supermarkets, drug stores and mass merchandisers) grew 3.92% to reach $92.7 billion in the
U.S. in 2011 over the previous year, according to the Private Label Manufacturers Association.
The types of technologies affecting the food industry have evolved over time. From mechanized tractors and implements to
diesel trucks to flash freezing, food technology has moved on to become high-tech. Today, computerization also has made
marked changes in the food industry: Electronic data interchange ensures that inventories and shipments are well managed so
the local grocer does not run out of the products that are selling quickly. Point-of-sale systems at the cash register capture
minute-by-minute sales data. Biotechnology is making sweeping changes at the ground levelin seed stocks and agricultural
animal health. In fact, gradual genetic improvement of grain seeds like rice and wheat, combined with better fertilizers and
other technologies, created a green revolution. Now, genetically modified seeds are gaining ground with the promise of crops
that not only resist insects and have extremely high yields per acre, but also produce high levels of desirable nutrients and
vitamins.
Growing health concerns are significantly impacting all sectors of the food industry, as obesity levels continue to rise to
alarming proportions in the U.S. and elsewhere. Various branches of the U.S. government, including the Food and Drug
Administration (FDA), along with a host of consumer groups, are squaring off with food producers over nutrition and the
responsibilities and ethical issues inherent in the production and marketing of food. Childhood obesity is a particular target. In
the U.S., where soaring health care costs are a prime concern, $147 billion in yearly medical costs were linked to obesity in
2008. In the massive health care act passed in 2010, the U.S. federal government set up a requirement that all restaurant
chains with 20 or more restaurants post calorie counts for menu and buffet items.
Even local governments, such as the cities of New York and Chicago, are increasing regulations aimed at the food
industry. These include Chicagos famous 2006 ruling outlawing of the sale of foie gras (liver from geese kept in cages and
force fed to increase fatChicago repealed the law in 2008), and New York Citys 2007 regulations requiring that chain
restaurants prominently post nutritional values of menu items. This followed New York Citys earlier restrictions on the use of
trans fats in restaurant foods. City officials estimated that 56% of New Yorks adults are either obese or overweight, a common
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problem throughout America. Local public school boards around the U.S. are enforcing better nutrition in meals and snacks
served at schools.
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. Many chain restaurants are likewise seeing excellent sales from lower-calorie
foods. McDonalds soaring success with salads is an excellent example. Snack food makers are likewise offering more and more
reduced fat items.
Meanwhile, the soda industry is going though immense changes due to consumer trends. At one time, soda manufacturers and
marketers assumed that there was limitless worldwide growth to be enjoyed in soda sales. However, the real growth in
beverages lately has been in bottled waters and energy drinks. As a result, 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. These soft drink giants have attempted to cut costs, streamline operations, and distribute new products as
a result of these mergers
In North America (as well as Asia, Europe and elsewhere), producers and retailers of foods (including restaurants) are now
faced with the challenge of positioning their brands to represent consistent quality and food safety. Companies that rise to this
challenge will have significant competitive advantage. This food safety positioning will go hand-in-hand with growing demand
to satisfy additional consumer concerns about environmentally-sound food production methods, fair trade, fair use of labor
and humane treatment of agricultural animals. However, a focus on such concerns as fair trade can add dramatically to costs.
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4. Regulatory Environment
National regulations, authorities, certifications, labeling, customs regulations for food products imported
from Switzerland
4.1. AUTHORITIES
Two regulatory bodies oversee food and beverage safety in the United States. Eighty percent of the food supply is governed by
the Food & Drug Administration (FDA) which safeguards against food adulteration (contamination) and food labeling
(misbranding). The United States Department of Agriculture (USDA) accounts for the other twenty percent and oversees meat
(beef, lamb, pork), poultry, eggs, and products made from them. In light of recent food recalls including a salmonella peanut
butter outbreak in 2009 and salmonella egg outbreak in 2010, in January 2011 The Food Safety Modernization Act was signed
into law. The legislation gives the FDA more authority to test and recall suspected contaminated foods and beverages.
FDA food regulations reach all foods and all beverages distributed in interstate commerce in the U.S.A. except for products that
are regulated exclusively by the USDA. All imported foods and imported beverages (including juices) are already in interstate
commerce when they reach the U.S. port of entry. Therefore, for Swiss companies exportig food or beverages to the U.S.A.,
FDA will have jurisdiction over the product when it arrives (and even before it arrives).
FDA food regulations and FDA beverage regulations cover domestic and imported food safety, food adulteration
(contamination), and food labeling (misbranding). FDAs food regulatory authority is very far-reaching, and includes:
fresh produce (fresh fruits and vegetables), usually concerned with pesticide residues or microbiological
contamination;
processed foods (dry goods, canned foods, acidified foods, prepared meals, etc.), usually interested in microbiological
contamination, insect, bird, rodent or other animal filth, submission of scheduled process documentation for canned
foods, and all food labeling requirements, such as Nutrition Labeling in foods and beverages;
dietary supplements and nutritional supplements, related to dietary ingredient and finished product safety, Dietary
Supplement Facts labeling, and other permissible dietary supplement labeling and marketing claims;
infant formulas, with respect to conformity to FDA minimum nutrition requirements and product labeling
requirements;
fruit and vegetable juices, carbonated drinks, and functional beverages (such as energy drinks and antioxidant
drinks), usually considering safe and permissible food additives and ingredients, safe color additives, percent-juice
declarations, juice labeling requirements and Nutrition Facts labeling for all types of beverages and drink products;
bottled water, related to conformity to FDAs regulatory bottled water standards, chemical contamination and
microbiological contamination;
dairy products (cheeses, milk and milk products, yogurts, etc.), many of which are standardized foods and must meet
specific FDA regulatory food standards;
seafood products (fin fish, crustaceans, etc.), usually for compliance with processing requirements (HACCP, or
Hazard Analysis and Critical Control Point regulations), microbiological contamination, decomposition (and
histamine production), and anti-biotic or other animal drug use in aquaculture seafood;
food ingredients (nutritive ingredients and non-nutritive ingredients), with respect to generally recognized as safe
(GRAS) status,
functional food ingredients (emulsifiers, anti-caking agents, etc.), related to appropriate intended uses and
declaration in food label ingredient declarations
food color additives, natural flavors and artificial flavors, spices, seasonings, and vitamins added to food
food contact surfaces (containers, utensils, food manufacturing surfaces, beverage containers and food containers),
and
some alcoholic beverages (beer, wine)
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Most foods do not require FDA approval before being sold in the U.S. Most individual food items also do not require food
registration or listing. However, all food establishments that manufacture, pack and hold (store) food are subject to FDA Food
Facility Registration. FDA Food Facility Registration must occur before the imported foods arrive in the U.S. for human or
animal consumption.
Some food products are subject to special and additional regulations, including low acid canned foods (LACF), acidified foods
(AF), infant formulas, pasteurized grade A dairy products, food colors, food contact surfaces and food contact materials, and
alcoholic beverages (although alcoholic beverages are permitted for sale in the U.S. by the Alcohol and Tobacco Tax and Trade
Bureau (TTB)). FDA regulates imported foods differently by requiring some pre-market review or FDA approval prior to
importing food for commercial distribution in the U.S.
Some foods are called standardized foods because FDA has established food standards for them. These additional
requirements apply to a variety of foods, ranging from milk chocolate to salad dressings; and yogurt and fruit preserves to
bottled water. Most foods, however, are non-standardized foods. If a food is a standardized food, it must meet the standard
established by FDA or the food will be considered adulterated and misbranded. All foods are subject to specific food naming
regulations, and that applies to standardized foods and non-standardized foods alike.
Food labels must be correct or the foods are misbranded under U.S. law. That is, the food labels must bear all the required
information in the correct formats using the correct fonts and information placements, and food labels may not bear labeling
claims or statements that are not permitted by FDA regulation.
The fact that FDA does not pre-approve most foods or labels does not mean that FDA will be lenient when FDA finds
adulterated or misbranded imported foods. FDA will certainly take action. Therefore, it is critical for food companies to make
sure that their foods and food labels comply with FDA requirements, or they are likely to be stopped by FDA when they are
imported. Fixing the problem at that stage is very expensive.
There are many specific requirements for many different foods that must be met before foods are imported into the U.S. Foods
must be wholesome, unadulterated, properly labeled in all respects, come from FDA-registered manufacturers, packers and
storage facilities, and, where required (which is rare), they must have the appropriate pre-approvals and product registrations.
4.2. LABELING
Under the Federal Food, Drug and Cosmetic Act (FDCA), FDA has jurisdiction over all food labels, except meat, dairy, and egg
products. FDA food label regulations include requirements concerning mandatory declarations of most information contained
on food labels, such as the statement of identity, net quantity, ingredients, Nutrition Facts, allergen risks, and food label
claims. FDA regulations also permit certain conventional food labels and beverage labels to bear various types of food label
claims, such as nutrient content claims, structure or function claims, and health claims, under strictly regulated conditions and
requirements.
To comply with FDA food regulation, most food labels and beverage labels must contain Nutrition Facts declarations that
conform to very specific requirements related to formatting, nutrient names and amounts, and Percent Daily Value
calculations.
Under the Nutrition Labeling and Education Act of 1990 (NLEA), FDA standardized and limited the types of claims permitted
on food labels to include: health claims, nutrient content claims, and structure or function claims.
Health claims characterize the relationship between a substance and a health-related condition (e.g., A diet low in sodium
may reduce high blood pressure.).
Nutrient Content Claims characterize the level of a nutrient in food (e.g., Good source of protein.).
Structure or function claims describe how a food or beverage affects the structure or function of the body (e.g., Supports
healthy blood circulation.)
Food labeling on websites is a complex area of federal law because both FDA and the Federal Trade Commission (FTC)
regulate food website and beverage website advertising. Therefore, websites that promote and advertise foods and beverages
USA FOOD & BEVERAGE MARKET STUDY
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for sale must comply with both FTC and FDA laws and regulations. Federal law governing claims on such websites is
particularly confusing because while FDA regulations limit the types of permissible claims, FTC regulations are not as
restrictive. FTC regulates all food advertising claims under a truthful and not misleading standard. In addition, both FDA and
FTC law require that all claims be substantiated, i.e. supported by adequate scientific evidence.
In the United States, food and beverage product labels must contain the following basic information:
4.3. CERTIFICATIONS
Various certifications are available to specialty food manufacturers which can both improve their business practices and make
their finished products more marketable. Depending on the specific, target demographics, manufacturers could look at a
variety of certifications that highlight the quality practices, value chains, religious affiliations and social impacts. Analyzing
what certifications, if any, to pursue is entirely up to the leadership of the manufacturer and should be done in conjunction
with a well-thought-out pricing model and competitive analysis. Many companies choose to limit the amount of information
on a label that does not bring either legal compliance or consumer recognition.
ISO (International Organization for Standardization): a global network that identifies and develops International
Standards for business, government and societies. ISO has developed 2 sets of standards: ISO 9000 for quality
management and ISO 14000 for environmental management
HAACP (Hazard Analysis & Critical Control Points): a systematic, preventive approach to food safety that addresses
physical, chemical and biological hazards as a means of prevention rather than finished product inspection. HACCP is
used in the food industry in the United States, and is required for all imported food products in the juice, seafood or
meat categories.
Organic: In the United States, the National Organic Program (NOP) was enacted as federal legislation in October
2002. It restricts the use of the term "organic" to certified organic producers. Certification is handled by state, nonprofit and private agencies that have been approved by the USDA. Quality Assurance International (QAI), a private
U.S. corporation, is the largest organic certification body in the U.S. Federal organic legislation in the U.S. defines
three levels of organics.
Fair Trade: Though not as popular in the United States as it is in Europe, a Fair Trade certification can offer a unique
selling point to your products. Fair Trade certification can yield certified products an additional retail margin of
approximately 10-20 percent higher than the non-certified varieties. While there is no formal definition of what
constitutes a fair trade, the most commonly referred to definition comes from FINE (Fairtrade Labeling
Organizations International (FLO), International Fair Trade Association (now known as the World Fair Trade
Organization WFTO), Network of European Worldshops (NEWS), and European Fair Trade Association (EFTA).
Religious: Various religious organizations offer certification programs, with the Islamic Halal and the Jewish
Kosher being the most popular. These certifications are relatively inexpensive, and the process is quite straight
forward, though specifics range, depending on the type of product. When debating whether or not to pursue such
religious certifications, manufacturers should refer back to their business model and examine their target
demographics. In New York City independent supermarkets, as an example, a Kosher certification might come in
handy. If a manufacturer were targeting demographic markets with a high Muslim population, then a Halal
certification would make sense.
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Social: Many manufacturers look towards social certifications as a way of not only contributing to their own corporate
responsibility, but also as a way of distinguishing themselves from their competitors. Social certifications can take on
many forms; from standardized certification like The Rainforest Alliance or Breast Cancer Awareness.
Protein
Moisture
Ash
Fat Profile (total fat; saturated fat; mono-saturated fat; transfat from fatty acids)
Sugar Profile (fructose; glucose; sucrose; maltose; lactose)
Total Dietary Fiber
Sodium
Calcium
Iron
Cholesterol
Vitamin A
Vitamin C
Carbohydrates by Calculation
Calories by Calculation
Calories from Fat
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common form is the UPC-A code, consisting of twelve digits. UPCs are uniquely assigned to each product by the manufacturer.
UPCs are critical, because it is the only way retailers and distributors track the success or failure of a product. All sales data is
generated based on the UPC for each unique product. When registering UPCs, manufacturers must acquire all codes through
the international organization known as GS1.
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When FDA detains imported seafood or juice based upon violations detected through sampling and analysis, the agency
requires the importer to show that it performed the required Affirmative Steps under the FDA HACCP regulations that apply
to seafood importers. FDA often asks for this evidence before considering a request to recondition an imported FDA-detained
shipment due to certain HACCP-related violations.
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FDA Import Alert is particularly troublesome for the foreign food or beverage manufacturer. The use of an unsafe color
additive is a formulation problem that can only be remedied by reformulating the product. FDA routinely tries to capture such
shipments containing non-permitted food colors or illegal beverage colors in order to place the foreign manufacturer on FDA
Import Alert. Once on an FDA Import Alert, the foreign manufacturers imported food must be tested by private lab analyses to
prove that the illegal or non-permitted color is not in the product anymore. This creates
uniform FDA enforcement in all ports of entry making it difficult, if not impossible, to evade FDAand significantly
increases the costs to the importer. Foreign manufacturers can petition FDA for removal from FDA Import Alerts, but specific
criteria must be followed and evidence must be submitted for FDA review.
Undeclared Color Additives; Improper Declaration of Color Additives
Other routine problems involving imported food or imported beverage color additive violations include failing to declare on the
food label or the beverage label the presence of a color additive. Such foods or beverages are considered misbranded under the
Food Drug and Cosmetic Act and are subject to FDA import detention, FDA Import Alert, and FDA import refusal of
admission. Again, FDA ordinarily will pursue such situations by adding the manufacturer or shipper on an FDA Import Alert,
which lists the product that FDA found contained an undeclared color additive as well as its foreign manufacturer and foreign
shipper.
Improper declaration of color additives (for instance, failing to use the color's correct name as defined by FDA regulation or
failing to use its common or usual name on the food label or the beverage label) also results in a misbranded food or beverage.
It is important that foods, beverages, dietary supplements, drugs, and cosmetics in particular declare all color additives in the
product label's Ingredients Statement.
FDA has issued hundreds of Import Alerts covering imported food, imported beverages, and imported cosmetics that contain
illegal colors, non-permitted colors, undeclared colors, or uncertified color additives. Proper product formulation, color batch
certification, and ingredient labeling is critical to obtaining and maintaining access to the US market.
Parallel Imports and Color Additives in Foods, Drugs and Cosmetics
In some instances, foreign firms manufacture the same foods, beverages, drugs and cosmetics using different color
formulations for different markets. When a parallel importer purchases a food, beverage, drug, or cosmetic manufactured for a
non-U.S. market and diverts it into the U.S. market, FDA may discover the presence of an illegal color. In that case, FDA will
take action against the manufacturer, potentially even placing the manufacturer on FDA Import Alert.
Foreign manufacturers who have discovered that parallel shippers have exported their products (with illegal colors) to the U.S.
must then demonstrate to FDA how they are controlling their supply chains to reduce the likelihood of future diversion.
Without such evidence, FDA may not be willing to remove the manufacturer from an FDA Import Alert list.
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or processor until FDA receives evidence that establishes future shipments are not likely to contain the illegal pesticide or
pesticide residues above the EPA pesticide residue tolerance.
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which apply to processors of low-acid canned foods, seafood and juice, except that HARCP applies to nearly all food facilities.
Exempt facilities are (1) those subject to Standards of Produce Safety, (2) those subject to HACCP and low-acid canned food
standards, and (3) those subject to Dietary Supplement current Good Manufacturing Practices.
Under HARPC each facility must:
1.
2.
3.
4.
5.
6.
FSMA requires FDA to issue regulations which will define a small and very small business, entities exempt from HARPC
requirements.
Foreign Supplier Verification Program
Under the FSMA, effective January 4, 2013, importers must verify the safety of the food offered for import using the new
Foreign Supplier Verification Program (FSVP). (The requirement doesn't apply to firms that import products from foreign
suppliers subject to low-acid canned food regulations, seafood or juice HACCP.) Under this plan, every subject importer must
establish a program through which it verifies that its
foreign supplier complies with HARPC or Standards for Produce Safety, and also verifies that that the food is not adulterated
and misbranded because it fails to disclose the presence of major food allergens.
Importers must maintain records for two years that substantiate compliance with this requirement. Importers that fail to
comply with this verification program violate FDCA and are prohibited from importing food into the United States.
Voluntary Qualified Importer Program
Under the FSMA FDA must create the Voluntary Qualified Importer Program (VQIP), which is a voluntary, fee-based program
that offers its members an expedited importation process. An importer becomes eligible when FDA determines that the food
offered for import is safe and the foreign facility obtains certification by third-party auditors (which verifies that the facility
complies with the relevant regulations. Once admitted to the program, FDA reviews an importer's eligibility at least once every
three years.
The program will offer a large importer an effective means to shorten the delays inherent with importing foods. The program
will particularly assist an importer of perishable foods, because importation will take less time.
24
5. Food Industry
Retail: Market size, market structure players, competition, challenges
The U.S. food marketing system links farms to consumers via food manufacturing, wholesaling, and retailing (food stores and
foodservice facilities).
Food wholesaling consists of that part of food marketing in which goods are assembled, stored, and transported to retailers,
foodservice operators, other wholesalers, government, and other types of businesses. The retail food industry has changed
significantly over the past 2 decades, as warehouse club stores, drugstores, and other nontraditional foodstores have increased
their share of food sales. Changes in consumer food choices are reflected in food retailing, including the introduction of new
products to meet new consumer demands.
Grocery store sales increased in 2010 and 2011, following the 2007-09 recessiona period of economic uncertainty in
which traditional grocery retailers experienced negative inflation-adjusted growth. During the past decade, there were many
years in which grocery store sales growth (in current dollars) exceeded the rate of inflation. Inflation-adjusted sales growth was
small, averaging 0.08 percent per year. The slow and negative inflation-adjusted growth in annual sales at traditional grocery
stores was likely due in part to increased competition from nontraditional food retailerssuch as warehouse clubs,
supercenters, drugstores, and other retailersas more consumers economized on food spending.
25
26
Mergers and acquisitions contributed to increasing shares of the largest 4, 8, and 20 grocery retailers during the mid-to-late
1990s; however, divestitures and internal growth have played the greatest role in changing industry structure since 2007:
The acquisition of 1,124 Albertson's supermarkets in 2006 by Supervalu boosted its ranking from the eighth-largest
grocery retailer in 2005 to the fourth-largest in 2011.
In 2007, 12th-ranked A&P Tea Company acquired Pathmark, operator of 141 supermarkets in the New York
metropolitan area.
In 2007, Publix Supermarkets acquired 49 Albertson's supermarkets located in Florida.
Among natural foods and organic retailers, 10th-ranked Whole Foods Market purchased Wild Oats, operator of 110
supermarkets, in 2007.
Between 2007 and 2011, the share of grocery sales by the top 4, 8, and 20 grocery retailers remained unchanged.
27
Traditional foodstores
In response to the sales inroads made by nontraditional retailers, traditional grocers are expanding the number and types of
product offerings, designing new store formats, and using innovative instore technologies. Hannaford Supermarkets, a division
of Delhaize Group (Belgium), introduced "Guiding Stars," a simplified nutrition label to help consumers make more healthful
food choices. According to a recent ERS article, leading supermarket chains are expanding their private labels (store brands) to
meet the needs of economizing consumers. Many food retailers such as Safeway, Kroger, and Giant Eagle have added gasoline
pumps in their parking lots and other locations. In addition, some supermarkets offer promotional tie-ins to grocery
purchases, such as gasoline discounts, in an attempt to increase sales.
With many consumers seeking organic and natural foods, traditional supermarkets have responded by adding such products to
their shelves. Kroger, Giant Food, and Shaw's all offer corporate-brand organic or natural products (Naturally Preferred,
Nature's Promise, and Wild Harvest). Publix has introduced its GreenWise supermarkets featuring organic produce, meats
with no added hormones, and more healthful prepared foods, along with conventional grocery items (see Introduction of New
Food Products With Voluntary Health- and Nutrition-Related Claims, 1989-2010).
Local foods
Rising consumer interest in knowing where food is produced has sparked increases in purchases of locally grown food.
Supermarkets have responded by emphasizing local offerings such as fresh fruits and vegetables, baked goods, meat, poultry,
and dairy products, depending on the location and time of year. Safeway, Kroger, Food Lion, and H-E-B Grocery Company are
some of the largest supermarket chains that promote a variety of locally grown or produced foods. Other sources of local food
include farm-direct and farmers' markets. While many local foods are promoted as "organic" or "natural," retailers often claim
that local foods support local agriculture and are more environmentally friendly.
Food service
In competing for consumers' food dollars, foodservice operators, including restaurants, fast food outlets, and institutional
foodservice operators in schools, hotels, and recreational sites, have increased their share of total food expenditures over the
years. By 2011, food-away-from-home spending by households and businesses accounted for 48.7 percent of all food spending,
up from 47.1 percent in 2000 and 43.0 percent in 1990. Prior to the current recession, the share of household expenditures for
prepared foods and meals had risen due to changes in household compositionsuch as more single-person households and
more households with two working adultsas well as increased household incomes and changes in consumer preferences for
convenience foods.
Figure 5: Sales of food-at-home and away-from-home, 1960-2011
28
In response, some supermarkets have expanded the variety of ready-to-eat entrees and meals in their prepared food
departments. Many stores have added a seating area to challenge fast food outlets for business. For example, Wegman's Food
Markets, a Rochester, NY-based operator of 81 supermarkets, introduced the Market Caf, an instore foodservice option
containing a wide range of prepared and made-to-order foods. In the mid-2000s, the annual sales of prepared foods sold in
supermarkets grew 4 to 4.5 percent annually, compared with 2 to 2.5 percent for other grocery products.
29
"This is a unique, comprehensive consumer study that defines consumer expectations in the ever-changing social space and
measures companies' performances against those benchmarks," said Jacqueline Anderson, director of social media and text
analytics at J.D. Power and Associates. "This study provides companies with the framework they need to begin effectively
integrating social media into their business strategies. It also illustrates the relationship between a positive social media
experience and consumer purchase intent."
Key Findings
67% of consumers have used a company's social media site for servicing, compared with 33% for social marketing.
Younger consumers (18-29 years old) are more likely to use brands' social media sites for servicing interactions (43%)
than for marketing (23%).
The automotive industry balances marketing and servicing engagements better than any other industry included in
the study.
Consumer expectations for social interactions vary across industries, although quality content and responsive service
representatives are keys to higher satisfaction levels.
Consumer Trends: Online Grocery Shopping
As the popularity of online shopping grows, consumers are beginning to explore new digital shopping categories, including
groceries. A new survey from CouponCabin.com finds that 15 percent of U.S. adults have shopped for groceries online. An
additional 19 percent said they don't currently, but plan to in the future. This survey was conducted online within the United
States by Harris Interactive on behalf of CouponCabin from January 29 th to 31st, 2013, among 2,109 U.S. adults ages 18 and
older.
The high cost of food may prompt some shoppers to click their way through their grocery list. The majority, 91 percent, of U.S.
adults indicate they are at least somewhat aware of rising food prices due to weather-related issues in 2012. In addition, 70
percent of U.S. adults who haven't shopped for groceries online said they would be at least somewhat likely to do so if online
groceries were less expensive than buying them in the store. Eighteen percent said they would be very likely to do so.
"The combination of high food prices, busy families and easy Internet accessibility has led to an increased interest in online
grocery shopping," said Jackie Warrick, senior savings advisor at CouponCabin.com. "Consumers have long bought items like
apparel and electronics online. Now, they're seeking out ways to further take advantage of online shopping."
For some consumers, the desire for online groceries has yet to be met. In fact, nearly four-in-ten (39 percent) of U.S. adults
wish their local grocery store offered a delivery service.
A variety of reasons were cited as plusses to hitting the virtual supermarket aisles. When asked what they believed to be the
positive aspects of ordering groceries online, U.S. adults selected the following:
Not everything about ordering groceries online is peachy keen. When asked what they believed to be the negative aspects of
ordering groceries online, U.S. adults selected the following:
It's difficult to select certain items you want without seeing them in person, such as produce or meat 73 percent
You have to wait at home during a specific time window for the items to be delivered 58 percent
Not every item you want is available 49 percent
Can't use paper coupons 46 percent
More expensive 40 percent
Other negative aspects 9 percent
30
Regardless of the sentiment toward online grocery shopping, consumers should do their homework ahead of time to maximize
the convenience and savings. Warrick offers the following tips for online grocery shopping:
Menu plan as you go: One of the best perks of online grocery shopping is that you can add items to your cart over time
as you think of them. Even better, planning like this prevents you from impulse buys if you were at the supermarket.
Before you hit "buy," though, do a run-through of your meals for the week and make sure you see all the items you
need.
Don't forget your coupons: Some online grocery services offer discounts for first-time users or local specials, so search
for those savings ahead of time. In addition, many will accept manufacturer coupons for items you purchase and then
credit your account once they are processed. There can be a short lag time, but with patience you can save a few bucks.
Make sure to check the grocery provider's terms and conditions ahead of time.
Factor in the fees: Depending on whether you use a national online grocery provider or a local supermarket, there is
going to be some type of flat fee, likely coupled with a tip. Make sure you take those costs into account before you part
with your hard-earned cash.
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Mobile Technology and Social Media to Increasingly Influence Consumer Food Purchasing
Public relations firm Porter Novelli, in a recent report, argues that mobile technology and the social media will continue to
change the consumer's relationship with food and will play a key role in their food purchases.
According to Keith Taylor, Director, "Mobile technology is tapping into the desire for convenience, driving more informed
choices and enabling more spontaneity. "People are using their phones to look up recipes as they grocery shop. Taylor goes on
to say: "Users have all the information they could possibly want or need, right in their pockets. Most also have a network of
people offering or asking for suggestions. Purchases may be less planned, but theyre better informed than they were even a
year ago".
According to Porter Novelli, food manufacturers and retailers will have to ensure that they become part of the "conversation",
and, ultimately, part of the purchasing decision.
"If you have a major food brand and you dont have a community manager, hire one now", says Taylor.
Israel Mirsky, who is Executive Vice President, Emerging Media and Technology for Porter Novelli in New York, believes that
the social media and mobile phone applications are helping consumers to become more aware of what they eat.
"Recent research indicates that consumers globally are becoming more concerned with calories than with organic or healthy
eating choices. As consumers share information with one another about what matters to them when it comes to staying healthy
and eating right, the best-substantiated wisdom count your calories seems to be bubbling to the top. Put simply, the
Internet is helping consumers get smarter about what they eat", claims Mirsky.
"Mobile applications like Calorie Counter and Food Tracker/DailyBurn help people track the calories they ingest and burn
more easily than ever before. The apps are consultative (Should I have the chicken salad or the salmon with risotto?). Food
diaries have been found to be one of the most effective vehicles for developing and maintaining healthy eating habits a food
diary thats easy to use and carry is likely to have a strong impact on your eating habits", he also says.
"Apps that help identify responsibly sourced foods are proliferating witness Seafood Watch, which helps identify whether the
sushi on the plate is ocean-friendly or not, aiming to inform consumers at a glance whether theyre contributing to
overfishing", adds Mirsky.
Joel Johnson, the company's Executive Vice President, Integrated Planning Director, provides more detail on how social media
and its resulting business is spreading.
"Social commerce or socially enabled e-commerce is now mobile enabled. In Germany, Barcoo links products with customer
reviews right at the shelf through a mobile app for smartphones. The data possibilities are virtually endless: from user reviews
and ratings to price comparisons or even allergy information. But, its impossible to look at the impact of mobile technologies
on our purchase decisions without first understanding and acknowledging that consumer demand for information about food,
food technologies and even the environmental or cultural impact of eating are driving a broader conversation", he says.
The implication is that consumers are defining the relationship they want to have with producers, retailers and marketers of
food the purchase funnel is the battleground, and mobile technology is likely to be the bridge between the product, consumer
and brand. Mobile technologies are transforming the purchase funnel. Though it was never really linear (anyone or anything
could interrupt a purchase decision, enabling consumers to skip whole steps), smartphones empower consumers to make more
informed decisions as they move from say, trial to loyalty. For example, tasting a fine wine in your wine shop doesnt have to be
the last step before trial in fact, it could be the first step in establishing a relationship with the brand through conversation.
In addition to enabling a mobile information search, smartphones might help a consumer to like the wine on Facebook, tweet
the tasting or bookmark the wine to a favorites list", adds Johnson.
Johnson goes on to say: "Mobile allows consumers to capture the experience in a social network, start a dialogue with the
producer or note it for consumption later. On the brand side, the producers can leverage a single experience into a broader
shared one with fans, followers and even critics in online conversations (providing, of course, they have the earned media
assets to do this a community, a community manager and branded social network activity). The brand can now keep the
consumer engaged in a conversation about its product, whether that consumer has purchased the product or not".
USA FOOD & BEVERAGE MARKET STUDY
32
The following mobile developments are expected to impact the relationship between consumers and the food they eat:
More mobile apps will connect consumers at the shelf with their social network and affinity groups.
More producers will enable their food products to be scanned and uploaded via mobile, images, QR, bar codes and
augmented reality readers.
More brands will try to influence consumers at the shelf through location-based services like Gowalla and
FourSquare.
In the U.S., well see more FCC, FTC and FDA involvement in claims from user reviews, comparison data and other
recommendations.
PR crises will sprout up around food, as marketers struggle with increased scrutiny from consumers demanding more
transparency (either through mobile social networks or mobile commerce).
Retailers will move to act as middlemen, with their own mobile technologies helping to influence the consumer at the
shelf which sets the stage for a potential marketing conflict of interest between individual brands and producers.
The growth of mobile food trucks that rely on social media technologies to alert followers. Trucks are increasing in
popularity due to the economic downturn, Millennials impact on lifestyles and an increasing public interest in food
culture.
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experience and particular culture. The concept also works in reverse, with restaurateurs becoming retailers and providing
themselves entry into the food retail market.
According to NASFT, supermarkets and traditional grocers are attempting to maintain sales and revenue by catering to an even
larger market by diversifying into specialty and gourmet foods. Intense competition within the Supermarkets and Grocery
Stores industry is responsible for this trend, and it threatens to affect sales for specialty food stores.
A study by the Food Marketing Institute found that among 77 companies representing 4,208 stores, about two-thirds have
diversified into a gourmet and specialty food format. This trend has created an even dimmer environment for retailers in the
industry, squeezing many companies out of the market altogether.
Over the five years to 2013, the number of companies operating in this industry has only increased at an average rate of 0.2%
per year to 42,923 firms. However, most of the decline in companies took place from 2008 to 2010. Since then, the industry
has been steadily expanding. Most companies operating in the industry are single-location, nonemployer firms. Employment
and wage figures for the industry have followed the same pattern over the past five years, with growth being wiped out by the
recession. From 2008 to 2013, employment numbers have declined at an average annual rate of 0.3% to 116,368 workers,
despite the recent recovery.
6.5. OUTLOOK
Sales growth is on the horizon for the Specialty Food Stores industry, driven by an increase in consumer sentiment, a rise in
disposable income and continual demand for organic goods. However, these sales will be slightly offset by increased
competition from mainstream grocery stores and supermarkets. In the next five years, revenue is projected to increase at an
average of 1.3% per year to $8.6 billion in 2018. In 2014, revenue is forecast to increase 1.9% to about $8.3 billion; consumers
will spend more money on discretionary goods than in prior years. The national unemployment rate is expected to improve,
which will enable more people to spend money on products. Also, as consumers continue their trend toward healthy organic
foods, revenue will expand.
Consumers are expected to increase their spending in the next five years. Consumer sentiment will rise at an average annual
rate of 1.8% from 2013 to 2018 as consumers regain confidence that the economy has stabilized. In addition, disposable income
is forecast to increase at an annualized rate of 2.1% per year. As consumers gain confidence and their wallets become fuller,
they will buy more discretionary products, such as gourmet foods. Americans will slowly return to their more expensive eating
habits, and industry sales will rise.
However, the survival of each company will be based on the variety of their product offerings and consumer demand for each
product. For instance, specialty coffee retailers and organic food stores are expected to experience higher revenue because
Americans still heavily demand these products. Other stores, such as spice stores, may experience weaker sales because many
Americans will choose to eat out instead of cooking at home. Therefore, industry growth will be generated from incremental
increases associated with new store growth; the number of specialty food retail outlets is forecast to rise at an annualized rate
of 1.1% to 49,082 establishments at the end of 2018. While each has limited employment opportunities, the growth in retail
stores will likely cause a parallel increase in industry employment and wages through 2018.
Profit margins (earnings before interest and taxes) will remain relatively stable at an average of 3.6% of revenue, rising slightly
towards the end of the period. The cost of sales may rise for some stores depending on the ingredients of their goods. For
instance, candy stores may have higher purchasing costs since the price of sugar is projected to rise 3.0% in 2014, while this
rise will be offset by lower cost of inputs for other retailers.
37
concerns about artificial pesticides will boost demand. Fruit and vegetables will likely be the main product segment, followed
by nutrition bars and other packaged foods.
Organic food prices are typically higher than nonorganic food. Many consumers may desire to start purchasing organic goods,
but they will not actually do so until the latter half of the five-year period, when disposable income grows more quickly. Higher
prices result from the inability to capture economies of scale because production is usually more labor and management
intensive and occurs on a smaller scale.
Similar to the previous five-year period, the industry will face intense external competition, especially from grocery stores and
supermarkets. On top of that, the Specialty Food Stores industry has dealt with increased competition from nontraditional food
operators, such as mass merchandisers and big-box stores. These competitors offer many of the same goods at lower prices;
therefore, to keep food retail market share, grocery stores and supermarkets will continue to diversify their product offerings
and supply gourmet and specialty foods. As a result, supermarkets have taken market share away from specialty food retailers.
For instance, grocery stores are increasing the amount of organic produce they carry.
According to the Organic Trade Association, specialty retailers accounted for 45.0% of organic food sales in 2008 but only
36.5% in 2011 (latest available data) because external competitors, notably supermarkets, provided more organic options. This
is expected to increase immensely in the next five years as more and more Americans choose to buy organic.
Such competition is expected to become even more strenuous as mass merchandisers carry more organic foods, stealing sales
from specialty stores and grocery stores. Establishments such as Target and Walmart already carry organic goods. As mass
merchandisers continue to sell organic goods, grocery stores will diversify further and carry more goods that are similar to
specialty food retailers.
38
expected to account for an estimated 10.0% of industry revenue in 2013, down from recent years. Sales for dairy products by
specialized retailers have been affected by the ability of supermarkets to penetrate and gain market share in these product
lines. This is especially relevant, because a sharp decline in consumer spending has greatly intensified competition among
supermarkets.
Specialized coffee and tea stores often sell only gourmet and rare blends, since popular brands are carried by larger grocery
stores and supermarkets that are able to charge lower prices. Therefore, these are premium stores dedicated to the more
sophisticated and avid coffee and tea drinkers. In the past three years, market share has slightly declined for this segment of
the industry, with tight-spending consumers trading down to less expensive varieties. In 2013, coffee and tea are expected to
account for about 5.0% of total industry sales.
Other specialized food stores in this industry sell products such as nuts, spices, soda, bottled water and many types of organic
and health foods. Organic food sales have grown extremely rapidly over the current period, relative to other segments; this
trend is expected to continue strongly over the next five years, with intensifying consumer shifts towards healthy dieting. Food
shops specializing in niche products tend to be most successful in this industry, as they face little external competition from
other retail giants. These shops make up a huge portion of industry sales, at roughly 30.0% in 2013.
Niche and specialty food item purchases are driven primarily by household disposable income and overall consumer
sentiment. Gourmet food retailed in this industry is correlated with the luxury market and often retailed at higher prices.
Households with higher levels of income are more likely to afford more expensive products, such as gourmet cheeses or
premium coffee. By contrast, consumers with lower levels of disposable income may be limited in their purchases, choosing
more generic brands at the supermarket. Income growth softened considerably over 2008 and 2009, which has had a
significant effect on luxury food spending.
Although income is a large determinant, household spending perceptions also indicate household purchasing patterns.
Movements in sentiment take into account household finances, business conditions, unemployment, inflation, interest rates,
income and government economic policy. Consumer sentiment experienced a massive drop of 25.5% over 2008, and dipped a
bit further in 2009. Consumer sentiment recovered in 2010, rising 20.6%. Consumers are expected to have even higher
confidence in the economy in 2013 as the stock market is stabilizing and disposable income rises.
Demand is also correlated to the price of industry products relative to other retail sources. In general, store prices may be
slightly higher than supermarket and grocery store prices due to higher operating costs incurred by the smaller operators in
this industry. Supermarket operators and other grocery retailers are able to buy in bulk at a discount, thereby offering goods at
cheaper prices.
Lastly, eating trends also has an effect on the amount of demand for this industrys products. For instance many Americans are
choosing to purchase more organic foods due to health reasons. As such, the revenue for organic food stores has flourished.
When consumer eating trends change specific stores within this industry benefit.
Niche food retailers do not directly participate in international trade, rather, food retailed is often sourced from a variety of
domestic and international locations. The majority of operators in this sector are American-owned and earn their sales
domestically; however, some domestic players own foreign operations. Analysis indicates there are no significant foreign
players operating in this industry.
The industry does not trade in exports but it may be affected by them. Rocky Mountain Chocolate Factory Inc. manufactures
and retails chocolate candy and sells its goods through factory outlet malls, regional malls and at tourist areas. In addition to
the stores it operates across 40 states, the company also has stores in Canada, Guam and the United Arab Emirates. In total,
there are eight company-owned stores and almost 400 franchises.
Other operators include Candy Bouquet, which is a candy store franchise business. The company has more than 600 stores
across 44 countries worldwide, spanning from New Zealand to Romania. In 2004, the company joined with Asian partners to
form Candy Bouquet Asia Ltd. Its headquarters are now situated in Kuala Lumpur. Candy Express is a candy retailer with
about 80 stores that are spread across the United States and other countries.
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Following its acquisition of Sweets from Heaven, Fuzziwigs Candy Factory operates more than 72 stores across the United
States, the Bahamas and Indonesia. Another specialty shop that operates overseas is Godiva Chocolatier Inc., which is a
manufacturer and retailer of chocolate goods with a network of boutique stores worldwide, including 200 in the United States.
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Free-range. This label indicates that the flock was provided shelter in a building, room, or area with unlimited access
to food, fresh water, and continuous access to the outdoors during their production cycle. The outdoor area may or
may not be fenced and/or covered with netting-like material. This label is regulated by the USDA.
Cage-free. This label indicates that the flock was able to freely roam a building, room, or enclosed area with unlimited
access to food and fresh water during their production cycle.
41
Natural. As required by USDA, meat, poultry, and egg products labeled as natural must be minimally processed and
contain no artificial ingredients. However, the natural label does not include any standards regarding farm practices
and only applies to processing of meat and egg products. There are no standards or regulations for the labeling of
natural food products if they do not contain meat or eggs.
Grass-fed. Grass-fed animals receive a majority of their nutrients from grass throughout their life, while organic
animals pasture diet may be supplemented with grain. Also USDA regulated, the grass-fed label does not limit the use
of antibiotics, hormones, or pesticides. Meat products may be labeled as grass-fed organic.
Pasture-raised. Due to the number of variables involved in pasture-raised agricultural systems, the USDA has not
developed a federal definition for pasture-raised products.
Humane. Multiple labeling programs make claims that animals were treated humanely during the production cycle,
but the verification of these claims varies widely. These labeling programs are not regulated under a single USDA
definition.
No added hormones. A similar claim includes Raised without Hormones. Federal regulations have never permitted
hormones or steroids in poultry, pork, or goat.
U.S. sales of organic food and beverages have grown from $1 billion in 1990 to $26.7 billion in 2010. Sales in 2010
represented 7.7 percent growth over 2009 sales. Experiencing the highest growth in sales during 2010 were organic
fruits and vegetables, up 11.8 percent over 2009 sales
Organic food and beverage sales represented approximately 4 percent of overall food and beverage sales in 2010.
Leading were organic fruits and vegetables, now representing over 11 percent of all U.S. fruit and vegetable sales.
Total U.S. organic sales, including food and non-food products, were $28.682 billion in 2010, up 9.7 percent from
2009. Organic non-food sales grew 9.7 percent in 2010, to reach $1.97 billion.
Mass market retailers (mainstream supermarkets, club/warehouse stores, and mass merchandisers) in 2010 sold 54
percent of organic food. Natural retailers were next, selling 39 percent of total organic food sales. Other sales occur via
export, the Internet, farmers markets/ Community Supported Agriculture, mail order, and boutique and specialty
stores.
Certified organic acreage in the United States reached more than 4.8 million acres in 2008, according to latest data
posted by USDA. U.S. total organic cropland reached 2,655,382 acres in 2008, while land devoted to organic pasture
totaled 2,160,577 acres.
California leads with the most certified organic cropland, with over 430,000 acres, largely used for fruit and vegetable
production. Other states with the most certified organic cropland include
Wisconsin, North Dakota, Minnesota and Montana. Forty-five states also had some certified organic rangeland and
pasture in 2008; of those, 13 states had more than 100,000 acres each, reflecting the growth in the U.S. organic dairy
sector between 2005 and 2008.
42
Certified organic cropland acreage between 2002 and 2008 averaged 15 percent annual growth. However, it still only
represented about 0.7 percent of all U.S. cropland, while certified organic pasture only represented 0.5 percent of all
U.S. pasture in 2008. Overall, certified organic cropland and pasture accounted for about 0.6 percent of U.S. total
farmland in 2008.
Fresh produce is still the top-selling organic category in retail sales. Meanwhile, the organic livestock sector has seen
growth, with 2.7 percent of U.S. dairy cows and 1.5 percent of layer hens managed under certified organic systems.
According to Organic Monitor estimates, global organic sales reached $54.9 billion in 2009, up from, $50.9 billion in
2008. The countries with the largest markets are the United States, Germany, and France. The highest per capita
consumption is in Denmark, Switzerland, and Austria.
The U.S. organic food industry crossed a threshold in 2000: for the first time, more organic foodwas purchased in
conventional supermarkets than in any other venue.
Growth in retail sales has equaled 20 percent or more annually since 1990. Organic products arenow available in
nearly 20,000 natural foods stores, and are sold in 73 percent of all conventional grocery stores.
According to USDA estimates, U.S. certified organic cropland doubled between1992 and 1997, to 1.3 million acres and
have tripled again from that period to 2010.
The new U.S. Department of Agriculture standards for organic food are expected to facilitate further growth in the
organic foods industry.
Fresh produce is the top-selling organic category, followed by nondairy beverages, breads and grains, packaged foods
(frozen and dried prepared foods, baby food, soups, and desserts), and dairy products. Organic dairy has been the
most rapidly growing segment, with sales up over 500 percent between 2004 and 2010.
Nine USDA agencies have expanded research, regulatory, and other programs on organic agriculture.
The main regulatory program is the creation, implementation, and administration of the USDA organic standard.
Other programs include crop insurance for organic farmers, information provision, and promotion of organic exports.
The United States organic food market grew by 9.4% in 2011 to reach a value of $29.2 billion.
Figure 8: United States organic food market value: $ million, 2007-2011
Year
$ million
million
2007
20,410.0
14,670.8
2008
23,607.0
16,968.8
15.7%
2009
24,803.0
7,828.5
5.1%
2010
26,712.8
19,201.3
7.7%
2011
29,223.8
21,006.2
9.4%
CAGR: 20072011
9.4%
43
%
Gro
wth
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organic farmers who supply the bulk of the market, large retailers are usually at a distinct advantage in this market, as they
command far more power. Overall, supplier power is weak.
As suppliers generally depend on retailers to sell their products, growing consumer demand for organic food products is likely
to drive the growth of retail outlets. The International Federation of Organic Agricultural Movement (IFOAM) represents the
worldwide body of organic agriculture and provides a platform for global exchange and co-operation, although regulation
differs regionally.
Labeling in the US is overseen by the National Organic Program. Compliance with legislation regarding organic labeling can be
costly and may deter new entrants. Additionally, the large size of leading incumbents may serve to put off new entrants,
although the diverse nature of the leading players' revenue streams means that there is less likelihood of retaliation. Strong
historic growth that is predicted to continue in the forecast period is likely to attract new entrants. Overall, there is a strong
threat of new entrants.
The main substitutes to the organic food market include non-organic versions of the products, which are notably cheaper. For
sole organic retailers, organic products are marketed for their environmental benefits and nutritional quality, which limits the
threat of cheaper non-organic products. However, most retailers stock these non-organic substitutes, and thus their threat on
such retailers revenues is limited.
Another possible alternative to purchasing these types of products is subsistence farming; growing organic agricultural
produce for ones own consumption. However, this activity has switching costs, it is time-consuming, requires some degree of
specialist knowledge, and incurs the cost of purchasing seeds, fertilizer, and gardening products. In addition, many people do
not have the land required to make this a viable option. Moreover, quantity and quality of end produce is not guaranteed. Even
those who can successfully conduct subsistence farming are unlikely to grow everything to meet their own needs; they may still
need to purchase agricultural products from market players. For other categories, individual growth is not feasible. Overall,
there is a strong threat from substitutes.
Players within this market range from small specialized organic shops to large supermarket chains. Thus the importance of
organic food revenues differs, depending on their level of specialization. Limited product differentiation within each organic
food category and negligible switching costs for buyers heightens rivalry. This is, however, mitigated in instances where players
offer a wider selection of organic food products.
For large supermarkets, organic produce contributes a small amount to revenues; most supermarkets have not only
nonorganic food, but non-food products such as clothing, electricals and homeware to provide other sources of revenue. This
limits rivalry between these players. Low cost switching and undifferentiated products, to a certain extent, increase rivalry
between players.
Strong market growth in the US market serves to ease the degree of rivalry amongst players, as they can generate revenues
without encroaching on other players share of the market. Overall, there is a moderate degree of rivalry in this market.
45
Timelines
June 1, 2012 Effective date that trade may begin under the arrangement
Product grown, processed, or packaged and certified by an accredited certifying agency (ACA) operating within their
respective country/region borders can be shipped directly to the EU/U.S. as certified organic product.
Product certified to either standard that has not been handled (touched down) in the United States or EU cannot be
shipped directly to the EU/U.S.
Product not grown, processed or packaged in the EU that is destined for the United States must be certified to the
USDA-NOP standard by a USDA-accredited certifier.
Product not grown, processed or packaged in the United States to be shipped directly to Europe must be certified to
the EU standard or certified by a Certification Body recognized by the EU as an equivalent Certification Body/Foreign
Certification Agent.
Mutual Accreditation
The EU and U.S. mutually recognize Accredited Certification Agents (ACA) and Certification Bodies (CB) as
accredited certification agents.
Product grown, processed, or packaged in the U.S./EU can be shipped directly to the EU/U.S. as certified organic
product
Product certified to either standard that has not been handled (touched down) in the United States or EU cannot be
shipped directly to the EU/U.S.
Product not grown, processed or packaged in the EU destined for the United States must be certified to the USDANOP standard by a USDA-accredited certifier.
Product not grown, processed or packaged in the United States to be shipped directly to Europe must be certified to
the EU standard or certified by a Certification Body recognized by the EU as an equivalent Certification Body/Foreign
Certification Agent.
Are all-natural claims losing their luster?
The phrase 'all-natural' is still emblazoned on scores of new food and beverage launches, but not quite as many as it used to be,
according to Mintel research. Speaking at the 7th annual Food Technology & Innovation Forum in 2012, Mintel Innovation &
Insight Director Lynn Dornblaser said that natural claims featured on 14% of new product launches in the US in 2010.
In 2012, that number had dipped to 12%.
There is some consumer fatigue around natural
While not a huge shift, it is perhaps an indication that natural claims are not quite as sexy as they used to be, she said.
There is some consumer fatigue around natural, and we are starting to see companies hone in on some more specific claims
instead.
But she added: Weve also seen that since 2010, there has been a drop off in no additives/preservatives claims, organic claims
and vitamin/mineral fortified claims.
Meanwhile, growth in several other claims - from ethical to plus or minus claims, functional claims and suitable for claims has also "flattened out" since 2010, she added.
However, there has been growth in some specific functional claims in areas such as heart and digestive health.
46
47
However, there are also huge opportunities for companies to join the conversation and engage with bloggers and other online
influencers to find out what consumers are thinking and identify new growth opportunities, she added.
It's also important to be strategic, targeted and discerning when using social media, she said, or you can end up irritating your
audience and just contributing to the noise instead of being effective. "Be selective."
PepsiCo: When will nutrition really get personal?
PepsiCo SVP Gregory Yep kept his cards pretty close to his chest during his presentation, in which he talked about "white space
opportunities", "changing paradigms" and the importance of cross-disciplinary research (Pepsi has statisticians, biologists,
chemists, engineers and computer scientists all under one roof).
Dr Yep: 'Eventually, nutrigenomics is a tool that all food companies will be looking at'
Delegates also got a top-line view of how PepsiCo spends its R&D budget, from working with athletes at the Gatorade Sports
Science Institute to technology scouting, taste trekking around the globe and searching for the next big natural high intensity
sweeteners.
On the subject of nutrigenomics, Dr Yep said PepsiCo does not yet have any products that embrace this technology as it is "not
ready".
But he added: "Eventually it's a tool that all food companies will be looking at."
MyPlate 2.0
In a presentation looking at how to help Americans meet the 2010 Dietary Guidelines, USDA's Dr Robert Post said that the
MyPlate design was here to stay, but that the messaging around it would evolve.
Praising the Nestle 'Balance Your Plate ' initiative as a good example of how to incorporate the MyPlate concept into nutrition
marketing, he said that USDA was currently exploring similar initiatives as part of 'MyPlate 2.0'.
Dr Robert Post: Americans are eating far too many empty calories.
As to the relationship between the dietary guidelines and what Americans actually eat, the 2010 'report card' for the nation was
"not one you want to bring home to Mom", he said. But he added. "And Mom's not doing too well herself."
However, consumer surveys showed that increasing numbers of Americans are at least trying to follow government healthy
eating advice, he said, with women, older people and highly educated Americans trying the hardest.
Think global, act local... Dairy Queen on how to make all All-American concept work in China, Singapore and Egypt
48
It's not in quite as many markets as McDonald's -yet - but Dairy Queen is now in 21 countries from Egypt to Saudi Arabia,
Guatemala and China, said global product development boss Dr William Barrier. And trying to strike a balance between
providing a consistent experience and catering to local tastes is an ongoing challenge.
In a presentation outlining the challenges of operating in markets where the infrastructure, regulatory requirements and
consumer tastes can be very different to those in Dairy Queen's home market, Dr Barrier described how the company had had
to adapt its supply chain and product development systems to cope.
For example, in the US, Dairy Queen typically works with Mom & Pop-scale franchisees, he said, whereas in Asia, it typically
works with large corporations operating large numbers of outlets.
Similarly, while Dairy Queen's target audience in some markets is families, in some Asian markets, it's core demographic is hip
18-32-year old Millennials looking for a more upmarket experience, in both products and decor.
As for ingredient-sourcing, there is no one-size fits all policy, he said. In China, for example, Dairy Queen quickly discovered
that finding an industrial-scale, automated supplier of chocolate brownie pieces for adding to Blizzards was not going to be
easy, while in Egypt, it is only permitted to use ingredients with a shelf-life of three months.
In the Middle East, meanwhile, it proved very difficult to find suppliers of fresh chicken, while any market entry in India will
likely involve "radical changes" to product menus, he predicted. Dr Barrier: Think global, act local
As for the development cycle for new products, this can range from six months to three to four years, depending on whether
proprietary ingredients are involved and whether the infrastructure in the market in question is in place to take new concepts
to market, he said.
On the product development front, Dairy Queen has also been working with flavors giant Givaudan to create novel variations of
the Blizzard built around concepts such as 'wellbeing' (green tea); 'rooted and real' (pink guava & almonds, ginger chocolate,
lychee cheesecake); and 'desire and delight' (tiramisu, strawberry and white & dark chocolate).
Some of these will translate into multiple markets, while others are more region-specific, he said.
Are you ready for FSMA? It's 'HACCP on steroids', says Leavitt Partners
While several aspects of the Food Safety Modernization Act (FSMA) are still being finalized, we know broadly what the FDA
expects, and many manufacturers need to ask themselves some tough questions, said Leavitt Partners senior director for food
& import safety Melanie Neumann.
One of these is: 'Do I really know who my suppliers' suppliers are?' she said. Others include, 'How robust are my supplier
assurance systems?' and 'Am I chasing up gaps/issues identified in questionnaires from overseas suppliers?'
Similarly, while the details of the Voluntary Qualified Importer Program (VQIP) have not been finalized yet, Neumann urged
delegates to consider whether their key overseas suppliers might benefit from being enrolled into the scheme, which would
effectively shift them into the "priority lane" in the event of any hold up at the border, she said.
Millennials, and busy energizing moments...
In a presentation exploring how to translate consumer insights into winning new products, InsightsNow CEO Dr David
Lindahl told delegates that people in focus groups are in a "rational mode".
However, when consumers go into a store, or eat your product at home, they are operating at an "emotional level", and this is
what manufacturers must explore if they are to find out what consumers really want, he said.
By thinking about a category such as meal replacement in a more open-ended way, manufacturers can also unlock new
opportunities, he suggested.
49
Take meal replacement, which is currently a $2.3bn category in the US. In reality, it could be worth more than double that, he
said, if you explore - via analysis of social media as well as qualitative surveys - consumers' meal replacement 'moments', what
options they have, what choices they make, and how satisfied they are with those choices.
For example, for many Millennials, meal replacement is not about drinking a Slimfast shake or having a protein bar, but eating
a pot of Chobani and a Coke Zero while making the children's lunchboxes, he said. "It's about capturing that busy energizing
moment."
Does it look like a juice? Does it pour like a juice? Is there an orange on the label? So why is there only 5% juice?
Consumers expect to see added sugar in donuts and candy bars. But when they discover reams of it in dried fruits, juices and
other products marketed as healthy foods, they feel shortchanged, and rightly so, according to one nutrition expert.
Speaking at a panel debate at the 2013 Food Technology & Innovation Forum last week, Dr Jim Painter, professor at the school
of family and consumer sciences at Eastern Illinois University, said manufacturers are required by law to list the juice content
in juice products on the Nutrition Facts panel (contains 10% juice).
But when the front of a 5% juice product looks identical to the front of 100% juice product sitting right next to it in the chiller,
how many consumers bother to flip the pack and read the small print?
Pointing at a picture of Sunny Delight, he said: Does it look like a juice? Does it pour like a juice? Is there a big orange on the
front? But its only 5% Juice
He went on to show delegates a picture of cartons of Minute Maid sitting next to each other in a chiller. One (Minute Maid
Original) had pictures of oranges on the label and the phrase 100% juice on the label.
Yet at a glance, they look much the same, he said.
He then compared Campbell Soups V8 Fusion, which has 100% juice, and V8 Splash, which looks very similar but has only
10% juice, he observed.
Heres where we are getting a little dishonest.
Similarly, dried fruits are not always as healthy as they seem, with banana chips often sold deep-fried and coated in sugar while
dried cranberries are typically made palatable through the addition of significant amounts of added sugar to combat their tart
flavor, he said.
While there are reduced sugar dried cranberries available (Ocean Spray now sells Craisins sweetened with sucralose as well as
sugar), most sweetened dried cranberries are more like gummy bears or M&Ms despite their phytonutrient content, he
claimed. Raisin juice concentrate contains small amounts of glutamic acid, and works surprisingly well in savory products
Raisin paste - produced by extruding raisins through a fine mesh screen - can help manufacturers reduce sugar in sundae-style
yogurts and cottage cheese, ice cream, fruit-filled cereal products, granola bars and extruded breakfast cereals, said Reinagel.
In bakery items, such as breads, cookies and pastries, it also inhibits molds, extends shelf-life and enhances flavor; while
adding it to burgers and other meat products increases succulence and improves flavor, she said.
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8. Dairy
Companies in this industry mainly manufacture dairy products such as pasteurized milk, cream, butter, yogurt, cheese, and
dry, condensed and evaporated milk. The industry also manufactures substitute dairy products made from soybeans and other
nondairy ingredients. Frozen dairy products like ice cream and frozen yogurt are excluded from this industry.
Rapidly rising demand from growing foreign economies drove up milk and dairy product exports during the past five years,
benefiting the US Dairy Product Production industrys revenue. At the same time, heightened world demand raised the price of
raw milk, which forced the industry to pass rising costs on in the form of higher prices. According the US International Trade
Commission, exports made double-digit gains almost every year in the past five years. As a result of high export growth,
revenue is expected to increase at an annualized rate of 0.3% in the five years to 2012. This rather anemic outcome stems
largely from a 15.7% dip in 2009 revenue due to reduced disposable incomes and low world demand during the recession.
Although milk and dairy products are staples in American diets, consumers bought less of each and chose value-brand
products. In 2012, higher consumer spending was expected to boost revenue 1.0% to an estimated $89.3 billion.
The dairy market in the United States accounts for 15 percent of the global dairy market. Cheese dominates the market, with 40
percent share, followed by milk (34 percent), yogurt, cream cheese and cottage cheese (12 percent), spreadable fats (8 percent),
cream (5 percent) and chilled desserts (1 percent).
During the past decade, dairy product wholesalers and retailers have undergone consolidation. The increased concentration of
downstream markets required dairy producers to supply vendors on a national scale. Price competitiveness became
increasingly important for securing national supply contracts, but increasing input costs (a result of rising feed costs) forced
producers to raise prices. To mitigate rising costs, dairy manufacturers progressively merged, acquired competitors and formed
strategic alliances to improve efficiencies through vertical integration. For example, major player Dean Foods acquired
WhiteWave- Alpro in 2009, extending its market reach to include Horizon Organic milk and Silk brand products in its product
mix. Consequently, the number of enterprises is expected to fall 0.1% per year on average to 749 during the five years to 2012.
In the next five years, dairy manufacturers are projected to benefit from higher consumer disposable income during continued
economic recovery, which will boost revenue. Manufacturers are anticipated to introduce more high-profit products that cater
to changing consumer tastes; for instance, more firms are adding probiotics and introducing new flavors to their products.
Meanwhile, still rising feed costs will hamper profit expansion, and competition from overseas dairy producers will temper
revenue growth. The industry is forecast to grow moderately during the five years to 2017, with revenue rising at an annualized
rate of 0.7% to $92.3 billion.
Downstream demand for dairy products, such as grocery wholesalers and food-service industries, remained positive during the
five years to 2012 because milk, cheese and butter are considered staple items and are also used in products ranging from baby
formula to dried whey. As such, per capita dairy consumption generally moves in line with population growth. However, the
input price of raw milk fluctuated significantly during the past five years, causing revenue to be highly volatile. Strong export
growth drove revenue gains, but a recession-related dip in 2009 offset this growth somewhat and also contributed to increased
volatility.
Global economic recovery and growth in disposable incomes finally encouraged consumers to increase their spending on
grocery items, including dairy products, further driving up industry demand from recessionary lows. As a result of contrasting
trends over the past five years, analysts expect revenue to increase at an annualized rate of 0.3%. In 2012, continued gains in
the price of milk (ongoing since 2010) are expected to boost revenue 1.0% to an estimated $89.3 billion.
Decreasing consumption among children, who have been turning to soft drinks or fruit juices, has fueled declines in fluid-milk
consumption. In addition, as children grow older, they typically increase soft drink consumption and further decrease milk
consumption. As a result, a falling percentage of raw milk has been going into fluid-milk production as milk beverages
51
increasingly compete with substitutes. Fortunately, consumption of other milk-based products, like cheese, whey and yogurt,
has helped offset declines in fluid-milk consumption.
52
preferences or accommodate health needs. Overall, this segments share of revenue has increased slightly during the past five
years because of the popularity of dairy alternatives that this industry produces.
Creamery butter
Butter is expected to make up the smallest product segment, contributing only 2.8% of revenue in 2012. Product shipments are
divided according to the weight of their consumer packages, with a distinction being made for shipments greater than or less
than three pounds. This product segment is expected to decrease as consumers shift toward healthier eating and, thus, become
more wary of eating butter.
Demand for dairy products is primarily determined by household incomes. In the case of staple products such as butter and
cheese, changes in household incomes have little effect on demand. In the case of milk powders, which are often regarded as
inferior products, purchases tend to fall as household incomes increase. Conversely, the consumption of luxury products such
as gourmet or specialty cheeses will increase as household incomes increase. Other determinants include price, consumer
lifestyles, population growth and demographics.
Figure 9: Dairy food segments
53
considered competition because such products are included in this industry). Competition is based on price, nutritional
content, taste, convenience, branding and advertising.
Wholesalers and supermarkets
Wholesalers and supermarkets are the most important distribution channels for dairy products and together account for about
53.5% of revenue in 2012. Dairy product manufacturers may supply supermarkets directly or a wholesaler may act as an
intermediary to deliver products to retail outlets. Fluid milk and fresh-cultured products are also sold to other retail outlets,
including grocery store chains, mass merchandisers, convenience stores, smaller retail grocery outlets, warehouse club stores
and grocery warehouses.
Strictly at the retail level, national supermarkets are expected to demand about three-fourths of segment sales. This share of
revenue increased in the past five years as consolidation of retailers led to an increased number of consumers shopping at these
larger stores. Consequently, higher volumes of dairy products have been sold to this channel.
Food-service industry
Restaurants, cafes, caterers and other hospitality venues account for about 39.7% of revenue in 2012. They use milk, cheese,
butter and cream in food preparation. In the past five years, this segments share of the market remained stagnant. Because
this market is often tied to changes in consumer spending, demand fluctuates in line with the industry. During the recession
when people had less disposable income, they went out to eat less. When disposable income levels recovered, however,
consumers ate at restaurants more, which led to a higher volume of dairy purchased by this segment.
Exports
Exports account for about 6.8% of revenue in 2012. Although this is a small share of revenue, it is up from 3.7% of revenue in
2007. Booming economies in Asia and Latin America have increased disposable incomes in those areas and provided the
opportunity to increase spending on dairy products that were once considered luxury goods.
8.3. LOCATIONS
Dairy product manufacturers tend to be located close to dairy and cattle farms given the products perishable nature and high
transportation costs. Traditionally, milk production is localized, but improvements in raw milk quality and declining transport
costs have increased competition between producers in different regions and are allowing national dairy cooperatives to
emerge. The Great Lakes, Mid-Atlantic and West regions account for the largest concentrations of industry locations.
The Great Lakes region is estimated to account for 30.7% of establishments in 2012. Wisconsin is the regions greatest
contributor and the countrys largest dairy-producing state. Wisconsin accounts for 18.8% of the nations establishments.
Further, the state is home to about 14.0% of all US dairy cows, making it ideal for dairy producers to base themselves in this
region.
The Mid-Atlantic encompasses about 16.0% of establishments in 2012. The region is home is to some of the countrys largest
population centers. The West region is estimated to comprise 14.9% of establishments in 2012. Although California is the
second-largest dairy-producing state in the United States, with 10.5% of establishments, it is the largest milk producer. The
Plains regions accounts for about 11.7% of establishments. Minnesota has 5.1%, and Iowa and Missouri follow with about 2.0%
each.
54
55
9. Functional Food
Functional food is a food where a new ingredient(s) (or increased quantity of an existing ingredient) has been added to a food
and the new product has an additional function often related to health-promotion or reducing a disease burden.
Functional foods are an emerging field in food science due to their increasing popularity with health-conscious consumers and
the ability of marketers to create new interest in existing products. The term was first used in Japan in the 1980s where there
is a government approval process for functional foods called Foods for Specified Health Use (FOSHU).
Some countries, such as Canada, Sweden, the United States and the European Union, have specific laws concerning the
labeling of such products. The term "functional foods" does not have any legal meaning in the United States, but it is defined
by the Institute of Food Technologists as "foods or food components that provide a health benefit beyond basic nutrition."
In the United States, the kinds of claims which are allowed are overseen and regulated by the Food and Drug Administration
(FDA). However, some claims will fall outside the range of the FDA and be accompanied by the disclaimer: "These statements
have not been evaluated by the Food and Drug Administration. This product is not intended to diagnose, treat, cure, or prevent
any disease."
Such a disclaimer typically accompanies supplements rather than foods, but since the definition of functional food is still
evolving and somewhat amorphous, a functional food may also bear this warning.
The Academy of Nutrition and Dietetics (AND) defines functional foods as foods "that include whole foods and fortified,
enriched or enhanced foods have a potentially beneficial effect on health when consumed as part of a varied diet on a regular
basis, at effective levels." The AND breaks down functional foods into four categories: conventional foods, modified foods,
medical foods, and foods for special dietary use.
Conventional Foods
These are the most basic of the functional foods because they haven't been modified by enrichment or fortification; they're still
in their natural state. Most whole fruits and vegetables fall into this category because they're rich in phytochemicals such as
lycopene and lutein, as well as other beneficial compounds.
Modified Foods
Foods that have been enriched, fortified or enhanced with nutrients or other beneficial ingredients. Calcium-fortified orange
juice, folic acid enriched breads and margarine enhanced with plant sterols are functional foods that have been modified.
Energy drinks that have been enhanced with herbs such as ginseng and guarana, as well as other potentially controversial
foods, also fall into this category.
Medical Foods
The FDA defines medical food as "food which is formulated to be consumed or administered enterally under the supervision of
a physician and which is intended for the specific dietary management of a disease or condition for which distinctive
nutritional requirements, based on recognized scientific principles, are established by medical evaluation." Medical foods
include specialized formulas designed for people who have specific health problems. These foods require the help and
supervision of a health care provider.
Foods for Special Dietary Use
These are similar to medical foods, but they're available commercially and don't require the supervision of a health care
provider. These foods fill special dietary needs that are due to specific health conditions, such as celiac disease, lactose
intolerance, or obesity. Gluten-free foods, lactose-free dairy products and foods designed to aid weight loss are considered
foods for special dietary use if you have those conditions. Infant foods are also in this category.
56
Health Claims
The FDA allows certain health claims to be placed on food labels. Nutrient content claims, structure and function claims, or
health claims can be placed on labels. Nutrient content claims describe the content of the foods and can include words like
"free," "low," and "reduced." Calorie-free foods, low-fat foods and reduced-sodium foods display these types of claims.
Structure and function claims describe the role of a nutrient in the function of your body. A yogurt label, for example, can claim
"calcium builds strong bones." Health claims must be approved by the FDA. For example, foods that contain olive oil or oats
and oatmeal can make specific claims about how those ingredients affect health.
Yet, consumer skepticism persists mainly due to the fact that benefits associated with consuming the products may be difficult
to dtect. The industry suggests the establishment of a health claim regulating agency, which may increase consumer
confidence. Strict examination of some of the functional food claims may discourage some companies from launching their
products.
57
Figure 11: Comparing Functional Foods with medical foods and drugs
Difference
Functional foods
Medical foods
Prescription drugs
Uses
Energy enhancement;
weight management;
bolster gut, bone or heart
health; disease risk
reduction; memory
improvement
Treatment of disease,
symptom, or condition
Method of
obtainment
No prescription or
supervision needed;
consumer selects
Prescribed by health
provider
Distribution
channels
Supermarkets, drugstores,
online, major retailers
Pharmacies, hospitals
Regulatory body
As desired
As needed
Amount
consumed
As needed
Source: company reports, Nutraceutical World, The New York Times, US Food and Drug Administration, Institute of Food
Technologies
58
Ingredient suppliers
Food processing R&D;
Synthesis and formulation
e.g., Cargill, ADM, Danisco
Retailers
Distribution to consumer
e.g., Walmart, Safeway
End consumers
of functional
food
Source: company reports, Nutraceutical World, The New York Times, US Food and Drug Administration, Institute of Food
Technologies
Private-label brands may be poised to gain traction in the functional foods market during the current recession. These brands
tend to gain unit market share during recessionary times because of their appeal to price-sensitive consumers looking to pay
less for comparable items. From 1990 to 1991, unit share for these brands increased from 17.6 percent to 20 percent, and from
2001 to 2003, from 20 percent to 21.8 percent. The trend appears to be holding in the current downturn.
From 2008 - 2012, sales of private-label food and other consumer products increased about 10 percent annually, compared
with 3 percent growth for branded products. It is likely the trend could extend to functional foods; some manufacturers, such
as FACT Corporation, already provide functional foods through private-label retail channels.
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Company
PepsiCo
Quaker, Gatorade
Coca-Cola
General Mills
Cheerios, Yoplait
Kellogg
Special K, Kashi
Kraft
Nestle
Nesquik, PowerBar
Danone
Activia, Essensis
Unilever
Yakult Honsha
1. Fruits/Vegetables
70%
2. Fish/Fish Oil
18%
3. Dairy
16%
4. Herbs/Spices
10%
5. Whole Grains
10%
6. Fiber
7%
7%
8. Tea/Green Tea
5%
9. Nuts
4%
10. Vitamins/Supplements
3%
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Dairy is gaining in popularity, driven in large part by innovations in yogurts. By now, enough consumers are likely aware of the
helpful bacteria naturally present in yogurts, increasing receptiveness to the idea of probiotic and prebiotic yogurts. Moreover,
consumers do not need to markedly change their behavior to reap the benefits associated with functional yogurtsa single
yogurt portion may be sufficient. In contrast, phytosterol-infused margarines are meant to be consumed three times a daya
behavioral change that may be undesirable to many consumers.
Foods claiming to boost energy levels constitute 29 percent of the market categorized by benefit. These products tend to have
attributes that the consumer can quickly feel, which has contributed significantly to their popularity.
Products in the gut, bone, and heart health categories comprise a sizable share of the market and have traditionally been
purchased by older consumers. Other functional foods include products with claims to help manage weight, sharpen mental
faculties, and improve infant health. These products tend to be sought by younger consumers, especially those with or
expecting children.
Products for enhanced cognitive health, such as omega-3 fatty acids, are expected to be an $8 billion market by 2013, according
to Packaged Facts. Other areas of growth are expected to be products for weight management, mood enhancement, and those
that promote healthy, beautiful skin.
1.
Americans believe they have some control over their health and that food and nutrition play the most important role
in maintaining and improving their overall health.
Heart health and weight control are the top health concerns of Americans.
Consumers are most aware of food/health benefit associations related to their top two health concerns as well as longheld diet and health relationships.
Despite increases in awareness, the number of Americans actually consuming these foods for their associated health
benefits has generally not changed since 2005.
Americans cite price, taste, availability, and convenience, among others, as barriers to consuming functional foods.
Consumers look most frequently to medical and nutrition professionals to help them make decisions around foods
and beverages.
2.
3.
4.
5.
6.
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10.2. SEGMENTS
Food companies fall into various sub-segments, and painting them all with one broad, brush stroke can lead to surprising
deviations from expected performance. Investors should be cognizant of where a producer resides within the commodity"value added" spectrum. Poultry and other commodity-type producers have little individual influence over product pricing, and
are susceptible to such vagaries as weather-related crop damage and cross-border trade sanctions. Commodity-like producers
are also constrained by long harvest (in the case of grains) and life (livestock) cycles, and, therefore, unable to quickly adjust
"production" capacity. These factors result in relatively high earnings and share price volatility. Through innovation and
branding, successful marketers of value-added goods face less direct competition and have more control over pricing.
Accordingly, they enjoy stable returns.
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Current
Ranking
Previous
Ranking
Company Name
2011 Food
Sales
2010
Food
Sales
2011 Total
Company
Sales
2011 Net
Income (Loss)
2010 Net
Income (Loss)
Pepsico Inc.
38,396(1)
35,600
66,504
6,462
6,338
30,975
27,293
32,266
733
765
26,200
29,600
94,000
10,500
35,000
25,171
29,524
54,365
3,547
4,139
Anheuser-Busch
InBev
15,304
15,296
39,046
7,959
5,762
JBS USA
14,000E
13,342
14,000E
NA
117
12,698
11,758
13,055
(-1,592)
83
12,464
12,005
16,658
1,589
1,804R
10
Smithfield Foods
Inc.
11,093
10,264
13,094
361
521
10
Mars Inc.
10,500
10,500
30,000
NA-Private
NA-Private
11
13
Coca-Cola Co.
9,861
8,273
46,452
8,572
11,809
12
12
Kellogg Co.
8,873
8,402
13,198
1,231
1,247
13
21
Saputo Inc.
6,423
5,606
6,930
381
450
14
14
8,377
8,002
13,263
474
819
15
16
Cargill Inc.
8,000E
7,000E
119,500
2,690
1,990 (R)
16
15
Hormel Foods
Corp.
7,895
7,221
7,895
479
396
17
11
MillerCoors LLC
7,550
7,571R
7,550
1,004
1,057
18
17
7,224
6,893
7,224
38
(-30)
19
18
Pilgrim's Pride
6,779
6,237R
7,536
(-497)
87
20
23
Hershey Co.
6,081
5,671
6,081
629
510
Source: USDA, ERS using data from U.S. Sensus Bureau, 2011 Annual Survey of Manufacturers
63
Industry Characteristics
Food and beverage manufacturing plants transform raw agricultural materials into products for intermediate or final
consumption by applying labor, machinery, energy, and scientific knowledge. Some products may serve as inputs for further
processing (such as syrup for manufacturing soda). In 2011, these plants accounted for 14.7 percent of the value of shipments
from all U.S. manufacturing plants. Because intermediate inputs (primarily agricultural materials) account for a relatively large
share of food and beverage manufacturers' costs, value added in food and beverage manufacturing represents a slightly smaller
share (13.7 percent) of value added in all manufacturing.
Meat processing includes livestock and poultry slaughter, processing, and rendering, and is the largest single component of
food and beverage manufacturing, with 24 percent of shipments in 2011. Other important components include dairy (13
percent), beverages (12 percent), grains and oilseeds (12 percent), fruits and vegetables (8 percent), and other food products (11
percent). Meat processing is also the largest component (17 percent) of the food sector's total value added, followed by
beverage manufacturing (16 percent).
Figure 16: Components of food and beverage manufacturing value of shipments, 2011
Meat processing is the largest single component of food and beverage manufacturing, with 24 percent of shipments in 2011
Bakery and
torilla
products
10%other
food
11%
Beverage
11%
Fruit and
vegetables
7%
Dairy
12%
Seafood
2%
Animal food
6%
Sugar and
confectionery
2%
Source: USDA, ERS using data from U.S. Census Bureau, 2011 Annual Survey of Manufacturers
There are many food and beverage processing establishments (plants) in the U.S.almost 30,000 owned by about 24,500
companies in 2007, according to the most recent comprehensive data in the Census Bureau's 2007 Economic Census.
Figure 17: Components of food and beverage manufacturing: Value added, 2011
Meat processing is the largest component (17 percent) of the food sectors total value added, followed by beverage
manufacturing (16 percent)
64
other food
Bakery 13%
Meats
26%
and
torilla
products
9%
Dairy
9%
Animal
food
4%
Beverage
19%
Fruit and
vegetables
8%
Sugar and
confectionery
3%
Seafood
1%
Source: USDA, ERS using data from U.S. Census Bureau, 2011 Annual Survey of Manufacturers
These plants employed about 1.5 million workers in 2011 (about 14 percent of all U.S. manufacturing employment and just over
1 percent of all U.S. nonfarm employment). The meat processing industry employed the largest percentage of food and
beverage manufacturing workers in 2011 (32 percent), followed by bakeries (17 percent), and fruits and vegetables (11 percent).
Figure 18: Food and beverage manufacturing employees by industry 2011
The meat processing industry employed the largest percentage of food and beverage manufacturing workers in 2011 (32
percent), followed by bakeries (17 percent), and fruits and vegetables (11 percent)
Bakery
and torilla
products
15%
Fruit and
vegetables
13%
other food
10%
Beverage
10%
Dairy
9%
Animal food
4%
Seafood
1%
Sugar and
confectionery
2%
Source: USDA, ERS using data from U.S. Census Bureau, 2011 Annual Survey of Manufacturer.
65
Food and beverage processing plants are located throughout the United States. According to the Census Bureau's County
Business Patterns (CBP), California had the most food and beverage manufacturing plants (4,514) in 2010, while New York
(2,186) and Texas (1,774) were also leading food and beverage manufacturing States. The number of processing plants for
various industry segments are also reported in County Business Patterns.
Figure 19: Total food and beverage manufacturing establishments, 2010
Food processing plants include many small local plants and relatively few large plants. However, large plants account for the
major portion of shipments. In 2007, small plants (0-19 employees) accounted for 66 percent of all plants, but only 4 percent
of the total value of shipments. On the other hand, large plants (100 or more employees) accounted for 77 percent of shipment
value in 2007, but only 12 percent of plants.
Consolidation is occurring in many food processing industries, where plant sizes have increased sharply and mergers have led
to fewer but larger companies. In many cases, changing processing plant technologies and the emergence of new scale
economies has facilitated consolidation. When market demand grows slowly, increased consolidation can lead to increased
concentration (fewer competitors). ERS researchers examined the role of changing technology and demand on structural
changes in nine food processing industries.
Concentration in several processing industries raises questions about market power in the sale of agricultural products and
about the effects of concentration on innovation and productive efficiency. Consolidation in beef and pork slaughter has been
of special interest to policy officials given the historically high and growing rates of concentration.
From 1997 to 2007, the four-firm national concentration ratio in the fluid milk industry increased from 21 percent to 46
percent. In 2007, there were 21 percent fewer fluid milk processing plants than in 1997, processing 26 percent more milk per
plant. Structural changes in fluid milk processing are occurring at the same time as rapid consolidation in milk production.
From 1997 to 2007, 43 percent fewer farms produced over twice as much milk per farm.
66
Methods of vertical coordination are also changing, with a shift away from the use of spot markets toward greater reliance on
contracting in some grains and in livestock.
67
U.S. resident
population, July 1
Millions
167.306
164.308
167.306
170.371
170.371
173.320
177.135
179.979
182.992
185.771
188.483
191.141
193.526
195.576
197.457
199.399
201.385
203.984
206.827
209.284
211.357
213.342
215.465
217.563
219.760
222.095
224.567
227.225
229.466
231.664
233.792
235.825
237.924
240.133
242.289
244.499
246.819
249.464
252.153
255.030
257.783
260.327
262.803
265.229
267.784
270.248
272.691
282.172
285.082
287.804
290.326
293.046
295.753
298.593
301.580
304.375
307.607
309.330
311.592
At home
1988 prices
Total
At home
Total
1,068
1,094
1,105
1,116
1,162
1,130
1,137
1,132
1,113
1,105
1,077
1,095
1,108
1,084
1,082
1,090
1,102
1,130
1,143
1,168
1,099
1,074
1,069
1,104
1,108
1,091
1,082
1,092
1,075
1,072
1,105
1,113
1,128
1,126
1,144
1,153
1,142
1,147
1,154
1,145
1,132
1,130
1,104
1,097
1,097
1,092
1,106
1,091
1,096
1,123
1,125
1,115
1,138
1,144
1,143
1,116
1,094
1,115
1,119
516
523
527
531
536
522
522
522
522
530
534
551
581
602
599
621
626
630
632
661
686
665
706
739
751
772
780
773
764
767
796
798
798
819
845
877
885
897
898
894
919
935
957
938
969
982
993
1,006
998
984
1,036
1,042
1,090
1,119
1,124
1,097
1,048
1,066
1,083
1,584
1,617
1,632
1,647
1,698
1,652
1,659
1,654
1,635
1,635
1,611
1,646
1,689
1,686
1,681
1,711
1,728
1,760
1,775
1,829
1,785
1,739
1,775
1,843
1,859
1,863
1,862
1,865
1,839
1,839
1,901
1,911
1,926
1,945
1,989
2,030
2,027
2,044
2,052
2,039
2,051
2,065
2,061
2,035
2,066
2,074
2,099
2,097
2,094
2,107
2,161
2,157
2,228
2,263
2,267
2,213
2,142
2,181
2,202
Dollars
278
282
280
283
305
310
304
306
304
303
299
307
318
327
326
339
359
387
401
428
469
526
567
597
635
690
759
828
874
902
939
981
1,009
1,036
1,097
1,153
1,216
1,301
1,344
1,343
1,360
1,397
1,408
1,452
1,488
1,509
1,558
1,571
1,631
1,692
1,731
1,781
1,853
1,894
1,972
2,049
2,019
2,065
2,171
91
94
96
99
103
103
106
109
111
116
120
126
135
147
154
168
179
194
204
223
249
272
316
353
386
433
486
529
571
603
645
683
710
757
811
877
926
982
1,017
1,033
1,081
1,119
1,170
1,176
1,249
1,299
1,347
1,396
1,425
1,440
1,549
1,604
1,730
1,832
1,907
1,944
1,921
1,978
2,058
369
376
375
382
408
413
411
415
415
420
419
433
454
474
480
507
539
581
605
650
718
798
883
950
1,021
1,123
1,245
1,357
1,444
1,505
1,584
1,664
1,718
1,793
1,908
2,030
2,142
2,283
2,361
2,376
2,441
2,516
2,578
2,628
2,737
2,808
2,905
2,967
3,056
3,132
3,280
3,385
3,583
3,726
3,879
3,993
3,940
4,043
4,229
Sources: Calculated by the Economic Research Service from various data sets from the U.S. Census Bureau and the Bureau of Labor Statistics.
68
69
Year
$ Billion
2007
$ 20.7
2008
$ 21.6
4.4%
2009
$ 23.2
7.6%
2010
$ 25.0
7.9%
2011
$ 26.4
5.4%
CAGR: 2007-2011
Source: Packaged Facts 2012
% Growth
6.3%
Market consumption volumes increased with a CAGR of 2.5% between 2007-2011, to reach a total of 2.8 billion kg in 2011. The
market's volume is expected to rise to 3.1 billion kg by the end of 2016, representing a CAGR of 2% for the 2011-2016 period.
70
The performance of the market is forecast to decelerate, with an anticipated CAGR of 4.2% for the five-year period 2011 - 2016,
which is expected to drive the market to a value of $32 billion by the end of 2017. Comparatively, the European and AsiaPacific markets will grow with CAGRs of 4.6% and 3.7% respectively, over the same period, to reach respective values of $21.8
billion and $24.9 billion in 2017.
Category
2007
2008
2009
2010
2011
2007-2011 CAGR
Potato chips
37.7%
36.6%
37.6%
39.1%
39.1%
4.8%
Processed snacks
31.7%
32.2%
31.6%
30.9%
30.9%
3.7%
16.8%
16.7%
16.1%
15.5%
15.2%
2.6%
Popcorn
13.8%
14.4%
14.6%
14.4%
14.7%
5.3%
TOTAL
100%
100%
100%
100%
100%
16%
50
2011
40
2010
30
2009
20
2008
10
2007
0
Potato chips
Processed
snacks
Popcorn
71
Figure 24: U.S. Savory Snack Market Shares: % share, by value, 2012
% Share
PepsiCo, Inc.
33.4%
46.1%
ConAgra Foods,
Inc.
Kraft Foods, Inc.
General Mills
2.1%
3.1%
4.8%
5.2% 5.3%
Kellogg Company
72
more Americans find work, people will have less time for leisure and sports, potentially hampering revenue growth. Time spent
on leisure and sports is anticipated to decrease slowly in 2013.
11.5. DEMAND
Demand for snack foods is largely driven by consumer preferences, product innovation to address such preferences, price,
substitutes and disposable income.
During the past five years, consumers changed their lifestyles and attitudes toward snack foods. Changes in population
demographics and ethnicity gave rise to new tastes and preferences, causing manufacturers to adapt their product lines to meet
these needs. However, one of the most prominent trends affecting the industry stemmed from an increasingly health-conscious
and time-poor consumer base; therefore, they demanded convenient and healthy, yet tasty products.
The healthy eating trend prompted an increase in demand for prepared, single-serving portions, such as mixed nuts and
pretzels that can be easily consumed on the go. In addition, 100-calorie packs represented healthier snacks to help consumers
control their portion size. Most notably, many potato and corn chip manufacturers introduced baked varieties of traditionally
fried chips. Ever since Frito-Lay introduced Baked Lays in the late 1990s, consumers increasingly demanded healthy versions
of these chips. In 2012, the company is expected to introduce more products that are made of all natural ingredients.
Although many consumers are brand loyal, a rise in the price of snack food decreases the quantity that consumers demand.
Consequently, they typically switch to cheaper substitute products, such as granola bars, muffins, bagels, cookies, bread and
others. This factor is especially significant for high-end, branded and premium products, where even a moderate price increase
can substantially hurt demand and, therefore, revenue.
Typically, a rise in disposable income is directly proportionate to increased spending on consumption. Still, in some cases, an
increase in income encourages consumers to switch to more expensive, branded snacks or eat out rather than boost the volume
of food purchased. Therefore, a long-term increase in income will likely encourage production to shift from lower-margin to
higher-margin products, such as premium roasted nuts (e.g. pistachios). However, the recession slowed this transition due to
lower incomes and tight consumer spending.
11.6. OUTLOOK
The snack food industry has plenty to be optimistic about in the next five years. Producers will continue to adapt their products
to match changing consumer tastes, specifically the healthy-eating trend, which will drive up demand for snacks. These
initiatives will contribute to the forecast 2.5% revenue growth in 2013. The industry will also look to build on this momentum
as the nation climbs out of the recession, and Americans will buy more discretionary snacks with improving levels of
disposable income. However, economic recovery will also lead many Americans back to work, leaving little time for leisure
activities that are often paired with snacking, and slowing revenue growth. As a result of these factors, revenue is projected to
increase at an annualized rate of just 1.6% to $32.0 billion in the five years to 2017.
To build on the momentum that began during the past five years, producers must continue developing new products so that
their product mix and brand images do not become stale in the saturated marketplace. New snack foods will be healthier to
cater to changing consumer preferences. Specifically, producers will continue lowering the fat and cholesterol content of
products to attract more health-conscious consumers. Producers will also promote healthy eating through marketing
initiatives. Many new products are introduced from year to year, but only a few will be successful over the long term; therefore,
businesses must closely monitor specific consumer needs and patterns to adjust product lines appropriately.
73
promote their products through a variety of media outlets that are often inaccessible to new entrants. All of the industrys
major players also have very strong product portfolios, containing most of the worlds best-known snack food brands. Although
this is not a barrier to entry, it may hamper the success of new entrants.
In addition, major players typically have favorable contracts with key suppliers like grocery stores and supermarkets, which
may be difficult for new entrants to secure. Larger firms also enjoy efficiencies that are created by economies of scale and
scope. Lower per-unit production costs and varied product lines, combined with high levels of investment in technology and
equipment, make competition very difficult. Although these are not barriers to entry, they may hamper the success of new
entrants.
Nevertheless, many new entrants have established themselves within the industry, with the majority in the low-priced,
unbranded segment. Other smaller players managed to carve out regional market niches, reducing direct competition from the
major players.
11.8. IMPORTS
The US domestic market accounts for the majority of snack food demand and consumption where imports are estimated to
make up about 2.4% of domestic demand. Although imports make up a small proportion, they rose at a rapid annualized rate
of 14.0% to $689.8 million during the five years to 2012. The fast annualized rate is mostly a result of the 15.4% increase in
2011 and 53.1% spike in 2012 as Americans gained more disposable income post-recession and became more willing to spend
more on snacks from abroad.
In 2012, Mexico is expected to account for 31.7% of imports, followed by Canada at 16.7%. These countries are major importers
of snacks produced in the United States because of the North American Free Trade Agreement (NAFTA), which reduces trade
barriers and makes trading less costly as well as efficient. In addition, these countries are immediate neighbors to the United
States, reducing transportation costs and making it more attractive to buy from these countries. Argentina is the next largest
source of imports at 14.5% of imports in 2012 followed by China at 6.3%. The share of imports originating from countries in the
Asia-Pacific, specifically China, Thailand and Vietnam, steadily increased in the past few years due to their low cost production,
which in turn, reduced the price of its products.
74
12. Beverages
The beverage industry includes manufacturers and distributors of soft drinks, bottled water, energy drinks, sports drinks, milk
products, coffee and tea based products, nutritional drinks, and alcohol products. Some factors that influence the consumption
of these products can include the time of day or other environmental situations, but consumer tastes, demographics and
lifestyles are the engine that drives the demand for beverages. Large companies benefit from economies of scale in production
and distribution. Small companies can compete by producing new products, catering to local tastes, or nimbly reacting to
changes in the marketplace. The beverage industry is a huge part of the U.S. economy that affects many different sectors.
The beverage Industry is a mature sector and includes companies that market nonalcoholic and alcoholic items. Since growth
opportunities are limited, many members of the industry endeavor to diversify their offerings to better compete and gain share.
Too, they may pursue lucrative distribution arrangements and/or acquisitions to expand their operations and geographic
reach.
Companies in this industry produce soft drinks, bottled water, and other nonalcoholic beverages. Major companies include
Britvic (UK), Coca-Cola (US), Cott (Canada), Dr Pepper Snapple Group (US), Nestl (Switzerland), PepsiCo (US), and Red Bull
(Austria).
The US nonalcoholic beverage manufacturing industry includes about 1,500 companies with combined annual revenue of
about $55 billion. Low growth is forecast for the next two years. Key growth challenges include dependence on consumer
spending and health concerns surrounding soft drinks.
Non-alcoholic beverages include a large variety of drinks, but sodas account for about 60 percent of the market. The
manufacture and distribution of most national soda brands is a two-tiered process. The primary manufacturer produces syrup
called concentrate, and local bottlers manufacture and distribute the finished product. The flavored syrup, corn syrup (as a
sweetener), and filtered water are mixed in the right proportions, carbon dioxide gas is injected, and the finished soda product
is poured into bottles or cans, which are capped, labeled, and packaged.
The market for U.S. milk and dairy products, both domestically and internationally has been growing dramatically in recent
decades. As a result, U.S. farm milk production has grown to about 190 billion pounds per year.
Fragmentation occurs when many competitors jockey for dominance in a category. For example, the top 50 companies in the
beer wholesale industry account for about a third of industry revenue. The wine and spirits wholesale industry is concentrated,
with the top 50 companies account for more than 70 percent of industry revenue.
Major alcohol products are beer, wine, and distilled spirits (hard liquor). Distributors tend to specialize in either beer, or wine
and spirits. About half of overall industry revenue comes from the sale of beer, 30 percent from liquor, and 20 percent from
wine.
75
Demand for nonalcoholic beverages is driven by consumer tastes and demographics. The profitability of individual companies
depends on effective marketing. Large companies have economies of scale in production and distribution. Small companies can
compete by producing new products, catering to local tastes, or selling at lower prices. The industry is highly concentrated: the
eight largest soft drink companies account for about 70 percent of the market and the eight largest bottled water companies
account for about 85 percent of the market.
Largely because of the high costs of shipping a heavy product, US imports and exports of soft drinks are relatively low. Imports
of soft drinks and bottled water together account for about 5 percent of the US market; exports account for about 2 percent of
US production.
Despite this highly competitive arena, there is ample room for new products, and consumers are always willing to experiment.
Beverage package design is another aspect very important in the drinks industry. To attract consumers it is vital to have
something attractive and functional. To get an indication of what will work best, proper market research is crucial and this is
one facet of a beverage business plan. A proper plan is vital to the successful launch for any new product onto the market, and
all too often short cuts can be doomed to fail.
In the US, soft drink and bottled water manufacturing is concentrated in California, Texas, Pennsylvania, Florida, and Indiana.
Most smaller beverage producers make products for a local or regional market, capitalizing on different local tastes or selling
their product at lower prices than national brands.
12.2. SECTORS
The beverage industry consists of different segments with the first differentiation being locally consumed beverages versus
packaged and shipped beverages. Locally produced and consumed beverages include fresh coffee, tap water, fountain drinks
and freshly squeezed juice. Bottled water and beer are examples of packaged beverages. Packaged beverages consist of two
types, retail and home produced.
The Nonalcoholic Segment
Historically, two large entities have dominated the nonalcoholic beverage landscape: Pepsi (PEP) and Coca-Cola (KO). They
distribute their well known carbonated and noncarbonated drinks internationally via sizeable bottling subsidiaries. The
bottlers depend on these two industry leaders to create new products, improve existing offerings and maintain sufficient
advertising. Related capital spending amounts to several billion dollars each year. The industry titans often boost their results
(and those of their subsidiaries) by purchasing smaller market players or by inking promising distribution agreements. In
prosperous economic times, consumers usually favor the most famous brand names.
Still, when customers are short of disposable income, they turn to competing, inexpensive private label and lesser-known
beverages. Sales are seasonal, not surprising, peaking during warm summer months. Consumer preferences will drive product
diversification. Most notably, greater awareness of the causes of common health issues, e.g., obesity and diabetes, has
increased demand for bottled water and other low-sugar or sugar-substitute drinks. Too, beverage companies have capitalized
on the popularity of energy drinks and ready-to-drink coffee. Product diversification may be achieved through internal or
external means. The same goes for geographic expansion. China and Russia, two, of course, very large markets in the
developing-nation arena, have gotten much attention. Beverage companies have spent heavily to open new bottling plants and
develop distribution networks in these countries.
Wine, Beer, and Spirits
The range of wine, beer and distilled spirits offered by brand and type is wide. Demand is somewhat inelastic across good and
bad economic times. There is an overall long-term trend of rising affluence around the globe. Thus, more and more consumers
are becoming increasingly discerning about what they purchase. Premium alcoholic beverages are gaining in popularity. This
trend is disrupted during recessions, when people trade down to cheaper, low-margined products.
As is the case with premium wine and spirits, microbrew or craft beer is very popular with consumers. These beers are priced
higher and are quite profitable, as long as the cost of their rich ingredients is covered. Small brewers, paying close attention to
quality, expand slowly, but, over time, can win a decent share of business. Large brewers have acquired such operators or
developed their own premium beers so as not to lose any sales. Like their nonalcoholic peers, makers of alcoholic beverages
invest large amounts of capital in marketing and advertising to build brand recognition.
USA FOOD & BEVERAGE MARKET STUDY
76
Tap Water
Municipal tap water systems are among the biggest beverage industries in the world. Tap water is a part of indoor plumbing
and first became common in the developed world by the mid-20th century. The delivery of tap water requires a massive
infrastructure of piping, pumps and water purification works. Hoover Dam, a concrete arch-gravity dam in the western United
States, is part of the tap water systems for several states. Consequently, tap water becomes a component of many of the
packaged beverages as well.
Soda and Bottle Water Production
The US beverage manufacturing and bottling industry includes about 3,000 companies. Major beverage companies include
Coca-Cola, PepsiCo and the Dr Pepper Snapple Group. The industry includes manufacturers and distributors of soft drinks and
bottled water.
Figure 25: Product Segmentation by Revenue
Market Share
15%
Soft drinks
Bottled Water
85%
77
beans, of the coffee plant. The coffee cherries that yield the seeds grow on trees in over 70 countries. Besides coffee and tea,
many other substances, from cocoa to Kool-Aid (a popular powdered childrens drink), can also flavor water.
Beverage Packing and Labels
In the North American beverage market, the most popular packaging material is plastic with over 40 percent of the market.
Bottles are the most popular packaging type with over 55 percent of the market. Experts predict that plastic as a packaging
material and bottles as a packaging type will provide the vast majority of incremental sales increases of beverage containers
over the next 10 years.
Common Characteristics
Both the nonalcoholic and alcoholic sides of the Beverage Industry are dominated by a few sizeable players and competition
among them is often intense. Changing consumer tastes adds to operating uncertainty. Pricing and margins frequently come
under pressure. Also, volatile commodity costs will challenge managements to protect profitability. Good operating efficiency
and cost-control practices, mostly on an ongoing basis, are important. Notably, the companies take care to hedge raw material
(e.g., aluminum and carbon dioxide) purchases. Missteps in reading the trends of ingredient prices can have a measurable
negative impact on earnings. Beverage makers with the most established brands produce the widest operating and net income
margins.
Government Influence
Much has changed since American Prohibition of the 1920s and 1930s. With the exception of a few counties and towns, the
prohibition of alcohol has been repealed in all U.S. states. Industry sales are considerable, and the federal government and
states see sin taxes as a good source of revenue. Authorities are also considering tax increases on soft drinks to curb citizens
sugar (corn syrup) intake and boost revenue. Incremental taxes have not hurt overall beverage demand, but, to a degree, they
have pressured sales of premium offerings.
Includes well-known brands and lesser-known household and private label brands sold in supermarkets and discount
chain
Top brands: Coke (Coca-Cola), Pepsi (PepsiCo), Mountain Dew (PepsiCo), and Dr Pepper (Dr Pepper Snapple Group)
Accounts for 33% of the total volume of liquid soft drink produced in the Americas during 2009
Fruit Beverages
? of industry revenue
Includes 100% fruit juices, juice drinks (which contain less than 100% juice), and fruit-flavored drinks with no juice
78
Market Share
9%
36%
27%
Dr. Pepper Snapple Group
PepsiCo, Inc.
The Coca-Cola Company
29%
Others
Bottled Waters
Includes bottled spring and filtered water along with flavored waters and waters enhanced with vitamins and minerals
Top brands of enhanced waters: Glacau Vitaminwater (Coca-Cola) and Propel (PepsiCo)
Functional Beverages
Includes energy drinks, relaxation drinks, and ready-to-drink (RTD ) teas and coffees
Top brands of energy drinks: Red Bull (Red Bull) and Monster Energy (Hansen Natural)
Top brands of RTD s: Arizona (Hornell Brewing), Lipton (PepsiCo), Snapple (Dr Pepper Snapple Group), and Nestea
(Coca-Cola)
Sports Drinks
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Market Share
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
80
nonsoda products are bottled by the manufacturer and distributed through the same types of channels -wholesalers, distributors, brokers -- used by food manufacturers, although bottlers may also participate. Bottled
waters are either bottled at specific springs or made locally from filtered tap water.
Manufacturers and bottlers typically operate under contracts, called bottler agreements, that specify the territory within which
the bottler has an exclusive right to make, sell, and distribute the manufacturer's brand in bottles or cans. Fountain products
are often sold separately through wholesalers, under distributor agreements. Bottle and fountain territories may overlap and
bottlers may also be fountain distributors. Agreements often are perpetual and can be terminated only for breach of contract.
Bottler agreements usually require that container and packaging materials be bought from suppliers that are approved by the
manufacturer, and that the bottlers not handle competing products. Agreements also specify the price that the bottler must pay
for concentrate. The manufacturer has no control over the prices the bottler charges customers, and usually isn't obligated to
spend money for marketing or promotions in the bottler's territory. Often, however, the manufacturer will provide marketing
and promotion support. In 2010, for example, Coca-Cola provided about $5 billion in marketing support to bottlers, resellers,
and other buyers of its products.
The industry depends on technology for developing new products in the labs and packaging product at the plants. Most
bottling plants are highly automated with mechanical automation and computerized robotics.
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6%
5%
4%
3%
2%
1%
0%
2011
2012
2013
2014
2015
2016
82
2006 in response to pressure from health groups and threats of litigation. But sodas are still sold in some schools, and many
criticize the industry for replacing high-sugar sodas in vending machines with highsugar and high-calorie juice drinks and
sports drinks.
Raw Material Costs - Ingredient and packaging material prices fluctuate, exposing beverage companies to cost increases.
Corn for high fructose corn syrup (HFCS), aluminum for cans, and glass for bottles are examples of commodities that
commonly experience price swings and cause challenges for the industry. Polyethylene terephthalate (PET), the petroleumbased resin used for drink bottles, is not a traded commodity. Beverage manufacturers cannot enter into fixed price contracts
for PET, which they often do to mitigate cost swings for commodities like aluminum. Volatile oil prices over the past several
years have caused fluctuating PET prices. Companies often have a hard time passing commodity price increases on to
customers, which can pressure profit margins.
Possible Regulation of Water Sources - Concerns and lawsuits continue to grow over the depletion of natural spring
water sources by bottled water operations. The problem, state officials say, is no one knows how much water the bottlers are
extracting or if they're straining water resources. The bottled spring water industry, which pipes its water straight from natural
springs or municipal water sources, is increasingly being attacked by government, utilities, and environmentalists.
Consolidation - With overall growth of the beverage market slow, national companies have grown through overseas sales and
acquisitions. Coca-Cola owns or markets more than 500 brands globally, PepsiCo, more than 20. Both Coca-Cola and PepsiCo
recently acquired their leading bottlers, which distribute rival brands from Dr Pepper Snapple Group. Canada-based Cott, one
of the largest private-label soda makers, has also grown in recent years through the acquisition of local bottlers.
Brand Management - To distinguish their products from the large number of available competitors, manufacturers have
relied heavily on using familiar brand names for new products. For example, Coca-Cola comes in several different versions that
are sugar- or caffeine-free or both, but all under the Coca-Cola label. Gatorade and Tropicana orange juice are available in
many different versions. PepsiCo has agreements with Starbucks and Lipton to use their brand names on new beverages.
Environmentally Friendly Packaging - One way that beverage manufacturers can enhance their brand image and
promote sustainability is to introduce packaging made from recycled or biodegradable materials. Many beverages are packaged
in PET bottles, but bottled water has received more scrutiny than soft drinks, most likely because tap water is often an
available, more environmentally friendly option. To address consumer concerns, many water brands added eco-labels to
packaging. Coca-Cola introduced the plant bottle in 2010 that uses 30 percent biodegradable plant-based materials. PepsiCo
announced it will make bottles from 100 percent recyclable materials starting in 2012.
12.7. OPPORTUNITIES
Ready-to-Drink Tea - As soft drink sales continue to drop, ready-to-drink (RTD) tea sales are rising. The volume of soft
drink sales fell for the seventh consecutive year in 2011, and the category also lost market share. Sales of RTD tea, on the other
hand, saw an increase of about 5 percent in 2011 compared to the previous year, according to Packaged Facts. Sales have grown
because of consumer demand for variety and healthier options. Many perceive tea as a healthier option than soda, even though
many times sweet tea has no less sugar. Both individual servings and gallon bottles of tea continue to grow in popularity.
Private-Label Products - Amid the perception by consumers that colas don't taste different, private-label sodas continue to
be popular with budget-minded consumers and local supermarkets. Even though they're priced lower than national brands,
private-label sodas have higher margins for grocers because they're cheaper to produce and don't have heavy marketing costs.
Cott has a large share of the private-label market, mainly because it supplies Wal-Mart, the nation's biggest retailer.
Convenience/Health Drinks - Consumers are buying more beverages that are substitutes for solid food, including drinks
loaded with vitamins and minerals. Manufacturers like Monster Beverage and PepsiCo's (maker of Naked Juice) are producing
refrigerated versions of smoothies for groceries and convenience stores. Coconut water is among the fastest-growing health
drinks. PepsiCo, Coca-Cola and Dr Pepper Snapple Group have begun distributing coconut water in response to the rapid
success of VitoCoco, the top-selling coconut water brand. Healthrelated beverages also include single-serve nutrition drinks for
children and vitamin drinks for older adults. US sales of energy drinks increased almost 15 percent to $1.9 billion for the 52
weeks ending Dec. 2, 2012, according to data from SymphonyIRI Group reported by Supermarket News.
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Innovation and investment in brand management by retailers. Successful retailers have developed premium products,
employ sophisticated packaging, or have expanded into new categories such as the fast-growing chilled ready meats
segment. Retailers have also started to move into branded categories once thought impenetrable, such as candy and snack
food. Smart retailers now act like brand managers, following a multi-tiered approach by offering value brands, national
brand equivalents, and value-added premium brands. In 2011, retailer brands were estimated to account for nearly one
third of new food and beverage items in the U.S.
2.
Retailer brands win on value in recessionary times, and rarely cede back ground in good times. At the height of the 2008
recession, retailer brand sales grew 14%, compared to 3% for national brands. Even after the official end to that recession,
consumers remained cautious and value-oriented, and growth in retailer brand sales has stayed 2% to 3% ahead of
national brands since 2010.
3.
Retail consolidation and concentration increases the degree of retail brand penetration and power. Market share of the
top ten national retailers is just over 50%, although there is much more regional concentration. Retailer brands, an
integral part of Walmart's sales strategy, account for about 20% of Walmart's grocery sales, which in turn account for over
half of the chain's total sales. For other leading supermarkets, retailer brands make up between 19% to 26% of total sales.
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4.
Changing dynamics in the retail model: the rise of retailer brands in convenience stores, drugstores and online retailers;
and the emergence of hard discounters and dollar stores that offer retailer brands among a limited range of SKUs. Stores
like Target, which now derives 20% of sales from food, recognize the value of food as a driver of foot traffic and, in turn,
discretionary non-food purchases.
Real innovation. National brands employ a continuum of options, from promotions and co-branding to
reformulations to technological breakthroughs, but bold innovation should be part of the repertoire. National food
brands need to follow the creative model of other industries, funding research that will lead to radical new products
which address unmet consumer needs, or create wholly new categories. Currently more than three quarters of new
food products are line extensions or product derivatives.
2.
Go to plan B2B diversify into B2B manufacturing for national brands and/or contract manufacturing for retail and
foodservice channels. A number of CPG companies who make national brands also make retailer brands, leveraging
strengths in R&D, operational knowhow, food safety, and category management to realize benefits of scale, increase
output and sales, and maximize profits.
13.1. FOOD
Over the past two decades, private label food products have grown steadily in sales and often directly compete for market share
with national brands. This competition lowers prices and increases product choices for consumers. This report analyzes the
relationship between private label and national brand product prices and in-store promotions for two major U.S. grocery store
chains during the 2007-2009 recession and the year following the recession (2010). Retailers promote private label products
(offer price discounts) strategically in response to national brand pricing promotions to protect private label market share
during national brand promotions. However, the extent of the retailer response varies widely across supermarket departments
and is also affected by both the density of food stores and the market share of supercenters within a market area. These
findings hold true regardless of the state of the economy, although the magnitude of the interaction between national brands
and private labels differs in times of recession and recovery.
One of the most striking changes in U.S. food retailing over the past two decades has been the rise of private labels (PLs), also
known as store brands. Retailers have expanded PL product offerings across the supermarket, and PLs have increased in
popularity, as measured by both dollar sales and shares within product categories. Promotional competition between PLs and
national brands (NBs) has the potential to benefit consumers through lower prices and expanded product choices.
In studies of food retailing, private label foods (PLs) generate interest because of the ways in which they differ from national
brands (NBs). NB products, regardless of the departments in which they are sold, travel from the farm gate to the consumers
dinner plate by way of branded food manufacturers and distributors. For example, Heinz Ketchup is a homogenous product
across every chain throughout the country in terms of taste and appearance.
In contrast, supermarkets obtain PLs through a form of vertical coordination or from manufacturers specializing in private
label products (Berges-Sennou et al., 2004). PLs are unique to the chains at which they are sold, or at least are so marketed.
Nearly every supermarket chain in the country offers at least
one PL ketchup in addition to NB ketchups.
Recent trends illustrate the evolution of PLs and their importance in food retailing. For example, the Food Institute Report
(2011) notes that PL sales grew an average of 4.5% per year from 2003 through 2010. Sales for packaged NBs fell during the
same period. PLs have improved in quality relative to NBs (Consumer Reports, 2010). They have also increased in total
product offerings, as most supermarkets today offer at least one PL option in nearly all product categories (The Food Institute,
2012).
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The Food Industry Review (The Food Institute, 2012) demonstrates that much of this growth comes at the expense of NB
sales. Food product categories with the most gains relative to NBs include baking ingredients and snacks. From 2005 through
2011, total channel sales (those involving NBs) increased by $24 billion, or about 8%, while PL sales increased by $10 billion,
or 18%. Hence, PLs gained over 2 % of the NB market share during the 5-year span.
Figure 29: Dollar Trend Sales for Supermarkets ($ Billion)
$350.0
$300.0
2005
$250.0
2006
$200.0
2007
2008
$150.0
2009
2010
$100.0
2011
$50.0
$0.0
Total Channel
Private Label
13.2. BEVERAGES
Currently, some of the strongest private label beverage categories are bottled water, powdered beverage concentrates and 100
percent juice. Bottled water and 100 percent juice are commodity-based categories, so the price of the product becomes more
important. Powdered beverage concentrates is a category thats sold on value.
According to SymphonyIRI Group, Chicago, in the 52 weeks ending July 10, 2011 in supermarkets, drug stores, mass
merchandisers, club stores, gas and convenience stores, excluding Walmart, U.S. dollar sales for national branded bottled
water products totaled $4.9 billion, while private label bottled water dollar sales totaled nearly $1.3 billion. Using the same
qualifications, national branded bottled juices totaled $3.8 billion, while private label totaled $666.6 million.
Consumers arent necessarily purchasing private-label products only for the value aspect anymore. According to market
research companies, private labels reputation has changed.
Consumers formerly viewed private label brands as those geared toward people on tight budgets who are unable to afford the
best. Nielsen research shows that three-quarters of consumers believe store brands are a good alternative to name brands, and
two out of three agree that quality is also on par.
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44 percent of grocery shoppers believe store brand products are of better quality today than they were five years ago, according
to Mintel research. Thirty-nine percent of respondents who identify themselves as the primary grocery shopper of their
household say they would recommend a store brand product. Thirty-four percent say they dont believe theyre giving anything
up, such as flavor or prestige, by using store brands. Furthermore, only 19 percent believe its worth paying more for national
brand products.
However, in the beverage industry, these statistics change depending on the category. For instance, in the soft drinks category,
national brands have worked to build brand equity, keeping many consumers from even considering private label soft drinks.
With regard to carbonated soft drinks, most analysts believe that Coke and Pepsi have done a very good job over the years of
establishing their brands and what people expect from it, and private labels not as strong in carbonates.
But that doesnt mean private label beverages cant adapt. Although many retailers are competing with national brands, some
are offering unique and innovative varieties. Save-A-Lot, Earth City, Mo., recently introduced a soft drink called Mountain
Holler Red Howl, which is a citrus-flavored beverage with a taste of cherry.
Additionally, Safeway, Pleasanton, Calif., launched a line of Refreshe flavored waters in Raspberry Acai, Pomegranate Acai
Blueberry, Cranberry Raspberry and Strawberry and Kiwi varieties. The waters are calorie-, sodium- and caffeine-free and
enhanced with vitamins B3, B5 and B12.
Bentonville, AR-based Sams Club offered a seasonal juice drink, Members Mark Blackberry Flavored Lemonade from
concentrate. This summer, the club store sold two 96-ounce bottles for $4.48, according to Mintels Global New Products
Database.
In 2010, Austin-based Whole Foods Market stores introduced the first private label refrigerated organic almond milk under its
365 Organic Everyday Value brand, the company says.
Some of the strong private label brands are the upper-tier store brands where retailers are offering a quality product for a good
price, Haffner says. He notes that private label products are getting more competitive in the ready-to-drink tea segment.
The RTD tea segment] has grown substantially, so its becoming a much larger segment that is able to attract the attention of
private label.
For the 52 weeks ending July 10, 2011 national brands of canned and bottled tea totaled nearly $1.3 billion while private label
brands of canned and bottled tea totaled $34.5 million, according to SymphonyIRI Group, in supermarkets, drug stores, mass
merchandisers, club stores, gas and convenience stores, excluding Walmart.
Lower pricing has been the single biggest driver [for private label beverages], says Zenith International. Other factors have
been improving quality, quick response innovation and intelligent segmentation. The latest steps have been in the expansion of
in-house brands.
In summer 2011, Fresh & Easy, El Segundo, Calif., introduced a line of private label coffee in multiple varieties.
[The introduction of the new line] makes private label look like national brands by offering a wide range of items, said
Jonathon Asher, senior vice president of Perception Research Services, in a June 2011 article on PL Buyers website,
privatelabelbuyer.com.
The coffee line consists of Donut Shop coffee, a Fair Trade blend, whole bean blends and trial size blends in a variety of flavors,
including Cinnamon and Hazelnut, the article states.
Also in 2011, Deerfield, IL-based Walgreens stores launched the private label beer brand Big Flats 1901, supplied by the Winery
Exchange. Comparable in taste and quality to the top-selling national brand beers, Big Flats 1901 is available in cans in sixpacks for $2.99 and 24-packs for $11.49, the company says. The beer is made with six-row barley malt, corn grits, hops from
Yakima Valley and bottom fermenting yeast, it adds. This summer, the brand expanded with a Light variety, also retailing for
$2.99 a six-pack.
USA FOOD & BEVERAGE MARKET STUDY
87
As far as trends in [private label] beer, we are experiencing explosive growth in the private label beer portfolio, most
significantly in craft beer and premium domestic cans, says Jennifer Verdon, public relations and marketing coordinator at
the Winery Exchange. Some of our established brands, like Tap Room 21 with Kroger, are now standalone brands in the eyes
of the consumer. This brand was launched in 2007 and has seen tremendous growth. For some of our new programs, we are
delivering to an underserved market and see customers eager to accept these private label brands. Consumers are initially
drawn to our price points and innovative packaging designs, she says. It is the superior quality that keeps them coming back
for more.
A pricing study conducted by PLMA discovered that consumers can save more than 35 percent, on average, off of their grocery
bills by opting for the retailers brands. The study looked at a range of basic food and non-food items that an average family
might put on its summer shopping lists and compared store brands versus national brands. Consumers can save as much as 50
percent on cola, according to the study. The typical national brand unit price for cola is $1.58 while the typical store brand unit
price is $0.79, it adds.
According to the PLMA 2011 Private Label Yearbook, shoppers who reached for the store brand version of their favorite
products rather than the national brand in all U.S. outlets enjoyed an estimated $28 billion in savings in 2010.
In total outlets, including U.S. supermarkets, drug stores and mass merchandisers, including Walmart, annual private label
sales have increased by $4.5 billion, or 5 percent, during a three-year period, Nielsens report states. Retail sales were $84
billion in 2008 and $88.5 billion in 2010. Similarly, the annual store brand units have increased by $1.5 billion, or 4 percent,
from $38.6 billion in 2008 to $40.1 billion in 2010, it adds.
When comparing 2010 to 2009, however, there was less activity. Sales of store brands in total outlets were up $1.5 billion, or
1.8 percent, in 2010 compared to 2009. Private label dollar share rose by 0.4 points to 17.4 percent and unit share stayed flat at
21.8 percent.
Although the economic downturn opened the door for private label, Euromonitors Haffner doesnt expect it to falter as the
economy recovers.
Private labels a high-quality product and the quality of it has improved over the years, Haffner explains. As people may have
gone to the product because of price, they found that there isnt that much of a quality difference from the branded players. So I
dont expect theyll decline much as the economy improves.
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Diverse store brand assortment & support required to meet diverse demand
_______________________________________________________________
Figure 30: Top 10 store brand $ sales per 1,000 households by demographic group
Milk
47,296
Milk
61,722
Cheese
31,036
Cheese
39,503
28,543
Paper Products
31,115
Paper Products
24,365
29,717
Vitamins
17,522
Vitamins
23,889
Medications/Remedies
15,068
Unprep Meat/Seafood
19,783
Packaged Meat
13,682
Medications/Remedies
17,766
Unprep Meat/Seafood
12,568
Packaged Meat
15,446
Vegetables-Canned
12,215
Dressing/Salad/Prep Deli
14,684
89
As for the top 10 best-selling store brands among Hispanic households, the product rank order parallels that of White NonHispanics, although the absolute category sales rates for Hispanics are lower. Among the third decile tier of top-selling store
brand categories for Hispanics and Non-White Hispanics, ranking differences emerge between the lists.
Due to the higher Hispanic birth rate, disposable diapers wrap up the number 28 position, but drop to number 56 on the
corresponding White Non-Hispanic roster. Given their overall positive perception of store brands, the Hispanic community
comprises a high potential audience for private label products.
Millennials, the shopper segment born between 1981 and 2000, embrace store brands unreservedly, recording the highest
store brand dollar share [18.8 percent] and most positive attitude toward store brands of any generation. Nevertheless, with
household formations more likely to include kids, the private label dollar buying rate among Gen X is eight percent greater
than the average household.
However, the influence of these young consumers pales in comparison with the sheer spending power and household size of
the Baby Boomer [born 1946-1964] and Generation X [born 1965-1980] age cohorts.
Comparing Greatest Generation [born 1922-1945] and Boomer store brand shopping preferences reveals striking similarities,
with identical categories listed and only the rank order and buying rates changing with each generation. Drilling down by
generation underscores the influence of age and household composition on product purchase patterns, guiding retailers toward
making the right trading area assortment decisions.
Diverse store brand assortment & support required to meet diverse demand
_______________________________________________________________
Figure 32: Top 10 store brand $ sales per 1,000 households by demographic group
Boomers (1946-1964)
Milk
50,473
Milk
54,429
Vitamins
33,649
Cheese
36,670
31,497
31,796
Paper Products
26,378
Paper Products
28,623
Cheese
25,942
Vitamins
23,003
Medications/Remedies
22,279
Pet Food
19,160
Pet Food
19,242
Fresh Produce
18,850
Fresh Produce
16,125
Medications/Remedies
18,439
Packaged Meat
13,478
Unprep Meat/Seafood
17,070
Unprep Meat/Seafood
12,656
Packaged Meat
16,378
90
Different tiers appeal to different shopper segments. Mid-tier store brand lines comprise the largest segment by far on a dollar
sales basis, drawing in the mainstream loyals and two low spend shopper groups. The two downscale shopper segments
represent big value tier store brand buying potential, while premium tier store brand offerings pull in upscale premium
shoppers.
Figure 33: Store brand $ share varies by department
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14. Foodservice
The Foodservice Industry is generally categorized based on type of eating establishment, such as full service restaurant, limited
service restaurant, fast casual restaurant (also referred to as quick service restaurant or QSR) and snack and beverage
restaurant. This industry comprises establishments primarily engaged in providing food services (except snack and
nonalcoholic beverage bars) where patrons generally order or select items and pay before eating. Food and drink may be
consumed on premises, taken out, or be delivered to the customers location. Some establishments in this industry may provide
these food services in combination with selling alcoholic beverages.
4%
49%
46%
Full-service
Restaurants
Limited-service
Restaurants
Drinking Places
92
Full-service restaurants
Drinking places
$600.0
$476.7
$500.0
$407.2
$426.8
$435.8
$435.3
$496.6
$516.8
$539.8
$449.2
$400.0
$300.0
$200.0
$266.6
$249.2
$100.0
$19.9
$20.6
$20.5
$20.6
$21.3
$21.9
$22.6
$23.3
$24.0
$0.0
2006
2007
2008
2009
2010
2011
2012
2013
2014
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Figure 36: Restaurant Usage by Major Segment, 3 Year Growth Index (2008-2011)
2008
2011
All restaurants
Percentage use
Usage population
89%
194.7
89%
200.8
100
103
Full-service restaurant
Percentage use
Usage population
65%
142.5
64%
144.0
98
101
83%
181.6
84%
190.6
100
103
37%
80.5
36%
80.5
97
100
218.7
225.7
103
Chicken has nearly universal restaurant industry penetration, with 97% of restaurants featuring chicken as/in an
appetizer, entre or side, with little variation by restaurant segment. Fish, on the other hand, reaches 50%
penetration, with casual and fine dining restaurants each more than 20% more likely than average to offer it on the
menu.
The potato takes a bow as the most highly penetrated side item on the menu, with more than 6 in 10 restaurants
offering a potato as a side (although fine dining restaurants are almost 40% likely than average to do so). Chips, on
the other hand, while offered by almost 4 in 10 restaurants, are more likely found at a quick-service restaurant.
A number of vegetables, such as spinach, broccoli and carrots, make the list, with their presence skewed generally to
full-service restaurants (midscale, casual and fine dining).
94
Childrens menu items are generally more apt to be found at full-service restaurants (especially casual restaurants)
and least likely to be found at quick-service restaurants. The nugget, an old standby, reigns, with almost 6 in 10
restaurants featuring childrens fare offering nuggets.
Restaurant health claim penetration is highly dependent on the specific health claim made. While organic and natural
claims are more to be likely found on casual and fine dining menus, fat free and low fat claims are most likely to be
found on QSR menus.
All natural and organic are not only the most prevalent health claims on menus, but their menu presence has grown
during 2007-2011. Other health claims that have gained traction during 2007-2011 include whole grain, multi grain
and sugar free.
Some 21% of restaurants feature a broiled entre, appetizer or side on the menu. Quickservice restaurants, however,
index at 37 for broilingor 63% less likely than average to feature that preparation method. In fact, quick-service
restaurants are far less likely to feature most of the more popular preparation methods, in part because these
restaurants do not generally emphasize cooking technique.
Mexican-influenced menu items comprise almost 10% of menu items nationwide, with the highest percentage found
on casual restaurant menus. Caribbean menu items (Cuban, Jamaican, etc.) and South American menu items each
comprise only 0.5% of menu items nationwide.
Obesity now accounts for 9.1% of all medical spending. Overall, an obese patient has $4,871 in medical bills a year
compared with $3,442 for a patient at a healthy weight.
The number of calories consumed has increased from 2,169 in 1970 to 2,594 in 2009, a 19.6% jump. However, calorie
intake has actually dropped from the peak reached in 2002.
According to USDA Economic Research Service (ERS) data, between 1989-91 and 2007-08, the fraction of daily
calories from food away from home increased from about a quarter to more than a third, while the fraction of total
household food expenditures on food away from home increased from 21% to 26%.
USDA data shows that people who rate their diet as excellent eat food prepared away from home, on average, a little
over three times per week, while those who rated their diets as poor ate food away from home nearly six times per
week.
According to a 2011 study, young adults who frequently eat food from burger-and-fries fast-food restaurants are at
increased risk for overweight/obesity and poor dietary intake.
The past few years have seen an avalanche of government and industry action geared toward addressing consumer
healthfulness, including MyPlate, HealthierUS School Challenge and Kids Livewell.
According to a 2011 study, mandatory menu labeling had no significant impact on monthly transactions and calories
sold per transaction.
Menu labeling is expected to have a clear educational effect that will impact point-of-purchase decisions over time.
Never before have restaurant patrons had widespread opportunity to assess the nutritional profile of what they are
ordering. This, with continued pushes to educate while minimizing confusion, will alter long-term ordering habits.
Children as young as 1-3 years already bypass the daily recommended 4 teaspoons per day, typically consuming
around 12 teaspoons.
According to the CDC, almost all U.S. adults and children exceed the dietary guidelines for salt, putting them at risk
for hypertension and heart disease.
0n 2011 menus, organic and natural claims were the most predominant, with 15.7% of restaurants featuring a natural
claim and 13.5% featuring an organic claim. The tendency to market these claims on the menu corresponds to price
point.
Mini on the menu continues to grow, but the trend is losing steam. Some 8.6% of restaurants featured a mini
menu item in 2010, up only a hair from 8.5% in 2010, up from 5.9% in 2007.
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Snack & Beverage performance has been mixed: all but one of the coffee-centric brands (Caribou Coffee) have grown samestore sales for virtually every coverage period, while same store sales at ice cream operator Baskin-Robbins and smoothie
purveyor Jamba Juice have declined during virtually every period.
Starbucks is trending the strongest, with Q3 2010-2011 same-store sales indexing at 110 and Q3 2009-2011 same-store sales
indexing at 118, translating to 10% and 18% sales growth per store during these time periods.
During the recession, quick-service restaurants were the natural beneficiaries of restaurant industry trade-down (whereby
consumers migrate downward to restaurants with lower price points) . Less treat-driven than some of their snack and beverage
competitors, they were also less susceptible to consumers trading out, into the home.
But as the recession bottomed, same-store sales at many quick-service restaurant chains turned negative. With the spurt of
trade down-driven guest traffic behind it, the segment overly relied on extreme affordability strategies (in the form of a
plethora of dollar deals and very low-price point promotions) that did little to garner loyalty beyond the end of the promotion.
The largest players have performed well, most notably industry giant McDonalds, which continues to operate with profit
margins well above most of its competitors. With its already massive footprint, we believe McDonalds is soaking up the lions
share of QSR segment growth, leaving little room for other players to gain traction.
Within the QSR segment, fast casual operators continue to outperform their QSR competitors, largely because leading brands
such as Chipotle Mexican Grill and Panera Bread continue to avoid steep promotional discounting and, with positive health,
quality and ambience brand images, they continue to draw from a customer pool less affected by the recession.
With restaurant concepts generally perceived by consumers to be more healthful and of better quality than many of their fast
food/QSR brethren, fast casual players came into the recession with a leg up on the competition. By continuing to
differentiate their brands on quality, healthfulness, and ambience, these players have an opportunity to appeal not only to
traditional QSR customers, but also to former casual restaurant customers seeking a positive but less expensive restaurant
experience. In part because of this positioning, fast casual players weathered the recession relatively well, buoyed by industryleading unit growth and largely positive same-store sales.
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Figure 37: Product and Services Segmentation (2012): Total $32.6 billion
2% 1%
3%
32%
63%
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In 2009, the declining domestic economy and rising unemployment rate forced people to become more selective regarding how
they spent their disposable incomes. As a result, consumer spending fell 1.9%. As people cut spending, they were less likely to
spend money on nonessential activities like eating out at restaurants and cafeterias, causing demand for industry services to
suffer.
However, consumer spending rose 1.8% in 2010 and 2.5% in 2011, leading to greater demand for food service contractors.
Consumer spending is forecast to rise an additional 1.9% in 2012.
With the economy having improved since 2010, and some recessionary fears subsiding, consumers are treating themselves to
meals at cafeterias, sporting events and other industry-served facilities more frequently. This trend is expected to result in
increased demand for food service contractors going forward. The outsourcing of catering services by correctional, education
and healthcare (including elderly care) facilities will provide continued growth prospects for operators. Bundling food services
within broader facilities management contracts for clients will also drive growth.
Over the five years to 2017, industry employment is expected to grow an average 1.5% per year to 449,852 employees. During
the same period, the number of establishments will grow at an average annual rate of 1.7% to reach 23,256 locations. An
anticipated growth in revenue and the expansion of some service contracts is expected to drive this growth in employees and
establishments. Over the five years to 2017, industry revenue is forecast to grow an average 3.2% per year to $38.3 billion.
The industry is affected by changes in consumer spending. Changes in interest and tax rates and employment partly determine
consumption. Higher consumer spending causes people to eat out more, boosting demand for food service contractors. This
driver is expected to increase slowly in 2013 and is a potential opportunity for the industry.
Trends in employment and investment in the manufacturing sector affect demand for outsourced catering services, influencing
expenditure on canteen items (i.e. restaurant or refreshment bar items provided by an industrial or commercial entity). Since
2008, significant restructuring has occurred in the manufacturing sector, particularly in automobile manufacturing, which has
adversely affected demand for catering services. This driver is expected to increase in 2013.
The weak economy and rapid unemployment growth have battered the Food Service Contractors industry throughout the past
few years. However, the industry has managed to mitigate its losses due to the long-term trend of healthcare facilities, prisons
and educational institutions outsourcing their food service functions. This trend has provided continued opportunities for
growth in an otherwise down economy. Over the five years to 2012, revenue is expected to grow at an average annual rate of
0.4%. Industry revenue declined 4.3% in 2009 and partly bounced back in 2010 and 2011, increasing 1.4% and 3.1%,
respectively. In 2012, revenue was projected to grow 4.4% to $32.6 billion.
As the economy fell deeper into a recession and unemployment rose, consumers became more selective about how they spent
their disposable incomes. In 2009, consumer spending declined 1.9%, and luxuries like eating out were some of the first
expenditures to go. Some consumers cut meals outside the home from their budgets entirely and opted to save money by eating
in. While some industry customers, such as retirement communities and correctional facilities, are insulated from these
changes, sporting venues and educational institutions felt the pinch from consumers declining incomes.
This trend reversed in 2010 and 2011, with consumer spending increasing an estimated 1.8% and 2.5%, respectively; it is
expected to grow an additional 1.9% in 2012. Because the economy has consistently improved since 2010, some of the fears
surrounding the state of the economy have subsided. As a result, analysts estimate that more consumers will treat themselves
to meals and snacks outside the home, ultimately benefiting food service contractors.
Despite recession-related declines in demand for industry services, demand for outsourced catering services from correctional,
elderly care, health, educational, recreational and sports facilities has increased. By outsourcing nonessential functions like
catering, these institutions can focus on their core service activities and not worry about running a kitchen or cafeteria.
Outsourcing catering functions also allows these institutions to accurately budget their food and catering costs, since they
generally use fixed-price contracts, which are not subject to the variability in food, labor and equipment costs associated with
running a cafeteria. Additionally, major industry players have moved toward offering full services to clients, ranging from
catering to maintenance to security services.
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In an increasingly competitive market, it is important for food service contractors to retain and expand existing contracts and
seek out new growth opportunities. They can take advantage of these opportunities through mergers and acquisitions or
international expansion. Successful firms must also provide clients with menu choices and dining options at different price
points. Over the past few years, it has also become important for food service contractors to offer healthier foods.
Over the five years to 2017, analysts forecast industry revenue will increase at an average annual rate of 3.2% to $38.3 billion.
The Food Service Contractors industry showed its first signs of postrecession growth in 2010, when revenue increased 1.4%; it
is expected to resume its long-term growth trend from 2011 onward. In 2013, revenue is expected to grow 3.0% to $33.6
billion. Food service contractors will benefit as the economy improves, unemployment rates decline and consumers resume
spending on luxuries like eating out. In fact, over the next five years, consumer spending is expected to increase at an average
annual rate of 2.8%. Food service contractors will also benefit from stronger growth in downstream markets, which will start
employing workers again, increasing demand for catering services.
Outsourcing catering services in the correctional, educational and healthcare (including nursing homes and elderly care
facilities) industries will provide growth prospects for operators. Catering will also continue to be bundled with other services
such as security and cleaning as part of single facilities management contracts. Contracting management companies will
coordinate these contracts, so strategic alliances with suitable partners will be vital to some firms success over the next five
years.
Growth in the longer term will likely remain solid among sports, recreation, entertainment and leisure (including tourist
attractions) facilities, and with elderly care, nursing home and childcare facilities. Some growth in outsourced catering
contracts from the education and health sectors is expected; however, these customers are less profitable than others.
Hospitals will likely continue to shorten their patients length of stay through improved surgical techniques and more daytime
surgery admissions. These factors will increase the number of patients going through hospital doors, but they will also reduce
the amount of food that each patient requires during their stay. Growth from the defense industry will also be sluggish as
overseas troop deployments progressively decline.
Food service contractors service several major markets, including manufacturing, industrial and mining; education; sports and
recreation industries; airport and airline industries; and government and healthcare industries.
Manufacturing, industrial and mining
Catering for the manufacturing, industrial and mining industries (including remote locations like oil rigs) accounts for about
25.0% of industry revenue. This segment services industrial customers. This market segment has shrunk over the five years to
2012 due to the declines that these industries experienced.
College and university
College and university catering is estimated to be about 32.0% of industry revenue. This segment has experienced aggressive
growth over the five years to 2012, especially with the continuing rise in enrollments and more stringent food safety and
handling regulations.
Recreation and sports
It is estimated that recreation and sports catering represent 20.0% of the market. This segment is sensitive to consumer travel
patterns and expenditure on recreation. Therefore, it is very sensitive to any spike in unemployment, which the United States
has been experiencing since 2008. Still, the recreation and sports components of this market have grown during the five years
to 2012.
Airlines and airports
Airlines and airports contribution to industry market share (10.0% of revenue) shrunk during the five years to 2012. This
factor mostly occurred because of declines in travel rates over the course of 2009 and 2010.
Government and healthcare
The government and healthcare (including retirement homes) segment of this industry makes up about 13.0% of industry
revenue. This market segment has grown over the last five years and is expected to continue growing over the next five years.
This growth is due to an aging US population and their rising need for healthcare, especially end-of-life care.
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Market Share
10%
13%
20%
25%
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15. Innovation
15.1. INDUSTRY INNOVATION
Major changes in demand for agricultural and food products are being fueled by growing populations, rising incomes, and
changing lifestyles. These alter where and how food products are grown, processed and distributed; furthermore, new social
and environmental concerns are bringing pressure for more change. Demand, not supply, drives product offerings with
technology tailoring products to meet consumer needs and sophisticated business models delivering them to the customer in a
secure manner.
In the food industry, just as any other industry, product and process development is considered a vital part indeed the
lifeblood of smart business strategy. Failure to develop new and improved products relegates firms to competing solely on
price which favors the players with access to the lowest cost inputs (land, labor etc). Adopting a low cost strategy can have
unexpected consequences for the economy as a whole when another country, which has a lower cost structure, enters the
market.
Consumers demands keep changing over time. These changes range from basic considerations such as improving food safety,
shelf life, and reducing wastage, to demands for increasingly sophisticated foods having special characteristics in terms of
nutritional value, palatability, and convenience. The actual product development process is determined by the interaction
between consumer expectations and demand, the technical capacity of the food producer, and emerging knowledge from food
science research.
There are several systems for classifying food products on their newness. They define the innovation spectrum using terms
such as new to the world, product improvements and cost reductions. Innovations can also be described as leading to
incremental, major and radical changes. Product platforms can be used to group similar products.
The ultimate test of product development occurs in the market and a new product can only be considered successful if it is a
market and financial success.
There are essentially four basic stages in these models for every product development process. These are:
product commercialization
creative products
innovative products
line extensions
The challenge for product development is to develop a product which is acceptable to the target consumer. For example, Asian
for food products sold in the U.S., the specific flavors, ingredients and levels of spiciness are normally significantly different to
that found traditionally in Asia. Similarly, ice cream flavors found in the U.S. (e.g. mint chocolate chip, cookies & cream) are
not popular in other countries which may feature more traditional chocolate, vanilla and strawberry flavors. Even countries of
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seemingly similar culture can have major differences. For example, a launch of colored ketchup in USA was a tremendous
success for Heinz, whereas the same launch in Australia and New Zealand was a major failure.
The key principle in product development, which differentiates this research from all other natural science research, is the
mandatory need to ensure the development meets a consumer demand. Without a market, no matter how innovative a change,
there will be no sales and the product is worthless.
A major feature which distinguishes food product development is the ethical considerations of producing a large volume of safe
food for human consumption. This is coupled to the fact that food raw materials are labile, unstable and must be stored for
prolonged periods of time prior to consumption.
In spite of food industry efforts to create a more exciting and interesting food culture and new food experiences, there seem to
be ever-longer periods between great innovations in the food industry. One simple reason could be that the food industry is
low-tech; it is an industry in which it is difficult to distinguish between products. There are few barriers to market entry and it
is difficult (though not impossible) to use patents or other forms of intellectual property rights in the food sector. So, product
characteristics are copied by competitors, who produce me-too products. This low rate of radical change, coupled with the high
failure rate of food products following market launch implies that the methodology for new food product development urgently
needs to become more focused, quantitative, rapid and knowledge based.
The majority of food innovations in the last 20 years have been incremental changes; in other industry sectors this is called
continuous innovation. Such innovation takes place within existing infrastructures and builds on knowledge in existing
markets without challenging the underlying strategies and assumptions. It is worth noting that some published literature
describes true innovation in the food industry as being in its hey-day during the 1960s and 1970s. This was when really novel
food products were introduced and companies (such as McDonalds, Proctor & Gamble, General Foods, etc.) were regarded as
the leading innovators of all industries at the time. Since then, the industry has become more introverted and the rate of truly
novel foods has greatly declined. So has the profitability and corporate stability of these food organizations.
In the last 5 years, some of the major food corporations have begun a new corporate strategy which has been termed
discontinuous innovation (Miller & Morris, 1998). Discontinuous innovation involves a strategic jump to a totally new
paradigm. This may involve novel technologies or ingredients, or the application of knowledge generated in one discontinuous
area to another. A good example was the introduction of the MARS confectionary bar as an ice cream confectionary. MARS
Corporation at the time had no skills in ice cream and the key ice cream manufacturers (Unilever and Nestle) had no skills in
confectionary.
This sort of innovation may extend beyond specific food product identification in order to capture the value that the customer
places on the product. In some cases food products can embody services and intangible benefits that complement the food
product itself and add to its value. For example, in some markets, useful food storage regimes might involve drying foods,
which need to be re-hydrated prior to use. This may be excluded in these markets because of the lack of availability of a safe
and reliable water supply. The opportunity for a food company may be to provide the water supply for a community (market
niche) and thereby gain the market opportunity and brand support for their dry foods. The key to discontinuous innovation is
to identify the limits of knowledge or capability and extend the realm of possibilities beyond the obvious.
The food industry appears to be populated with companies that prefer to re-develop existing products (incremental change),
rather than create new products (radical change). Because food product development is considered a highly risky venture, the
incremental change strategy may be an attempt to increase success rates. Ironically, this apparently safe approach perpetuates
the problem of high food product failure, since truly innovative products are often more successful for a company. However,
there are some indications that certain factors may improve the number of the success rate in product development.
Three important factors that contribute to new product success which have been cited by various authors are:
1. marketing and managerial synergy;
2. strength of marketing communications and launch effort; and
3. market need, growth and size.
These factors emphasize the role of marketing in the product development process. Other authors mentioned different factors,
for instance market need satisfaction, unique and superior product, technological and production synergy and efficient
development.
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Ground breaking research during the late 1970s by Calatone and Cooper [Stewart-Knox & Mitchell, 2003] established that
product success is dependent upon several factors during the product development process. The following factors were drawn
from De Brentani & Kleinschmidt, 2004; and Stewart-Knox & Mitchell, 2003:
On the other hand, factors that are associated with product failure were reported as:
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Another recent product innovation is gelatin-treated fruit pieces that stay soft and chewy for two years. This is perfect for
breakfast cereals.
The dynamic that is relevant in this case is behind many mass-produced goods. Growing demand provides the incentive to
create cheaper and more reliable supply. Cheaper and more reliable supply, in turn, creates incentives to find new markets,
which requires new products. Success in new markets increases demand again. This helps to maintain growth and profitability.
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4. Lyfe Kitchen
For employing fast-food industry secrets to sell healthy food on a mass-market scale. Most people wouldnt imagine that
brussels sprouts, kale-banana smoothies, and unfried chicken would be ingredients in a recipe for success in the fast-casual
business. But Lyfes team of former McDonalds execs, along with well-known executive chef Art Smith, have used supplychain management know-how (and their street cred) to prove otherwise. Its first outlet, in Palo Alto, was expected to have
revenues of $2.4 million in its first year (about the same as an average McDonalds). It beat estimates by 20%. The company
aims to open 250 more outlets around the country in the next five years.
5. BluePrint Cleanse
For leading the way in packaging and branding of the cold-pressed juice trend. The company started in 2006 with a simple line
of juice cleanses, sole ingredients of a detox diet, a concept that took off when celebrity endorsers like Salma Hayek and
Gwyneth Paltrow began advertising the method to their fans. BluePrint Cleanse caught the eye of Whole Foods, which last year
began selling the companys fresh, cold-pressed juices, targeting people who want the health benefits of juicing but dont want
to invest in a juicer. Revenues in 2012 grew by 100% to $20 million. In December, the company was acquired by healthy food
giant Hain Celestial Group for an undisclosed (though persumably healthy) sum.
6. Bon Appetit Management Co.
For creating tools that give nutrition information about the catering companys made-from-scratch meals. Long before the
word locavore entered the dictionary, BAMCo was mandating its chefs to buy seasonally and locally. Today, the 135 million
meals it serves each year at colleges and corporations (including Google, Twitter, Starbucks, and Target) serve cage-free eggs,
antibiotic-free meats, sustainable-only seafood--and bring in about $700 million annually. Its latest innovation is a custom
nutrition tool that calculates a well-being score for its dishes so that diners can see at a glance what the healthiest choices are.
7. Copilot Labs
For letting restaurants measure the success of their social marketing strategies. In the bewildering age of Yelp reviews,
Groupon promotions, and Seamless food delivery, Copilot exists to help restaurateurs make sense of it all. Launched in 2012 by
Eli Chait, the son of a successful California restaurateur, the marketing analytics company looks at the spending, visits, and
profitability of guests that use promotions from Groupon, LivingSocial, Restaurant Week, and others. Its software helps
restaurateurs draw a direct line between a new marketing strategy and its results and hold marketing companies to account.
8. ScanAvert
For putting allergy information into a simple bar-code scan, helping millions of Americans avoid dangerous reactions. More
than 15 million Americans suffer from food allergies. With the ScanAvert app, consumers upload details of their medical
conditions, then scan grocery, beauty, and pharmaceutical bar codes to ensure that nothing they buy contains ingredients that
will provoke dangerous reactions--a far simpler process than trying to read ingredient lists in tiny type or relying on
manufacturer allergy warnings. ScanAvert cross-references the barcodes with a database of over 300,000 products and shows
users a red alert or a green all-clear signal. The app also notifies customers about product recalls.
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testing for safety or efficacy. BioLume will have to conduct toxicity testing in several relevant animal models at several doses
to support a pre-market approval (PMA) petition.
Programmable food
Programmable food will allow you to make your food work for you. Researchers say that they are well on their way to inventing
foods that can adjust to individual tastes, allergies, and nutritional needs. For instance, Kraft Foods is already designing a
drink that you could buy in a colorless, flavorless state and then determine its nutrients, color, and flavor once you bring it
home. Basically, these foods will contain many different flavors, colors, and nutrients, each encapsulated until the consumer
decides which ones to release to their liking.
Spoilage-resistant packaging
Some researchers are trying to invent packaging to slow food spoilage, and many of these applications include metal. However,
some people are concerned that metal could contaminate the food itself, possibly making it dangerous. Self-cleaning and
antibacterial cutting boards also are under consideration.
Just the good stuff
Researchers also are studying nanotechnology to try to create foods that will allow you to absorb only the healthiest
components of foods, while allowing you to excrete the less healthy parts.
Healthier fried food
As disgusting as it might sound, batter for fried foods might soon come from discarded fish parts in an effort to make these
foods healthier. The muscle from certain fish parts lock in taste and moisture, while preventing the absorption of fat from the
oil used for frying. Researchers state that the finished product has 25%-75% less fat. Plus, the added protein cuts down the total
carbohydrate content by 15%. To date, tests are complete on the batter used on fish filets, chicken, and potato chips. This
process has received approval from the FDA.
No more icy ice cream
A tasteless protein, gelatin hydrosylate, prevents ice crystals from forming when added to frozen desserts, such as ice cream.
Called the edible antifreeze, this protein could dramatically increase the shelf life of ice cream, and make it creamier and
more enjoyable for consumers. The product does not require FDA approval.
Tricky gum
A company already has created a prototype of a chewing gum that tricks the mouth and brain of consumers into believing that
they are actually eating chocolate.
Cholesterol blocking oil
A company from Israel has created Canola Activa Oil, a rapeseed cooking oil that actually prevents cholesterol from entering
the bloodstream.
Lower sugar without artificial sweeteners
Slim Shake Chocolate is a powdered drink that uses nanotechnology to cluster the cocoa cells, reducing the need for sugar to
sweeten the beverage.
References and recommended readings
Biolume. Natural glowing chemistry for broad consumer & medical applications. Available at: www.biolume.net/index.htm
Renton A. Welcome to the world of nano foods. Available at:
http://observer.guardian.co.uk/foodmonthly/futureoffood/story/0,,1971266,00.html#article_continue
ScienceDaily. Could nanotechnology make an average donut into health food? Available at:
http://www.sciencedaily.com/releases/2009/02/090214162746.htm
ScienceDaily. Edible antifreeze saves ice cream: food chemists use edible antifreeze to make smoother ice cream. Available at:
www.sciencedaily.com/videos/2008/0702-edible_antifreeze_saves_ice_cream.htm
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ScienceDaily. Low-fat fried food? Food chemist develops protein-based batter for healthier frying. Available at:
www.sciencedaily.com/videos/2006/0111-lowfat_fried_food.htm
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Supply Chain
In an Open Innovation supply chain, additional links are added to the supply chain. Each link in the chain has to ensure safety
for the end consumer. Communication and sharing of information and data on food safety issues are important.
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Expansion or new facilities based on square footage increased by an average of 9.1 percent
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10%
20%
30%
40%
50%
60%
70%
Offset commodity-cost increases through internal improvements, improved management of suppliers, and strategic
procurement;
Navigate healthcare changes contained in the Affordable Care Act, such as the employer mandate and increased
premiums; and
Prepare for the new tax environment that emerged from the fiscal-cliff deal, one that is generally more favorable than
executives feared going into the political showdown. Only 23 percent of participants indicated that they were fully
prepared to react to federal tax and/or regulatory changes that may occur in the next 12 months, which is not
surprising, given fluid political conditions at the time of their responses
Addressing three of the top five concerns traceability/tracking, food safety, and knowledge/information sharing will be
necessary if the U.S. FDA enacts two new food safety rules proposed in January 2013 to help prevent foodborne illness under
the recently passed FDA Food Safety Modernization Act.
One rule would require makers of food sold in the United States, whether produced at a foreign- or domestic-based facility, to
develop a formal plan for preventing food products from causing foodborne illness while also requiring plans for correcting
problems that do arise. The other rule would apply enforceable science- and risk-based safety standards for production and
harvesting of produce on farms.
The FDA knows that food safety, from farm to fork, requires partnership with industry, consumers, local, state and tribal
governments, and our international trading partners, said FDA Commissioner Margaret A. Hamburg, in the rules
announcement. Our proposed rules reflect the input we have received from these stakeholders and we look forward to
working with the public as they review the proposed rules.According to the first annual U.S. Food & Beverage Industry Study
by WeiserMazars LLP, a leading accounting, tax and advisory services firm, food companies look to new customers for the
majority of increased product sales in 2013.
According to the study, the top four trends to impact the industry in 2013 are healthy/nutritious, organic, ethnic/international,
and private label foods.
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Healthy/nutritious foods were noted as the industry trend most likely to impact company sales in 2013 (47 percent of study
participants), with other trends each affecting approximately one quarter of organizations. This, again, indicates the need for
F&B companies to focus on trends impacting their particular sector or region, and, when possible, to develop offerings that can
take advantage of multiple trends concurrently. For example, some businesses, stores, and restaurants provide products that
address all five of the noted trends simultaneously.
Figure 40: Industry Trends that will impact 2013 sales
Percent of Participants
None/Unknown
Locally produced
Private label
Ethnic/International
Organic foods
Healthy/nutritious foods
0%
10%
20%
30%
40%
50%
In the past, policymakers were consumers food eductors. Now, chefs have taken on this role. This is evidenced in the
proliferation of publications, television shows and websites featuring high profile celebrity chefs.
As value-conscious consumers adopt a recessionary mindset and attempt to stretch their dollar in the challenging
macro environment, retailers are benefiting as private label sales continue to strengthen
o Private label product quality has improved significantly over the years, making private label an increasingly
effective alternative to branded products
o In an effort to offset private label gains, branded manufacturers have increased their promotional and instore activity to lure back price conscious consumers
Consumer preference for health and wellness focused products is increasing in response to the rise of obesity and
weight related diseases
o This is driving brand innovation and line extensions as manufacturers look to capitalize on consumers desire
for products marketed with green, sustainability, and health/wellness connotations
o Green shoppers are a great consumer target, representing a high value segment who buy more products on
each trip, visit the store more regularly, and demonstrate more brand and retailer loyalty in their purchasing
behavior
As a result of several high profile e-coli and salmonella scares, consumers are increasingly focused on how and where
their products are produced. Manufactures and retailers are taking many of the following actions to enhance their
food safety procedures:
o Requesting suppliers to become audited through recognized, accredited certification programs
o Improving the recall process by establishing electronic communication between manufacturers and retailers
Retailers are returning to personal interaction with consumers. Supermarket chains are removing self-checkout lanes
as their popularity drops. Major retailers are now considering customer experiences with regard to human contact
and personal interaction over machines as future problem solvers.
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Animal welfare has become a key consideration based on increasing consumer demand over labeling standards for
meat and eggs. There is an ever-growing need for a single set of industry standards.
The GMO controversy remains, less over the concern about the effects of GMO than about consumers right to know
how their food was grown and handled (transparency) mirroring the trend toward fresh, real, and less processed.
Packaging innovations are causing a shift where branded products are no longer the force that drives consumer
interest, as consumer loyalty to legacy brands has turned into brand shifting over sale prices. Additionally, the quality
of private label products continues to improve (and impress), garnering repeat purchasing patterns and consumer
loyalty. Also, consumers are increasingly knowledge and concerned over use of recyclable plastics and use of
dangerous chemicals such as BPA. Sustainabilty is also important, as consumers connect to brands with sustainable
packaging as this suggests an eco-concern on the part of the manufacturer and creates a sense of connection to the
brand.
Mobile retail innovation is on the rise. A prime example is the largest U.S. drug store chain Walgreen, and their
smartphone applications. More than 50% of Walgreens drug refills originate from smartphone apps. Regarding QR
Codes, these are not widely understood or used and may be more of interest to marketers than consumers.
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Meal fragmentation: Today's households are run as "loose democracies" in which children have an equal say in what,
where and when the family should eat.
2. Eating alone: Forty-four percent of adult eating happens alone. Most CPG marketing ignores this reality.
3. The snack culture: Nearly half (48%) of all adult eating occurs between meals, a combined result of the increase in
eating alone and the decline in family dining. However, a return to commitment to family dining will continue to gain
momentum, says Hartman.
4. Immediate consumption: More than 11% of all adult eating today includes foods or beverages consumed within one
hour of purchase. Immediate consumption reflects a long-term shift toward impulsive, unplanned eating.
5. The new American family: Marketers need to focus on today's nontraditional, intergenerational, unmarried, singleparent, multi-ethnic families.
6. Wellness is driven by quality-of-life issues: People strive for health/wellness in order to enjoy a better life. Thats why,
for example, people are increasingly using dance for exercise, rather than treadmills.
7. Food culture is more complex than ever: Food makers need to understand all of food culture meaning all food
niches, trends and preferences, not just their own categories and specialties.
8. Education only goes so far: Research is inconclusive as to whether calorie counts on menus change purchase
behaviors. But what is clear is that consumers want help that supports their interests in food and cooking.
9. Eating occasions proliferate: Hartman has identified more than 150 distinct eating occasions beyond the traditional
daily meals or day parts. CPG brands and retailers should better leverage these opportunities.
10. You cant buy loyalty: Engendering loyalty among Millennials takes transparency and integrity, as well as fun.
11. Niche brands represent opportunities: As CPG categories become overcrowded, smaller brands that appeal to niche
needs or subcultures have become good investments.
12. Retail needs a makeover: The retail experience has lost significance with today's shoppers, who want culturally
relevant retail and brand experiences.
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Figure 41: Consumers continue to define health and wellness as a High Quality of Life
Eating from the local landscape, including wild crafting and stressing purity, freshness, simplicity and ethics in food
sources and cooking reviving regional specialties and local offerings.
Consumers prize scarcity over ubiquity, novelty over the guaranteed sameness of legacy brands and drama over
utility. Consumers are willing to embrace brands that take a little effort, especially if that effort rewards them with
something exciting and rare (examples: McDonalds McRib; Trader Joes treasure hunt dynamic).
Smaller can be better. Not only for weight management purposes, but in terms of cost and sustainability. Consumers
are coming to appreciate that there is a wisdom in smallness as they savor and appreciate less is more.
Health & Wellness. The emergence of Nutritional Genetics (Nutrigenomics or personalized nutrition), with its focus
on a persons genetic makeup and and their response to specific foods and ingredients. Food science will enable
creating individualized diets that reflect individuals genetic makeup, replacing one-size-fits-all better-for-you diets.
This will result in less demand for better for you packaged foods and greater interest in less processed, higher quality
foods.
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Rejecting nutritionism, meaning celebrating or demonizing particular ingredients rather than focusing on foods as a
whole. This has allowed processed foods to go relatively unchallenged, even as whole, fresh foods are far too
infrequently consumed.
Diets: Happy, Slim and Well-Rested. Specialty diets appealing to distinct consumer segments such as The Happiness
Diet (focused on foods to boot mood and weight loss) and The Paleolithic Diet (focused on elimination of entire
categories of ingredients for weight loss and alleviation of chronic health conditions).
Anti-fat sentiment is on the decline. New evidence revealed that the right kinds of fats can make you healthier,
smarter, more musuclar and leaner.
Challenges with foods and ingredients previously considered as healthy for all soy, wheat, apple juice, high fructose
corn syrup, hydrogenated oil, etc.
Mindless eating as a social health issue. In many locations, particularly the office, the candy dish has replaced
smoking as the #1 workplace-related health threat.
Consumers have become fickle when it comes to beverages, regularly seeking interesting varieties. Novel flavors,
limited seasonal editions and a bit less sweet is where consumer expectations are moving.
Carbonated soft drinks: CSDs are increasingly seen as a treat rather than everyday liquid refreshment so CSD
manufacturers will need to update flavors and ingredients to maintain consumer interest.
Coffee: Starbucks VIA coffee revolutionized the instant coffee market, yet options are limited in terms of ready-todrink, higher quality chilled coffee in grab-n-go bottles and cans. In the meantime, these cold brews offer consumers a
customizable option for sweetening and adding milk preferences.
Superfruits: Consumers are becoming skeptical about exotic fruits from afar, touting super-extreme antioxidant
levels. Rather than powdered out-of-season exotic fruits bearing functional overtones, expect to see a wider variety of
local berries and tree fruits in beverages, baked goods and snack foods. All are high in antioxidants and smack of
seasonality and the regional sense of place consumers are increasingly looking for in the CPG arena.
Dairy: Cutting-edge consumers concerned with getting high-quality fat in their diet seek grass-fed dairy products
made from these particular breeds. There is no other category that symbolizes freshness and purity quite the way
dairy does. The positive attributes of organic and hormone-free represented the highest of quality cues not too long
ago, then hyper-local and grass-fed pointed to greater distinction and transparency. Currently, forward-leaning
consumers are categorizing dairy even further to specific breeds for their culinary and health-promoting quality cues.
This trend suggests that dairy will become even more differentiated in the coming years.
Consumers are developing an appreciation for the bitter and mineral flavors found in land (i.e. Kale) and sea (i.e.
seaweed) greens. In terms of greens from land, CPG and food service will want to offer a variety to appease consumers
looking to add dark leafy greens to their diet, but find challenging, be it time or skill level. Food service and CPG will
want to leverage the mineral power and global flavors found in seaweed in salads and snacks, including chips and nut
snacks/trail mixes.
Condiments: Seen as a low-risk item for upgrading basic foods such as sandwiches, eggs, grains, and vegetables into a
heightened meal or snack. Manufacturers have recently introduced upscale condiments such as canola oil
mayonnaise, harissa chile sauce, and balsamic ketchup.
Carbohydrates: Consumers now realize that carbohydrates in moderation are good for them and have returned to this
category, particularly for foods that reflect authentic preparation methods, a culinary history, and are rooted in
tradition. Examples include hand crafted pretzels, crisps, breadsticks, bagel varieties, and mini brioche buns.
American consumers are increasingly perceiving snacking as an integral part of a healthy lifestyle, rather than the
empty calories associated with the snacking or treats of their youth. The desire for less processed foods and global
flavors is shifting what consumers are looking for on snacking or mini meal occasions. Snacks containing naturally
occurring protein and fiber traditionally found on meal occasions are appealing to consumers looking to replace,
bridge, and upgrade their current snack repertoire.
Ingredients that are in include: coconut oil (contains beneficial lauric acid); palm sugar (no fructose); faro (nutty, complex
grain); cheaper, tasty butcher cuts (sustainable use of whole animal from a trusted source); and kefir (higher level of probiotics
than yogurt).
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116
117
Many requirements, such as UPC codes, nutritional labeling, and product packaging, must be satisfied before distributing a
product. One of the first activities is to determine a products target market. This includes identifying the geographic area,
retail markets, and consumers that will make up your core market.
118
Between 2008 and 2009, the number of new food and beverage products in retail outlets fell from 22,561 to 19,029, following a
decline from the previous year-to-year period (from 23,838 in 2007 to 22,561 in 2008). The 2008-2009 decline marked the
first consecutive year-to-year reduction in new food product introductions since 2002, and only the third such decline since
1993. The trend since 2007 in new food and beverage product introductions falls below the trend in nonfood grocery items.
As credit conditions have tightened, retailers have found that eliminating certain products could increase sales and profits, due
in part to reducing inventories. In addition, the recession has prompted consumers to seek familiar products and avoid impulse
buying.
To appeal to bargain-seeking customers who want to simplify their shopping trips as well as purchase familiar products,
retailers reduced the number of products introduced. In response, some manufacturers reduced their product lines. In 2010,
however, the number of new food and beverage products rebounded to 21,528, though still remaining below nonfood product
introductions.
In 2010, food categories with the largest shares of overall new product introductions included candy, gum, and snacks;
beverages; condiments; and processed meat. However, from 2006 to 2010, the share of new candy, gum, and snack product
introductions declined, while the share of new fruit and vegetables, dairy products, and cereals increased.
Figure 43: New food and beverage product introductions, 2006-2010
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Percent of total
29.7
29.3
24.7
18.9
7.5
11.2
2008
2009
2010
22,561
19,029
21,528
26.6
23.1
8.7
25.5
21.3
9.7
25.8
21.0
8.8
Processed meat
Fruit and vegetables
Meals and entrees
Dairy
Bakery foods
Pasta and rice
Baking ingredients
Cereals
Desserts
Baby food
Soups
Meal replacements and special diet foods
7.9
5.1
5.3
5.4
3.7
3.1
3.3
1.8
0.9
0.4
0.9
0.3
8.7
4.9
6.4
4.8
3.5
3.8
3.4
1.7
1.1
1.0
0.9
0.4
8.5
5.1
6.6
4.7
3.9
4.0
3.6
1.6
0.9
1.0
0.8
0.3
7.2
6.5
6.7
4.8
4.5
4.2
3.0
1.8
1.6
1.3
1.0
0.4
7.8
6.9
6.2
5.9
4.4
4.2
3.1
2.0
1.2
1.0
1.0
0.4
Source: Datamonitor
Advertisements touting a product's attributes are conveyed on packages and in supporting literature. Based on new product
tags or claims (such as "organic") tracked by Datamonitor, over 100 U.S. food and beverage new product claims or tags were
identified in 2010. Health and convenience-related attributes accounted for 8 of the top 10 claim categories, and these 8 claims
accounted for one-third of all new product claims. Four categories, including "natural," "organic," "single serving," and "fresh,"
have ranked among the top 10 claims in every year since 2001.
Figure 44: Number of new product introductions in the top 10 product claim categories for 2003 to 2010
Number of new product introductions in the top 10 product claim categories for 2003 to 20101
Tag or claim2
2003
2004
2005
2006
2007
2008
2009
2010
Number
Natural
1,380
1,364
1,596
1,664
2,335
2,123
1,894
2,145
Premium
1,589
1,546
2,071
2,645
3,552
3,362
2,336
1,800
Private label
428
275
290
414
734
740
810
1,600
Single serving
1,127
1,103
1,264
1,399
1,553
1,523
1,344
1,462
High687
707
759
805
922
994
758
986
vitamins/minerals
No gluten
159
175
239
250
397
466
552
876
No preservatives
578
547
545
586
850
807
758
870
Organic
559
533
668
738
1,110
1,042
775
822
Fresh
556
597
690
700
952
918
799
808
Low/no fat
656
607
639
608
683
620
543
709
Total new product
16,374
17,629
19,261
20,459
26,263
25,012
22,483
25,640
claims
Percent of total
Natural
8.4
7.6
8.3
8.1
8.9
8.5
8.4
8.4
Premium
9.7
8.8
10.8
12.9
13.5
13.4
10.4
7.0
Private label
2.6
1.6
1.5
2.0
2.8
3.0
3.6
6.2
Single serving
6.9
6.2
6.6
6.8
5.9
6.1
6.0
5.7
High4.2
4.0
3.9
3.9
3.5
4.0
3.4
3.8
vitamins/minerals
No gluten
1.0
1.0
1.2
1.2
1.5
1.9
2.5
3.4
No preservatives
3.5
3.1
2.8
2.9
3.2
3.2
3.4
3.4
Organic
3.4
3.0
3.5
3.6
4.2
4.2
3.4
3.2
Fresh
3.4
3.4
3.6
3.4
3.6
3.7
3.6
3.2
Low/no fat
4.0
3.4
3.3
3.0
2.6
2.5
2.4
2.8
USA FOOD & BEVERAGE MARKET STUDY
120
1Does
not include associated stock keeping units (SKUs, or variations in size and form). According to
Datamonitor, the SKU count may produce erroneous results because a single new product
introduction can have multiple SKUs, and each of these SKUs may or may not have certain package
tags.
2A new product may have multiple tags or claims.
Source: Datamonitor
In 2010, "no gluten" and "low or no fat" claims replaced "quick" and "no- or lowtransfat" products in the top 10 claim
categories. "No gluten" claims ranked among the top 10 claims for the first time. In addition to controlling celiac disease, other
benefits that consumers attribute to gluten-free products are that they are generally healthier, of higher quality, and helpful in
managing weight. In 2010, 876 "no gluten" products were introduced, compared with 466 in 2008, 250 in 2006, and 159 in
2003. "Low or no fat" product claims moved into the top 10 claim categories for the first time since 2006.
Private-label products, or store brands, cracked the top 10 claims for the first time in 2007, an increase of over 75 percent from
2006. In 2010, store brands increased twofold over the previous year (2009) and ranked third among all new product claims,
accounting for 6.2 percent of new product launches. As retailers have become more adept at creating profitable store brands,
these brands have expanded at a faster pace than more expensive national brands. More consumers have turned to privatelabel foods in the face of the economic downturn and higher gas prices. Demand has also risen due to other factors, such as
increasing food-price inflation and the marketing efforts of retailers. Profit margins of store-brand items are, on average, 10
percentage points higher than those of national brands. Store brands can also add to retailers' individuality by offering
something new and different, as products are limited to their respective stores.
Current Marketing Scenario
While it is imperative for all manufacturers of new food products to devote great effort toward developing sound strategies for
price, promotion, and product, the ultimate key to the success of the new item is distribution. Without product availability at
the retail level, the best laid marketing strategies will go for naught.
Unfortunately, a number of market forces are working in concert to make achieving distribution for new items an onerous task
at best. Furthermore, the situation is worse for the smaller manufacturer, who finds itself competing against industry giants
(many of which were formed through mergers and acquisitions), and battling slotting fees the largest players pay to retailers
for shelf space.
New food products are being introduced at the rate of over 15,000 items per year. This number includes a broad spectrum of
"new" products, ranging from genuine innovations (e.g., an item that launches a new category), to me-toos (copycat products),
line extensions, and "new-and-improved" products. Retailers are thus in a constant state of new product review.
A limiting factor to the retail acceptance of new products is that the modern supermarket can stock only 25,000 to 30,000
different items. Thus, if no item were too sacred to be discontinued, a store could conceivably rollover its product mix every
two years. Given the existence of established, successful brands, this extreme case is highly unlikely to occur. Furthermore,
since no vacant shelf space sits in stores waiting for new products to appear, a new item must seize space from competing
products. Finite shelf spaces, plus firmly entrenched brand leaders, make the supermarket shelf an enviable piece of "real
estate" for the new product marketer.
Although the retailer is forced to accept only a small portion of the new items available to it, new products serve several
important functions. New products serve to enhance the retailer's "product," per se, which includes the overall product array,
atmosphere, pricing strategy, location, etc. New items also allow the retailer to foster its own image of being an innovator and
retain consumer interest by carrying recentlyissued products. Finally, new products force the retailer to frequently evaluate the
performance of its product mix and weed-out the mediocre sellers, thereby helping stimulate short-term sales and inventory
turnover.
Manufacturers have numerous reasons for introducing so many new products. For example, new products represent an
investment in the future of the firm, such that an investment today will yield profits in the months to come. New items are also
seen as a way to retain consumer interest in the company's product line, with the result being many line extensions and
product improvements appearing on the shelves. Manufacturers also use new items to improve their competitive position in a
product category, and to attract attention to the firm. Finally, new product introductions are seen as a way to replace other
USA FOOD & BEVERAGE MARKET STUDY
121
products that have moved into the late maturity or decline stages of the product life cycle, thereby helping keep the company in
its own maturity stage.
While both retailers and manufacturers rely on new products for various competitive reasons, the new product represents
additional expenses for both parties. For example, retailers face added costs in inventory control and handling, warehousing,
data processing, shelf space alignment, and item pricing. Manufacturers must absorb the costs of new product development,
sales efforts, and advertising, as well as the overall risk of the item being a failure.
An analysis of ten small public food producers showed marketing spending ranged from a low of 3.2% to a high of 7.7%, with
an average of 4.4%. One new market entrant, a manufacturer of all-natural, vitamin enhanced drinks had marketing spending
of 67.7% of revenue. Sales and advertising spending for the small food producers averaged 6.1%.
Given the level of concentration amongst the largest food manufacturers, one might conclude that channel power resides with
the manufacturers. This, however, is not the case. Despite being highly fragmented, the retailers play the dominant role in the
channel. While appearing to be fragmented at the national level, at the local level they are far from fragmented. A common
occurrence is for three or four chains to dominate a local market, with several independents also in operation. Thus, at the local
level, it is manufacturers that appear to be fragmented, while the retailers appear to be highly concentrated. With channel
power in the hands of the retailers at the local level, the retailer is now empowered to demand concessions from
manufacturers. This has occurred with the appearance of slotting fees.
A slotting fee is a payment from the manufacturer to the retailer for "slotting" the product on the shelves. The fees can vary
across markets and product categories, but usually range between $1,000 and $4,000 per item per supermarket chain.
Retailers argue that the fees cover the costs of entering new product information in computers, finding space in the warehouse,
redesigning store shelves, and notifying individual stores about the latest new product entry. Furthermore, retailers contend
that they were forced to demand these payments because of the steady stream of new products.
National distribution for a new product can thus be very high for the manufacturer. One industry consultant claims that, in
order to achieve national distribution, slotting fees between $1 million and $3 million must be paid. Of the amount
manufacturers spend on consumer and trade promotions, over one half is spent on slotting fees. Despite the high cost of
getting a new item to market, the large manufacturers pay willingly, absorbing the slotting fee as just another business
expense.
Problems Confronting Small Manufacturers
Clearly, the victim of new product proliferation and exorbitant slotting fees is the small manufacturer. The large manufacturer
actually benefits from slotting fees, because it helps eliminate competition from smaller firms. In the end, it is the consumer
who pays the price, in the form of reduced new item entries from firms unable to afford the cost of getting their product in
stores.
In many cases, the small firm is simply unable to match the slotting fees paid by their larger competitors. Slotting fees for
national distribution, in some instances, may even exceed total company sales revenues. Furthermore, even if the small firm is
able to afford slotting fees, they run the risk of grocers developing private label imitations of the new item. Thus, in addition to
paying slotting fees, the small firm must also have the cash resources to invest in substantial advertising and promotion in
order to block any competitive moves by the retailers.
Another problem for the small manufacturer is that it likely has little or no reputation and/or track record. This presents a
problematic situation, because the manufacturer, in seeking to build reputation, is halted because it has no reputation. While
the large manufacturers have solid reputation bases, and can afford to augment their reputation with additional advertising,
the small firm is often unable to affect this variable.
A third problem is the small firms inability to cover large market areas, despite the fact that the retail grocery market is highly
fragmented. This problem is actually a set of constraints: limited production capacity, few or no distribution channels, strained
financial capacity to support production and inventory, and a small sales force. The firm's size and lack of resources limit its
ability to enter the national market and compete directly with the large manufacturers.
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Another problem is the small firms inability to support much in research and development. This hinders the company's ability
to develop unique and innovative products that may attract the attention of retailers. This leaves the small firm with the
prospects of trying to introduce new items that are often not substantially different from similar items made by large firms.
From all appearances, the small firm often faces insurmountable odds when trying to get distribution for its new items. From
the retail side, the small firm is seen as inexperienced and unlikely to be reliable. On the manufacturing side, they are seen as
only a potential market threat that should not be taken very seriously.
Strategies for SMEs
Example of an SMEs Marketing Costs (Activities):
Marketing Costs. These costs include various sponsorships, coupon administration and consumer advertising programs that
we enter into throughout the year, and are expensed as incurred. We participate in a coupon programs such as Sunday Free
Standing Inserts (FSIs), digital marketing and coupon programs and Social Media including Facebook, Twitter and Google
advertising. We use a national Public Relationship firm to promote all of our brands throughout the year targeting
newspapers, magazines, web sites, bloggers, television and radio stations.
We are a national co-sponsor of American Rivers, a leading conservation organization protecting and restoring Americas
rivers. We are allowed to use the American Rivers mark on packaging and printed materials as well as directly promote
products to members and river cleanup volunteers. Our marketing programs also include selective event sponsorship
designed to increase brand awareness and to provide opportunities to mass sample branded products.
Also included in selling, general and administrative expense are costs and fees relating to the execution of in-store product
demonstrations with club stores or grocery retailers. The cost of product used in the demonstrations, which is insignificant,
and the fee we pay to the independent third party providers who conduct the in-store demonstrations, are recorded as
expense when the event occurs. Product demonstrations are conducted by independent third party providers designated by
the various retailer or club chains. During the in-store demonstrations the consumers in the stores receive small samples of
our products, and consumers are not required to purchase our product in order to receive the sample.
Market characteristics inherent in food marketing dictate that the small manufacturer employs alternative strategies. Rather
than presuming the ability to compete head-on, the small firm needs to use different techniques that will allow it to gradually
build a reputation and amass financial and corporate resources. Following are several possible strategies for the small food
manufacturer.
1. Product Uniqueness
Even in the absence of research and development activities, the small firm can make its new product at least appear to be
unique, by way of packaging, flavors, etc. For example, Clearly Canadian flooded the market with flavored waters that imitated
other items, but the distinctive blue bottles set it apart from the rest. Jolt Cola, a product in a category dominated by two
giants, positioned its product on the unlikely attributes of caffeine and sugar, and worked its way onto supermarket shelves. If
these two products had entered the market without any distinction from competing items, they likely would not have been
accepted by the trade.
A second reason for stressing product uniqueness is that it can help avoid the private label imitator problem discussed above.
This would make the new item less attractive to retailers that may want to augment their own line of house brand products.
2. Alternative Channels of Distribution
Rather than focusing on traditional distribution channels (i.e., supermarkets), the small firm should consider seeking
distribution in other outlets that sell food, but which have markedly different business goals and strategies. For example, an
emerging force in food retailing is the warehouse club, in which patrons pay annual membership fees for the privilege to choose
from an array of products and sizes that are seldom seen in such combinations elsewhere. These stores, which usually only
stock 3,000 to 4,000 different items, are focused more on high volume and a product array that will attract customers, rather
than carrying the "traditional" brands. Slotting fees have not become a problem in this distribution channel, thereby opening
the door to opportunity for small manufacturers. Such was the case for a small winery in Amarillo, TX, that persuaded Sam's
Club, on a regional basis, to carry its wines at a time when supermarkets were reluctant to add another wine to their liquor
department.
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Another alternative channel is convenience stores, whose operating strategy is to provide a limited selection of product
categories and brands, with the major focus on convenience. Given the C-stores' emphasis on having just the essential
products, rather than specific brands, a small manufacturer could use this channel as a way to build initial distribution for its
product.
3. Direct Distribution
A third option is to consider operating a retail store for the exclusive purpose of distributing their product. Many wineries
utilize their own retail shops and tasting rooms as the only retail distribution of their product. Dairy products (e.g., ice cream)
are currently being delivered to the home, while the brand is unavailable in any store. C. Ramirez and Sons, a Hereford, TXbased manufacturer of chips and salsas, has its own restaurant adjacent to their factory. Arrowhead Mills, a health-food
manufacturer also located in Hereford, has its own retail outlet store on site. While direct marketing and factory outlet stores
may not be the most efficient means of distributing one's products, they can be effective while the firm is still small.
4. Niche Marketing
Rather than aim for the modal tendencies of a market, where there are likely numerous large competitors, a firm could
carefully select a niche that is currently underserved. This certainly limits the firm's ability to ever grow to national
prominence, but it does not necessarily preclude the possibility of high profitability and returns on investment.
5. Local and Regional Efforts
The small firm must recognize its inherent weaknesses, and, rather than trying to operate at a national level, should instead
focus on local and regional markets as a way of getting established and building equity in the firm. Given that the retail market
is already fragmented into numerous local and regional chains, this strategy fits nicely with the nature of the market. Blue Bell
Ice Cream is a brand that has expanded slowly through the state of Texas, and built a loyal customer base. In an already
saturated product category, they patiently built a consumer and trade base that now affords them greater opportunities in
other markets.
6. Like-Sized Retailers
Small grocers are in about the same position vis-a-vis larger stores as are the small manufacturers. These small stores often
have only 25-to-50 percent of the retail space and product mix that their larger competitors possess. Furthermore, they are
seldom the recipients of the slotting fees paid by manufacturers, which instead go to the larger chains. Thus, the small store
must seek out competitive advantage in a way that will not strain their resources. The small manufacturer and the small stores
could have a symbiotic relationship, with the former achieving distribution for its product, and the latter enhancing its product
mix.
7. Point-of-Purchase Displays
Rather than spending large sums of money on slotting fees, the small firm could provide retailers with inexpensive, yet
effective, P-O-P displays that would aid selling efforts by the store. These could take the form of free-standing aisle units, shelf
extenders, etc.
8. Consignment Selling
Offering to sell product to retailers on consignment significantly lowers the retailer's risk of carrying the item, except for the
opportunity cost of not stocking something else. With ownership risks removed, the retailer would not have to be concerned
with unwanted inventory. While consignment selling adds an element of uncertainty to the manufacturer's sales, this type of
concession may be necessary in order to get the product on the shelf.
Small food manufacturers face an uphill battle in distributing their new products. Given the nature of the competition and the
market at large, different strategies are required. The goal of the small manufacturer is to build sufficient market experience at
the local and regional level so that they can eventually move into the national market. The above strategies are well-suited to
the small firm's resources and capabilities, and should allow it to function efficiently at a level commensurate with the
company's size.
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In General
In addition to understanding the regulations of the Food and Drug Administration (FDA) and the import regulations, when
entering the U.S. markets Swiss food manufacturers need to consider other legal issues that can determine the success of
marketing food products in the U.S. and limit the risks associated with a failure of these efforts. These issues include the risks
associated with tort liability for health risks posed by food products, commercial risks, the high costs of litigation and the tax
implications of doing business in the U.S. To reduce these risks to a manageable level, respect for the complex legal
environment and careful planning is required.
Like Switzerland, the U.S. constitution established a federal system in which the 50 states (and the District of Columbia)
maintain considerable autonomy. Certain areas of the law fall both within the scope of authority and jurisdiction of the federal
and the state governments, including income tax laws, unfair trade laws and anti-trust laws, trademark law. Other areas are
exclusively governed by federal law (e.g. patent or copyright law) or state law (e.g., contracts and general tort law). Thus, 52
legal systems can govern the marketing of food products in the U.S., each with a multitude of potentially applicable statutes,
regulations, and court decisions.
Because food products are targeted to reach a large group of consumers, companies may be subjected to lawsuits in several
states. If a food product poses a health risk to consumers, a company can be sued in a so-called class action in which a plaintiff
can sue on behalf of all members of the class of consumers harmed by the defective product. These class actions are a powerful
tool in the hands of a lawyer who represents the class on a contingency basis. Through the multiplication effect of the class,
even relatively modest damages inflicted on a single consumer can become a multi-million dollar problem for the manufacturer
of the defective product. Recently, federal legislation restricted the ability of lawyers to shop for a sympathetic forum in state
courts in class actions on behalf of consumers located in different states.
Marketing Arrangements
Swiss companies can either actively market their products in the U.S. on their own, or through intermediaries, including
agents, distributors or resellers. These intermediaries can either be independent third parties or related parties, such as joint
ventures or subsidiaries. Agents are independent contractors who solicit sales of products or services of a domestic or foreign
company for a commission, typically calculated as a percentage of gross or net sales. Distributors and resellers purchase goods
or services from a manufacturer or service provider, and then resell them at a mark-up to other distributors, wholesalers or
retail customers.
Sometimes there are several legally significant relationships between a manufacturer and its intermediaries. E.g., a
distribution agreement can include elements of an agency relationship for certain products, and an agreement to provide
services for the manufacturer (e.g., training customers, or organizing promotions at trade shows or in retail outlets).
Marketing through a U.S. Subsidiary or Branch
In certain circumstances, it can be beneficial to establish a physical presence in the U.S. to more effectively market products.
Often, this decision is made once a certain market penetration threshold has been achieved. If a foreign company is marketing
its products through employees in the U.S., a subsidiary is generally necessary to avoid income tax consequences for the
foreign parent in the U.S.
For Swiss companies, a subsidiary in the form of a corporation, rather than a branch (or a subsidiary in the form of a
transparent entity for tax purposes), typically is the desirable form for a physical presence in the U.S. Otherwise, the Swiss
parent company may directly become subject to taxation in the U.S. Prior to forming a U.S. subsidiary and structuring its
relationship with the Swiss parent, the impact of rules of international taxation contained in the Internal Revenue Code of 1986
(including the transfer pricing regime pursuant to Section 482), and the Swiss-U.S. Income Tax Treaty of October 2, 1996
should first be understood.
126
roots in the English common law, the case law is often supplemented (but not replaced) by statutes (e.g., New York General
Obligations Law of April 23, 1963 (GOL); California Commercial Code, effective as of January 1, 1965; Chapter 106 of the
General Laws of Massachusetts). An important statute, which has been adopted by all states (with certain exceptions and
modifications) is the Uniform Commercial Code (UCC), a uniform statute drafted by the National Conference of
Commissioners on Uniform State Laws in partnership with the American Law Institute (see www.nccusl.org). In its Article
2 (which was not adopted by Louisiana), the UCC establishes the rules applicable to contracts for the sale of goods. The U.S. is
also a party to several treaties that can apply to a contract between a Swiss and a U.S company (e.g. the Vienna Convention on
the International Sale of Goods (CISG) of 1980). Tort law is still mostly governed by case law.
The conflict of law rules of the states determine which state law applies to a contract or a tort matter between residents of
different states (or foreign countries). These rules generally permit the parties to a contract to select the law that shall govern
their relationship. In the absence of a choice of law by the parties, courts will decide which law has the most significant
relationship with the contract in question. In the case of a tort claim, the most significant relationship is typically with the
state in which the tort has been committed.
In a contract, the parties may also choose the courts or arbitration forum that have jurisdiction over any disputes arising in
connection with their contract. Otherwise, the jurisdiction of the various state courts is determined by the so called long-arm
statutes of the states, and by the jurisdictional provisions of the Rules of Civil Procedure for the federal courts. According to
these rules, the federal courts have jurisdiction in contract disputes between a U.S. and a foreign company if the amount in
dispute exceeds $75,000. In contract disputes, alternative dispute resolution (such as arbitration or mediation) is often used
to resolve contract disputes. Arbitration rules that are well established include those of the American Arbitration Association
(AAA) and, for international contracts, the rules of the International Chamber of Commerce (ICC).
Contractual Risk Allocation
Because there is no uniform statutory law that regulates all aspects of contract law, and contracts are interpreted strictly based
on the language in a written agreement (parole evidence rule), American contracts tend to be longer and more comprehensive
than their European counterparts. Despite the understandable desire to keep contracts short and simple, Swiss companies
should be aware of the risks that can result from an incomprehensive contract with a U.S. business partner.
Most commercial risks can be freely allocated to either party to a contract. However, there are limitations. For example,
common law does not permit a party to deny responsibility for willful misconduct or gross negligence. In addition, while
liability for statutory or tort liability can be limited vis--vis a contract party, these limitations are not effective vis--vis third
parties.
Implied Covenants and Warranties
A contract party may not only be liable for commitments and representations expressly made in a contract, but also for implied
covenants and warranties. In particular, UCC Art. 2 provides that in every contract for the sale of goods there is an implied
warranty that title to the goods is transferred to the buyer. In a contract for the sale of goods by a merchant, implied
warranties of merchantability and fitness for a particular purpose are deemed to be given, except where these warranties are
conspicuously disclaimed with language prescribed in UCC Art. 2.
Tort Claims
A tort claim can be brought against a food manufacturer if it can be shown that a food manufacturer negligently caused
damages to resellers or consumers in the U.S. (e.g., because it permitted a food product to be contaminated in an unsanitary
environment). In addition, a tort claim can also be brought against the manufacturer of a food product without proving
negligence (strict liability) if the manufacturer brought the food product into circulation despite known health risks and
without adequate warnings (e.g., carcinogenetic food additives). Compliance with the requirements promulgated by the FDA
or the USDA does not always protect a manufacturer from this type of liability because to date, not all courts have recognized
such a defense. If many consumers are (potentially) harmed, a manufacturer may, under certain circumstances, be sued in a so
called class action by one consumer on behalf of the entire class of affected consumers.
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Entering into a confidentiality agreement with a potential business partner in the U.S. is a necessity before any serious
discussions are held on a future cooperation. Otherwise, the potential partner is not restricted from publishing any
confidential information (e.g., recipes, marketing plans, financial projections) or from using the confidential information for its
own purposes. To ensure the enforceability of a confidentiality agreement, the information covered must be described as
precisely as possible and may not include non-confidential information. Because damages resulting from the violation of a
confidentiality agreement are difficult to prove, confidentiality agreements should specify that injunctive relief is available to
remedy any violation of the agreement.
Under U.S. rules of civil or criminal procedure and certain laws and regulations, confidential information may, however, be
required to be disclosed to third parties or governmental authorities. In order to avoid a violation of a confidentiality
agreement, confidentiality agreements typically permit the disclosure of confidential information in these circumstances.
Consulting Agreements
During the evaluation and market development phase, it may become necessary to hire consultants in the U.S. Consultants
typically perform services for a time-based flat fee, performance based compensation or a combination of the foregoing.
Generally, the terms of consulting agreements should permit an easy termination of the relationship and clear milestones that
define the expected results. Consultants should be bound by a confidentiality agreement (which can either be part of the
consulting agreement or a stand-alone agreement), and the consulting agreement should specify that any work product created
by the consultant belongs to the client (see 4.4(b) below). Depending on the circumstances, an exclusivity and possibly a noncompete clause may be appropriate elements of a consulting agreement.
Marketing Agreements
Purchase and Sale Agreements
Agreements for the sale or delivery of food products to U.S. resellers or customers are generally governed by UCC Art. 2.
Therefore, limitations of implied warranties must follow the UCC Art. 2 rules mentioned in 2.3 above. UCC Art. 2 also
contains a special rule, Rule 2-207, for battle of the forms, i.e., situations where the general terms of a seller and those of a
buyer contradict each other. Under the common law mirror image rule, a valid contract can only be formed if offer and
acceptance are identical (i.e. the mirror image of each other). Under the UCC rule, an acceptance which contains terms that
are different from those contained in the offer can lead to a valid contract if the new terms do not materially alter the offer and
the offer did not expressly limit the acceptance to the terms of the offer. To avoid being bound by unexpected terms, general
terms and conditions should contain such a limitation. Large U.S. companies typically require strict adherence to their terms
of purchase or sales.
Delivery and price terms are essential elements of any purchase and sale. When using trade terms, such as INCOTERMS, food
exporters should be aware of the fact that certain of these terms may have a slightly different meaning in domestic U.S. law.
Agency Agreements
As briefly described under 1.2 above, an agent is retained to solicit offers from U.S. buyers (or licensees) in consideration of a
commission. The amount and type of commission varies greatly, depending on the product, the expected volume, exclusivity
and other factors. When structuring agency agreements, it is important to create incentives for the agent to maximize the sales
for the principal. This can be achieved by a tiered commission-structure, based on sales volume and including penalties for an
agents failure to reach a minimum sales level (e.g., loss of exclusivity in a particular territory, reduced commissions, etc.).
Because the agency relationship may not be clear to a customer (or the general public), the agreement should clearly define the
role of the agent and specify that the agent is not authorized to commit the principal or make unauthorized representations on
its behalf. Otherwise, the principal could become liable for unauthorized promises or warranties made by the agent to third
parties. The agent, on the other hand, risks that it will likely be first in the line of fire, if problems with a product result in
liability claims in the U.S.. Agents therefore have a legitimate interest in limiting their liability to acts for which they can
reasonably be held responsible and in securing the support of the principal in defending such claims (including
indemnification for its costs and damages).
Distribution Agreements
The issues arising in connection with distribution agreements are in many respects similar to those discussed with respect to
the agent under 4.2 above. As in an agency agreement, a distribution agreement should contain restrictions on the
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representations and warranties that a distributor is authorized to make vis--vis its customers. On the other hand, a
distributor will have liability concerns similar to those discussed under 4.2 above.
However, distribution agreements can create additional issues under applicable intellectual property law and federal anti-trust
law. Because a distributor will use the intellectual property rights of a Swiss manufacturer (including its trade marks and
patent rights), the issues discussed under 4.4 below should be considered when structuring the relationship with a U.S.
distributor. Antitrust issues raised include possible prohibited price fixing, and exclusion of third parties from competition.
Licensing of Intellectual Property
There are different types of licensing agreements, depending on the type of intellectual property being licensed (patents,
copyrights, trade- or service marks, or trade secrets). Because patent and copyright license are rarely of interest to food
manufacturers, the following discussion is limited to licenses of trademarks and trade secrets.
Licensing of Trademarks
Trademarks can be created under federal or state law. Under the federal Lanham Act, trademarks used to distinguish products
can be registered in the U.S. Patent and Trademark Office. Through registration, the owner of the mark is permitted to use the
symbol in connection with the registered mark. Use of the symbol without a valid registration is prohibited in the U.S.
(the TM symbol - may be used with unregistered marks). A trademark registration is prima facie evidence of the exclusive
ownership of a mark. However, both under the Lanham Act and under state law, rights in trademarks or service marks can also
be created through the simple use of a mark in commerce.
A trademark license should define (1) the territory within which the licensee has the right to use the trademark, (2) the scope of
the licensee's rights (exclusive/non-exclusive use), and (3) the time period during which the licensee may exercise these rights.
Although the life of a trademark is not limited, the owner of a trade or service mark can lose its right (or the value of its mark) if
the registration is not renewed, the mark is no longer used in commerce or the owner of the mark permits the use of the mark
by unauthorized persons or in a manner that diminishes the value of the mark. Therefore, a license agreement must permit the
licensor to monitor the quality of the goods that the licensee sells under the licensors mark, and the licensor must in fact
exercise its control rights. The licensor can also lose the protection of its mark if the license does not provide that all goodwill
created in the mark by the licensee inures to the benefit of the licensor.
A trademark license can either be a separate agreement or be included in another agreement (e.g. agency or distribution
agreement).
Licensing of Know How and Trade Secrets
The issues that must be addressed in licenses of know-how or trade secrets are similar to those discussed under 3.1 above. It is
important to remember that the protected know-how is secret at all times during the term of the license. Moreover, the nature
of the protected information needs to be carefully defined in the license agreement. Because the confidential information is
revealed to the licensee for the purpose of a commercial activity, the transfer of the know-how or trade secrets, the scope of
authorized users, the duty to maintain the information confidential, and the return of the confidential information at the end of
the license term should be clearly regulated in the agreement. A know-how license does not need to have a time limitation.
However, the publication of confidential information or the loss of its value may make a know-how license unenforceable.
Legal Aspects of Marketing to Retailers
A particularity of marketing food products to retailers, in particular supermarkets, is the so called slotting fees. Slotting fees
are product placement fees that manufacturers are to pay to retailers, and sometimes to wholesalers, for shelf-space (slots).
These fees can be tied to performance or flat fees. While there is controversy regarding the influence that these fees may have
on competition, they are not illegal. Slotting fees can take the form of an upfront cash fee, a service fee for stocking or
promoting the goods, a discount or a rent for floor space (in particular where a supermarket vendor is permitted to put its own
display into a store). Supermarket chains also typically have guidelines or handbooks that vendors are expected to follow.
These guidelines are incorporated into the purchase contract by the supermarket's purchase order and can cover shipping and
delivery requirements, safety requirements, coding, shelf-life and penalties for non-compliance.
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130
During the evaluation and market development phase, it may become necessary to hire consultants in the U.S.. Consultants
typically perform services for a time-based flat fee, performance based compensation or a combination of the foregoing.
Generally, the terms of consulting agreements should permit an easy termination of the relationship and clear milestones that
define the expected results. Consultants should be bound by a confidentiality agreement (which can either be part of the
consulting agreement or a stand-alone agreement), and the consulting agreement should specify that any work product created
by the consultant belongs to the client (see 4.4(b) below). Depending on the circumstances, an exclusivity and possibly a noncompete clause may be appropriate elements of a consulting agreement.
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Licensing of Trademarks
Trademarks can be created under federal or state law. Under the federal Lanham Act, trademarks used to distinguish products
can be registered in the U.S. Patent and Trademark Office. Through registration, the owner of the mark is permitted to use the
symbol in connection with the registered mark. Use of the symbol without a valid registration is prohibited in the U.S.
(the TM symbol - may be used with unregistered marks). A trademark registration is prima facie evidence of the exclusive
ownership of a mark. However, both under the Lanham Act and under state law, rights in trademarks or service marks can also
be created through the simple use of a mark in commerce.
A trademark license should define (1) the territory within which the licensee has the right to use the trademark, (2) the scope of
the licensee's rights (exclusive/non-exclusive use), and (3) the time period during which the licensee may exercise these rights.
Although the life of a trademark is not limited, the owner of a trade or service mark can lose its right (or the value of its mark) if
the registration is not renewed, the mark is no longer used in commerce or the owner of the mark permits the use of the mark
by unauthorized persons or in a manner that diminishes the value of the mark. Therefore, a license agreement must permit the
licensor to monitor the quality of the goods that the licensee sells under the licensors mark, and the licensor must in fact
exercise its control rights. The licensor can also lose the protection of its mark if the license does not provide that all goodwill
created in the mark by the licensee inures to the benefit of the licensor.
A trademark license can either be a separate agreement or be included in another agreement (e.g., agency or distribution
agreement).
Licensing of Know How and Trade Secrets
The issues that must be addressed in licenses of know-how or trade secrets are similar to those discussed under 3.1 above. It is
important to remember that the protected know-how is secret at all times during the term of the license. Moreover, the nature
of the protected information needs to be carefully defined in the license agreement. Because the confidential information is
revealed to the licensee for the purpose of a commercial activity, the transfer of the know-how or trade secrets, the scope of
authorized users, the duty to maintain the information confidential, and the return of the confidential information at the end of
the license term should be clearly regulated in the agreement. A know-how license does not need to have a time limitation.
However, the publication of confidential information or the loss of its value may make a know-how license unenforceable.
Legal Aspects of Marketing to Retailers
A particularity of marketing food products to retailers, in particular supermarkets, is the so called slotting fees. Slotting fees
are product placement fees that manufacturers are to pay to retailers, and sometimes to wholesalers, for shelf-space (slots).
These fees can be tied to performance or flat fees. While there is controversy regarding the influence that these fees may have
on competition, they are not illegal. Slotting fees can take the form of an upfront cash fee, a service fee for stocking or
promoting the goods, a discount or a rent for floor space (in particular where a supermarket vendor is permitted to put its own
display into a store).
Supermarket chains also typically have guidelines or handbooks that vendors are expected to follow. These guidelines are
incorporated into the purchase contract by the supermarket's purchase order and can cover shipping and delivery
requirements, safety requirements, coding, shelf-life and penalties for non-compliance.
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Supply Agreements
In a supply agreement, the customer is primarily concerned with securing the timely supply of raw material or product
components at the desired quality and the allocation of liability to the supplier for damages resulting from defective or
inadequate material supplied. The supplier, on the other hand, is interested in being excused from performing its obligations
in the event it becomes unable or commercially unreasonable to adhere to the terms of the contract and in limiting its liability
for the use of the supplied material or components to the maximum extent possible.
Packaging Agreements
An agreement regarding the outsourcing of the packaging of its food products for the U.S. market (whether to a U.S. or nonU.S. packaging company) should specify the labeling requirements and contain unambiguous instructions for handling and
packaging the product. If any contamination occurs during the packaging process, it is important that the manufacturer can
show that the contamination would not have occurred, had the packaging company followed the manufacturer's guidelines.
Joint Ventures
Joint ventures can be formed for purposes of developing, manufacturing, or marketing food products. Contrary to the
agreements discussed so far, the common denominator of all types of joint ventures is the achievement of a common purpose
by two or more parties through a joint decision making process. Joint ventures can be mere contractual arrangements among
parties or take the form of legal entities operated for the common purpose of the joint venture. The decision making process,
supervision and monitoring of the joint ventures activities, ownership and protection of intellectual property and the rights
and obligations of the parties in the event of a break-up or sale of the joint venture (or interests therein) are key issues that
should be addressed in a joint venture arrangement. Because unincorporated joint ventures are generally treated as
partnerships for tax purposes, Swiss companies should consider that, absent a proper structure, their participation could
subject them to U.S. taxation (see 1.3 above).
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ITEM
OPPORTUNITIES
CHALLENGES
Market Size
Growth
Competition
Distribution
Marketing
Retailers
Private
Label
134
ITEM
OPPORTUNITIES
CHALLENGES
Organic
Consumer
Trends
Industry
Trends
Imports
Food
Culture
135
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Special agents are not involved in routine Customs matters. Rather, special agents almost always work on suspected Customs
law violations. Therefore, a telephone call or visit from a special agent is a serious matter and an importer should immediately
contact Customs counsel if such an event occurs.
Current Regulatory Environment
Compliance with the Customs laws is of utmost importance in todays environment where security considerations are
paramount. Much of the focus in terms of CBP resources since September 11, 2001 has focused in the area of security
generally, and CBP has promulgated many new programs designed to make compliance more efficient yet also meet
heightened security considerations. The Customs regulations change quite rapidly and it is important to keep abreast of all
new developments. Although there are many new security initiatives, the program currently in the forefront is the Customs
and Trade Partnership Against Terrorism (C-TPAT) program wherein importers receive certain benefits including reduced
cargo inspections when they are certified as a C-TPAT participant. The C-TPAT program and its impact upon food
importations is discussed later in this chapter.
CBP enforces the regulations of many other governmental agencies and acts as the primary enforcement arm for the
application of such regulations to imported products. With respect to food products, CBP enforces the regulations of the Food
and Drug Administration (FDA), U.S. Department of Agriculture (USDA) and the Federal Trade Commission (FTC).
Basic Customs Considerations
Customs duties are generally determined on an ad valorem basis, meaning that the amount of duties owed will depend upon
the duty rate applied and the value placed upon the imported merchandise. The duty rate to be applied to imported
merchandise is determined by its tariff classification and country of origin. Customs duties may also be specific, i.e., 10 each,
or may be a compound rate of ad valorem and specific duties.
Tariff Classification and Duty Rates
There are over 12,000 separate subheadings in the Harmonized Tariff Schedules of the U.S. (HTSUS) under which imported
merchandise may be classified. In order to determine the proper classification of imported merchandise within the HTSUS, an
importer must be familiar with the General Rules of Interpretation (GRI) of the HTSUS. In many instances, an article may
seem to fit exactly within a tariff provision and yet not be properly classified under that tariff provision. The GRIs are to be
consulted in all cases and are applied in sequential order. Factors affecting tariff classification include whether the product is
specifically defined in the Section or Chapter Notes; whether the item is provided for specifically in a particular tariff item;
whether a particular tariff item is more specific than another; the common meaning of a tariff item; the principal use of an
item; and the component make-up of the item.
There are also many special programs allowing for reduced duties or importation free of duty. Many of the programs involve
imports from developing countries such as the Generalized System of Preferences (GSP), Caribbean Basin Initiative (CBI), and
other programs. Of course Switzerland does not qualify as a developing country, but Swiss companies may produce products
in developing countries and ship them directly to the U.S. which may qualify for duty-free treatment under such a program.
There are also many bilateral agreements providing for duty-free treatment such as the U.S. Israel Free Trade Agreement,
U.S. Chile Free Trade Agreement, and others. There is also the North American Free Trade Agreement (NAFTA) which
involves duty-free treatment for qualifying articles between Mexico, U.S. and Canada. Again, Switzerland is not a party to any
of these free trade agreements, but it is possible to manufacture products within these countries and qualify for duty-free
treatment upon importation into the U.S. if the technical requirements are met.
Customs Valuation of Imported Merchandise
Customs valuation can be a very complicated area, and one which can have a major effect on Customs duties. A common
mistake made by importers is believing that imported merchandise always will be valued (appraised) at the transaction price,
or the price actually paid for the merchandise by the importer. In fact, most appraisements are made based upon transaction
values. However, Customs may use other methods of valuing imported merchandise such as deductive value or computed
value. These methods may require the importer to provide costs, expenses and detailed accounting information in order to
satisfy Customs as to the correct appraised value of the imported merchandise. Special rules also apply where merchandise is
brought into the U.S. on a consignment basis and is not sold to a purchaser in the U.S. until a later time. Alternative methods
of appraisement generally apply in related party transactions or consignment situations.
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An importer is free to structure a transaction to take advantage of the Customs laws. Some importers employ buying agents
whose commissions are non-dutiable items. Other favorable structures involve the utilization of the first sale rule which
involves sales through a middleman, who in turn sells to a U.S. importer, yet entry is made at the first sale (price to the
middleman) level. Certain legal requirements must be met in order to utilize these structures and they are not automatically
available. Finally, it should be noted that although most appraisements are made based upon the invoice price on the
commercial invoice to the importer, amounts for freight and insurance are non-dutiable items and should be broken out
separately if included in the invoice price to ensure that they are not included in dutiable value.
Country of Origin Marking
All merchandise of foreign origin imported into the U.S. must be marked with the country of origin. The Customs marking
requirements in Section 304 of the Tariff Act of 1930 are as follows:
Every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly,
indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate
purchaser in the U.S. the English name of the country of origin or the article.
There are many exceptions to the above rule, so an answer to any country of origin marking question must take into account
the particular product involved and the manner in which the good is imported and used. In general, goods imported into the
U.S. must be marked in a conspicuous manner with the English name of the country of origin. In order for the marking to be
considered conspicuous, it must be legible, easily found and read without difficulty. Goods must be marked in such a manner
as to indicate the country of origin to the ultimate purchaser in the U.S.. The ultimate purchaser is generally the last person in
the U.S. who will receive the article in the form in which it is imported. Failure to properly mark an imported article to indicate
its country or origin can result in a special 10% ad valorem marking duty, demands for redelivery to Customs, and
accompanying liquidated damages, or other penalties.
Invoicing
Invoices presented to Customs must be properly prepared and meet regulatory requirements. The commercial invoice should
show the port of entry to which the merchandise is destined; the name of the party to which the merchandise is sold and the
place from where shipped; a detailed description of the merchandise, in English, including the name by which each item is
known, the grade or quality, marks, numbers and symbols under which they are sold by the seller; the quantity of merchandise;
the purchase price of each item; the currency in which the transaction is made; and all charges itemized by name and amount
including freight, insurance, commissions, coverings, costs of packing, and related expenses.
Entering Merchandise into the U.S
Importers typically utilize licensed Customhouse brokers to assist in the entry of merchandise into the U.S.. A Customhouse
broker is licensed by CBP and files the appropriate documentation with Customs to obtain release of the merchandise and to
effect payment of duties. A Customhouse broker is distinguished from a freight forwarder in that a freight forwarder performs
the service of arranging for the transportation of merchandise from point A to point B, but is not licensed to transact Customs
business with CBP or file entry documentation. Many companies frequently are both Customhouse brokers and freight
forwarders. It is possible for an importer to file entry documentation itself, however, it is generally recommended that a
Customhouse broker be utilized.
The entry process begins with the Customhouse broker submitting a Customs Form (CF) 3461 to Customs which indicates the
basic information concerning the merchandise including the shipper, importer, type of merchandise, tariff classification, value
and related information. The information is submitted electronically through the ABI (Automated Broker Interface) system.
CBP will then issue a release of the merchandise or indicate that there is a problem and that additional information is needed.
For shipments of products subject to FDA requirements, appropriate information is electronically transmitted by the broker.
FDA will then notify the broker whether the merchandise may proceed or not, as the case may be. A CF 7501 will then be filed
by the broker which is known as an Entry Summary and which provides all information concerning the calculation of duties,
asserted tariff classification items and related information, and also the payment of duties. An entry summary must be filed
within 10 business days from the date of entry. In the event that the imported merchandise is not granted a May Proceed
notice by FDA, the merchandise may be subject to detention procedures as set forth below.
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It is also possible to utilize a Customs Bonded Warehouse or Foreign Trade Zone (FTZ) regarding entry of merchandise.
Merchandise may be entered into a Customs Bonded Warehouse upon the filing of an appropriate warehouse entry. Duties on
the merchandise will not be deposited until the product is withdrawn from warehouse for consumption into the U.S..
Merchandise may be inspected, repacked, stored, and similar treatment, but may not be processed or manufactured in a
bonded warehouse and then brought into the U.S.. In the case of processing or manufacturing, such a product must be
exported. Merchandise can also be brought into a Foreign Trade Zone, and again, duties are not paid until merchandise is
withdrawn for entry into the U.S.. A Foreign Trade Zone requires special permission but allows for greater flexibility and
freedom of manufacture, production or manipulation.
Quotas
Numerous types of quotas on imported merchandise are administered through CBP. Quotas cover a wide range of products
and have traditionally been evident in the importation of food products and textiles. Quotas are generally of two types, 1)
absolute quotas and 2) tariff rate quotas. Absolute quotas are quantitative amounts that are set for a specific period of time
(usually one year) wherein imported products may be brought into the U.S. only up to those specific limits. Allocations are
generally made by specific country, and there are also allocations for all other countries not receiving the specific allocation.
Once the limitations have been reached for the particular time period in question, no more imports of those products will be
allowed in the U.S.. Tariff rate quotas allow a specific quantity of merchandise to be imported at a lower duty rate. However,
once the quantitative limitation has been reached, rather than prohibiting any further importations during that year the
products in excess of the quota amount will be assessed a higher duty rate for imports made through the balance of the
calendar year. Allocations of quota are subject to negotiation and change on a regular basis. Certain requirements are present
as regards the entry procedures so that Customs can adequately account for all product subject to quota. Depending upon the
type of product involved, there may be different documentary requirements.
There are currently quotas on a wide range of products including beef; dairy products including milk and cheese; raw sugars;
other sugar containing products; various types of chocolate; certain types of mixes and doughs; ice cream; animal feed; and
mixed condiments and seasonings. Switzerland generally falls into an all other allocation on most quotas as opposed to
receiving a specific amount. An exception to this involves the importation of certain Swiss and other types of cheese. It is
critical that any potential quota applicability be determined well ahead of time as many quotas fill quickly and it may be
extremely difficult to obtain a quota allocation and appropriate documentation.
Rulings by Customs and Administrative Contest
As previously mentioned, an importer may obtain protection and assurance that its tariff classification, method of valuation, or
country of origin marking methodology is correct in the form of a binding ruling from Customs. Binding rulings are
prospective in nature and provide a written decision from Customs as to any of those issues noted above. A ruling may be
obtained from the National Import Specialist in New York and these rulings frequently may be secured within 30 days.
Rulings from the NIS in New York are limited to simple classification issues. For other issues including valuation, more
complex classification issues, and country of origin determinations, a ruling may be obtained from CBP Headquarters in
Washington, D.C. These rulings take longer to process and can be secured within 120 days, but often take longer. In each case,
a ruling will give predictability to an importer as to dutiable consequences of its transactions. A ruling may be revoked or
modified but such an occurrence is relatively infrequent and generally would not apply on a retroactive basis.
It is also possible to obtain decisions from Customs on matters contested administratively. Most of the methods employed
depend upon whether or not an entry has been liquidated. An importer should note that money paid to Customs at the time
of shipment clearance is only a deposit of estimated duties. The final accounting for Customs duties occurs at liquidation of an
entry which may occur months or even years after goods are released by Customs. An importer has a right to contest a
determination by Customs regarding an entry and to receive a refund of any excess Customs duties paid. In order to do so the
importer must file a protest with Customs within 180 days from the date of liquidation of the entry.1 A protest contesting a
decision by Customs is filed at the local port where entry was made and generally the decision is also made there. In some
cases, further review of the protest by Customs Headquarters may be requested. The decision by Headquarters in such a case,
referred to as an AFR (Application for Further Review), in effect will also act as a binding ruling as to the issue. It is also
possible to request a ruling from Headquarters where entry has been made but the entry has not yet been liquidated. In such
an instance the appropriate mechanism is referred to as a Request for Internal Advice.
1
Ninety days has been the traditional statute of limitation for filing an administrative protest but the law has recently been changed so that entries made after
December 18, 2004 are now subject to a 180 day limitation period.
USA FOOD & BEVERAGE MARKET STUDY
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Food and Drug Administration (FDA) Requirements Enforced by Customs / The Bioterrorism Act of 2002
CBP acts as the first level of scrutiny with regard to imported products and their compliance with FDA regulations.
Adulteration, labeling and other traditional FDA issues are discussed in the chapter involving FDA requirements. The passage
of the Public Health Security and Bioterrorism Preparedness and Response Act of 2002 (Bioterrrorism Act or BTA) has
particular relevance with regard to imports. The basic elements of the Bioterrorism Act are as noted below.
Registration
The Bioterrorism Act requires that any facility, domestic or international, that manufactures, processes, packs or holds food for
animal or human consumption in the U.S. must register with the FDA. The rationale behind this requirement is to ensure that
the FDA can quickly locate and neutralize faulty food processors in the case of delivered or accidental contamination of food.
Basic information such as company name, address, trade names, food product categories, and name and contact information
are required to be submitted in the registration. Importantly, for foreign facilities that have no physical presence in the U.S., a
U.S. based agent must be designated.
Prior Notice
This section of the BTA requires that prior notice of the arrival of merchandise at the first U.S. port of entry must be provided
to Customs and FDA. The data that must be included in the prior notice provided is the country from which the article
originates; country from which the article is shipped; the anticipated U.S. port of arrival; the Customs entry type and date; all
carriers involved in transporting the article; the firm name and address in each instance; the e-mail address, telephone and fax
numbers; and the registration number and standard carrier abbreviation code. Prior notice of imported foods must be
received electronically by FDA through the Automated Broker Interface (ABI) or via the Prior Notice System Interface (PNSI)
no more than five days before arrival in the U.S. Further, it must be received no fewer than two hours before arrival by land via
road; four hours before arrival by air or land via rail; and eight hours before arrival by water. All shipments, regardless of
value, must meet the prior notice requirements unless exempted. Products that are exempted from prior notice requirements
are personal food or gifts accompanying an individual; merchandise that is exclusively subject to U.S. Department of
Agricultural jurisdiction such as meat, poultry and egg products; homemade goods shipped as gifts; food items shipped by a
diplomatic pouch; foods normally subject to the Bioterrorism Act that are included in shipments of household goods; and nonconsumption samples for testing only.
Records Maintenance
The BTA also requires the maintenance of records to allow for the identification of immediate previous sources and immediate
subsequent recipients of food to help the FDA track food quickly and more efficiently should a potentially hazardous shipment
be released. Persons that must establish and maintain records include domestic persons in the U.S. that manufacture, process,
pack, transport, distribute, receive, hold or import food; foreign persons that transport food; and persons who place food
directly in contact with its finished container. It should be noted that foreign persons who do not transport food in the U.S. are
excluded from these regulations.
Records that must be maintained by non-transporters of food relate to the identity of the immediate non-transporters
previous sources, whether foreign or domestic, including the name of the firm address, telephone number, type of food, date
received, quantity and type of packaging and immediate transporter source. Also, this same information must be provided for
an immediate non-transporters subsequent recipients of all foods released. The term transporter includes persons who have
possession, custody, or control of an article of food in the U.S. for the sole purpose of transporting the food. It also includes
foreign persons that transport food in the U.S. regardless of whether a foreign person has possession, custody or control for the
sole purpose of transporting it. Records to be kept in this regard include those with names of the transporters immediate
previous source and the transporters immediate subsequent recipient; the origin and destination points; the date shipment
received and date released; number of packages; description of freight; route of movement during the time the food was
transported; and transfer points.
The records must be retained depending on the type of food and whether the recordkeeper is a transporter or non-transporter,
for anywhere from six months to two years. Customs records must be kept for five years. Records must be readily available
and accessible.
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Detention
The BTA gives authority to the FDA to detain any shipment if it has credible evidence or information indicating that the article
of food presents a threat of serious adverse health consequences or death to humans or animals. An article of food may be
detained regardless of the size and value of the item. Should a food shipment be detained, a detention order will be issued by
FDA. The detention order must be approved by the FDA district director at the local port and all relevant parties will be
notified. Detained food may be transferred to a secure area as determined by the FDA. A detention order is valid for a
maximum period of 30 days. If the FDA terminates a detention order or if the detention period expires, an authorized FDA
representative will issue a detention termination notice releasing the article of food to any person who received the detention
order. If the FDA does not issue a detention termination notice and the detention period expires, the detention order is
deemed terminated.
The detention order must have a detention order number, hour and date of the order, identification of the detained article of
food, detention period involved, statement that the article of food identified is detained for the period shown, a general
statement of reasoning behind why the food is being detained, the name of the authorized FDA representative who approved
the order, and the address and location of where the article of food is to be detained. The detention order may require the
detained food to be marked and labeled that in fact it has been detained. Also, a detention order may be appealed as to the
reason for the detainment.
A distinction must be drawn between Administrative Detention under Section 304(h) and Section 801(a) of the Federal Food
Drug and Cosmetic Act. As noted, Section 304(h) gives the FDA authority to detain food where it has credible evidence or
information that the article of food presents a threat of serious adverse health consequence or death to humans or animals. On
the other hand, a detention under Section 801(a) focuses on whether the article of food 1) appears to have been safely
produced, packed and held; 2) contains no contaminants, illegal additives or residues; and 3) is properly labeled. As a result,
the standards of detention differ, with Section 304 detentions requiring credible evidence of serious adverse health
consequences or death. A detention under Section 801 will result in a document referred to as Notice of Detention and
Hearing. FDA has stated that it will primarily use Section 304(h) for domestic shipments and not as a tool to stop imports.
Penalties
Under the U.S. Customs laws it is unlawful to enter, introduce or attempt to enter or introduce any merchandise into the U.S.
by means of a material false statement or omission, whether by fraud, gross negligence, or negligence. The amount of penalty
imposed depends upon the level of culpability, but can be quite severe. If Customs determines that an importer fraudulently
evaded duties, it may assess a penalty up to the amount of the U.S. domestic value of the merchandise. If Customs determines
that an importer violated Customs laws because of gross negligence, it may impose a penalty of up to four times the loss of
Customs duties and up to two times the loss of Customs duties for ordinary negligence. When a violation of the Customs laws
has occurred, an importer may avoid the imposition of the harsh penalties described above by filing a prior disclosure or a
petition to mitigate penalties. A prior disclosure is a detailed explanation of the circumstances and factors resulting in a false
statement or material omission which is filed by an importer before an investigation commenced, or without knowledge of an
investigation.
Importers also need to be aware of the additional sizable penalties which may be imposed for failing to keep and present
proper records. Under this law, the duty to maintain Customs records is extended to any owner, importer, consignee, importer
of record, entry filer, or any other party who is involved in such import related activity. Customs has compiled a list of records
which must be maintained for five years (the (A)(1)(A) list), but importers should also take care to keep related business
documents for the same period of time.
Customs Trade Partnership Against Terrorism (C-TPAT) and Related Security Compliance Issues
Security considerations have been at the forefront of the CBP agenda since the September 11, 2001. Many programs relate to
developing greater security at ports in the U.S. and major ports throughout the world, and other programs pertain to container
security and supply chain security considerations. The Customs Trade Partnership Against Terrorism (C-TPAT) is the major
initiative by CBP in strengthening security considerations as regards importers, Customs brokers, freight forwarders and ocean
transportation intermediaries, and modes of transportation along the supply chain. The program has received increasing
acceptance and all importers should at least consider the possibility of participating in the program.
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C-TPAT is a voluntary partnership between Customs and members of the importing community. The program provides
incentives to join C-TPAT and encourages applications from those importers who do business with other C-TPAT certified
businesses. Because the program is voluntary, in return for an importers participation and demonstration that it meets or
exceeds certain minimum security requirements, Customs offers incentives to the importer such as reduced cargo inspections,
an assigned account manager, access to the C-TPAT membership list, and eligibility for account-based process with CBP. The
application process requires 1) preparation of the C-TPAT Supply Chain Security Profile; 2) electronic submission of the profile
and 3) assessment and verification of the importers actual processes.
An importer must conduct an assessment of its international supply chain. The supply chain for C-TPAT purposes is defined
as from point of origin (manufacturer/supplier/vendor) through the point of distribution in the U.S.. CBP has mandated
specific security criteria. Not all the criteria will apply in all cases and Customs personnel have indicated that each submission
is evaluated on a case-by-case basis taking into consideration specific risk factors such as the country of origin or
transshipment. Customs states that the C-TPAT program recognizes the complexity of international supply chains and
endorses the application and implementation of security measures based upon risk analysis.
The following measures are mandatory: Written procedures for selecting business partners; container security; physical access
controls; procedures regarding documentation processing; security training and threat awareness; physical security; and
information technology security. The C-TPAT program continues to progress and be subject to additional revisions. Potential
participants should consult with knowledgeable experts as to future changes in the program and the advisability of
participation.
The United States requires significant dedication, commitment, persistence, aggressiveness and resources. The relative
maturity and intense competition within the food and beverage market has led to customers having come to expect significant
aftersales service and incentives.
The keys to success in the market include a great product, a significant investment of time and money, capacity to supply at
competitive prices and a willingness to assimilate into the United States business culture.
Swiss companies are recommended to approach the market by regions as the United States is diversified in size, format and
consumer. As local brokers, agents and distributors are located across the country it is advisable for Swiss companies to
investigate their potential broker / agent / distributors client list, portfolio, size of sales team, margin expectations, location in
relevant market, expertise, warehouse or dropproduct, prior to assigning their representatives in the market.
It may be viable to adopt a private label strategy if your brand is not known in the United States, as costs are extremely high to
build a brand in the market.
Entering the U.S. market is a strategic business decision that requires preparation, planning and excellent execution to achieve
the desired success. These 6 key steps are the same for every foreign investment into the US, but more particular to European
companies who may have a tendency to underestimate their importance.
1. Full awareness of the differences between Europe and the US
2. Launched the project after meticulous preparation
3. Considered the project as Business Strategic and provided Executive backing
4. Backed the venture with sufficient funds for success
5. Defined a great Value Proposition for the market
6. Brought the right partners on board early
Many European companies enter the US domestic market on a limited budget. That is a mistake. Prospective clients in their
decision process to replace established domestic competition compare all your touch points with the reigning players in the
market. Touch points are products, people, proposed pricing, marketing collateral, etc that should send the same consistent
quality message.
Selling imported goods within the U.S. can be a lucrative business opportunity. High demand imported food and beverage
products represent a significant market opportunity. If you are interested in importing and selling overseas goods into the U.S.
market, you will need to do your research regarding both the country of export and the country of import. Here are some
business and regulatory tips to guide you through the process of selling imported goods in the U.S.
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Exporting food and beverage products into the United States is a full-time venture, and one that can be extremely challenging
for the unprepared manufacturer. As discussed, the U.S. market is very large, but the sheer size of the market gives some
indication of the competitiveness that manufacturers face when trying to position their product.
In todays global economy, Swiss manufacturers must be prepared to commit to an export program which may or may not
involve a U.S. partner (importer, distributor, licensee, joint venture or M&A partner), and invest accordingly. The first and
most obvious step in this process is performing a company assessment, as outlined below. Having this infrastructure in place is
critical for success.
There are obvious differences between marketing food and beverage products domestically and in the United States. First and
foremost, is the need to understand the customer. A products marketability will depend largely on the target demographic. As
discussed above, the U.S. market is not one, solitary entity, but rather a collection of sub-sectors, each with different
requirements and product norms.
Most notably, one of the most common differences involves payment terms. In the United States, potential buyers will expect
the manufacturer to fund the entire cost of production. Letters of credit, irrevocable or otherwise, are almost impossible to
come by. Additionally, in most cases, potential buyers will expect the first order to be on consignment (good paid for only after
they are sold into retail), in order to grow the market.
Remember, that a manufacturers distribution model, including all brokers, distributors and retailers, are part of the sales
channel. Each of them has a monumental task of placing the manufacturers products in as many retail outlets as possible.
Since most of these players work on either commission or on a percentage of sales, they are not making any money until a sale
is consummated. The manufacturer must be willing to support the effort, and that support usually comes in the form of free
goods, attractive initial payment terms or financial backing.
20.4. BRANDING
Developing a brand for a specialty food product is perhaps the most important aspect of product development, as it becomes
the public face of both the manufacturer and the product itself. When developing a brand for specialty food products, it is
important to note a few key questions, including:
What is the most important thing you want to say about your product?
USA FOOD & BEVERAGE MARKET STUDY
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These are all critical questions, because the manufacturer wants to create a brand that is not only true to their own corporate
identity, but also one that is marketable and appealing to the consumers they are trying to reach. Again, doing a competitive
analysis is critical, if only to see what everyone elses brands look like and how this one can be different.
Developing a brand, from a label to a website to a social media page is intense, and should be handled with care from the
beginning. It is important to remember that this brand is all most consumers will ever know about a manufacturer, and
perhaps even the country of origin.
For the United States market, it is important to make note of some consumer perceptions about brands. A high-priced product
should look nicer than a low-priced product. U.S. consumers have a very jaded and limited view of the world, and will associate
certain branding patterns with certain regions. Manufacturers should never include anything on their label that does not either
help sell the product or is required by law. Finally, always remember to do the market research first. Different demographics
will require and expect different brand strategies. Higher end, mainstream customers will expect to see a product that looks
very different from one targeting a lower-end consumer or the Diaspora. Understanding the target customer will save lots of
time and money when developing a brand.
Cost-Plus Pricing: this includes setting a price at the current product cost, including both cost of goods sold (COGS)
and fixed costs, and volume of sales, plus a certain profit margin (typically not less than 25 percent).
Target Return Pricing: involves setting a price to achieve a target Return-on-Investment (ROI).
Value-Based Pricing: this involves pricing a product based on the value it creates for a customer. This is typically the
most profitable form of pricing, though it rarely applies to food products.
Psychological Pricing: this will include positioning, popular price points and fair, market value pricing.
Developing a pricing model will depend heavily on the competitive landscape prepared. Keeping into account the
manufacturers costs, profit margin (along with the profit margins of the importer, distributor and retailer), market position of
a product will depend heavily on the competitive landscape.
The shelves of U.S. retail outlets are packed with every type of product imaginable. Rows upon rows of BBQ sauce, juices,
cookies, teas, and jams, to name but a few, line every aisle of every store. Looking at the stores as a whole, one realizes that the
store is designed in a very precise, logical manner that does not deviate much from store to store. Fresh fruits and vegetables
are always on the outside perimeter, as are meats, dairy and fresh baked goods. The center aisles are organized in a similar
fashion, with frozen foods on one side, followed by house wares, pet foods, and then shelf-stable food products.
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All major supermarket chains in the United States, and elsewhere, use a software technology called plan-o-gram. Plan-ograms are created to maximize available shelf space and to group categories of products together to maximize consumer
exposure. Manufacturers should be aware of this, and should also take note of where they imagine their products being placed,
again, depending on their target demographic and competitiveness.
When preparing to introduce a new product to the U.S. food and beverage industry, it is important to answer two simple
questions: where does this product belong and who is going to buy it? When a buyer is looking at the product, these are the two
exact questions they will be asking, and it is advised to all manufactures to have an elaborate answer. Getting on to the shelf is
one thing - getting off the shelf is something else.
Analyze what other products are already in the markethow much they retail for, what the packaging looks like, what
sizes they come in and how often they promote.
Prepare a concise SWOT (Strengths, Weaknesses, Opportunities & Threats) analysis for each competitive product,
gathering information from buyers and consumers alike.
Determine specifically what market segment to approach (i.e. high-end supermarkets in the Northeast), based on
consumer demand for the manufacturers product category. As mentioned, the U.S. market is multi-faceted, and
manufacturers need to know exactly where they fit in.
Information sources
Industry trade events
Distributor trade events
Trade Publications
Social Media
20.7. LOGISTICS
Finding a proper importer is one of the most challenging and critical elements to the entire process of exporting specialty food
products into the United States. It is, or rather, it should be, a partnership between the manufacturer and the import company.
As large as the U.S. market is, it is highly recommended that a manufacturer use only one importer, unless the product
offerings target very different demographics. The reason for this is that most importers maintain relationships with the same
distributors and retail accounts, so having more than one organization representing the same brands is strongly discouraged.
Selecting a reputable, connected importer is critical, as registering a new vendor with a distributor or retail chain is often
difficult or impossible. Remember, this importer will be the manufacturers only voice in the United States, so the mutual
relationship is critical. Manufacturers should think of the importer as an extension of their own company, and should work
with the importer to achieve the mutual goals set by both.
Importers will expect involvement, whether in the form of promotions, slotting or trade show support, etc, and the
manufacturer should receive monthly updates regarding sales, movement, targeted presentations and support needed. A poor
relationship with an import company will do nothing except hurt the manufacturers brand. It is highly recommended to do a
good amount of research and development when pursuing an importer relationship.
Manufacturers looking to export their specialty food products into the United States have a variety of options to choose from,
including:
Sea freight
Air freight
Parcel post
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The U.S. food and beverage market represents a tremendous opportunity for manufacturers. Its sheer size, volume and
acceptance of internationally-produced products make it one of the most appealing target markets in the industry. However,
this volume comes at a price. The United States is also the most competitive specialty food market in the world. The rules are
set, and are not flexible to interpretation. However, the advantage is that the processes of getting into the U.S. specialty food
market, from both a legal and an industry standpoint, are straight forward.
By adhering to the guidelines outlined in this report, Swiss manufacturers can more easily assess their readiness to enter into
the U.S market. The need for manufacturers to understand the market, the demographic and the competitive landscape cannot
be over emphasized. Armed with knowledge and understanding the U.S. specialty food market, manufacturers can enjoy the
lucrative U.S. food and beverage market and further enhance the consumers appreciation of the cuisines, culture and products
from their domestic market.
20.8. PRICING
The following chart describes the channels and margins for companies when importing to the U.S.
Figure 45: Channels and margins for companies when importing to the U.S.
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21. Summary
In the U.S. food and beverage market today, the top 10 branded companies only control about 30% of the retail revenue. The
rest of the revenue is produced by hundreds of other companies, focused on branded products, private label products, or both.
Almost 40% of retail packaged food revenue stems from thousands of smaller branded businesses (< $140M annual revenue),
among which are the emerging disruptors of tomorrow. These are often newer brands, but not always.
The opportunities for growth include responding to the new economic , social and technological dynamics impacting the
industry. Executives indicate that a key revenue driver over the next few years for the industry will be product innovations,
both in services and in branding and promotion. A shift towards customer and supplier collaboration will allow for a better
understanding of hte needs of consumers as wele as to help share potential risks, costs and rewards throughout the supply
chain, and more importantly, accelerate the speed to market.
Food and beverage companies also have an opportunity to leverage the change in U.S. demographics and focus on specialty
trends, such as organic food and beverage products, ethnic foods, and products considered to help promote health and
wellness. Companies taking advantage of these niche segments are hoping to help increase share-of-wallet and top line
revenues in an otherwise slo-growth market.
Leveraging the use of technology, such as cloud computing, business intelligence tools, and social media could be a strategic
way of gathering information to refine customer segmentation and marketing efforts. In addition to providing visibility to
customer insight, access to such data is providing executives with insight to help optimize operating models and rationalize
portfolios, as well as revealing information related to new markets and pricing strategies.
Key priorities for companies in the industry will be to create a customer-facing organization through value differentiation,
growth, innovation, and improved channel management. Also, companies will need to streamline and standardize key
processes such as creating an optimized supply chain while implementing effective risk management practises. The
companies that will succeed in the long run will be those that have a true understanding of who their customers are and what
they want, as well as those who develop a strong brand that provides clear positioning in the market and differentiation in the
eyes of the consumer.
The dynamic nature of the U.S. food and beverage industry - changing consumer trends, proposed government regulations,
new companies, and new product and service offerings - challenges organizations to remain competitive. Savvy industry
executives can help their companies thrive amid these conditions by better understanding the markets in which they operate,
benchmarking other organizations for best practices and strategies, and relying on outside resources for skills beyond their
core capabilities.
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Paul S. Anderson of The Anderson Law Firm, LLC in Chicago has over 35 years experience in dealing with Customs and
international trade issues. He is admitted to the Bar in Illinois, U.S. Court of International Trade, the U.S. Court of Appeals for
the Federal Circuit, the U.S. District Court for the Northern District of Illinois, and the U.S. Court of Appeals for the Seventh
Circuit. He is a member of the American and Customs and International Trade Bar Associations, Chicago, and served as
Chairman of the Customs and US. Trade Law Committee of the Chicago Bar Association. Mr. Anderson is also Honorary Chair
of the Chicago Chapter of the Norwegian-American Chamber of Commerce where he served as Vice President from 1985
to1987. In 2000 he was appointed Honorary Consul General for Norway to Chicago and the State of Illinois. Mr. Anderson
obtained his BA from Wake Forest University, a JD from Illinois Institute of Technology/Chicago-Kent College of Law and
attended University of the Pacific, McGeorge School of Law, European Programs (graduate program in international legal
studies based in Salzburg, Austria).
Dr. Daniel A. Wuersch is the managing partner of Wuersch & Gering LLP, an international boutique law firm with 28
lawyers in New York. His practice focuses on corporate law, mergers & acquisitions, corporate finance and strategic
partnerships and marketing agreements. Mr. Wuersch is admitted to the bar in New York and Zurich, Switzerland. He
acquired his Dr. iur. degree at the University of Zurich, Switzerland in 1989 and his LL.M. degree from the Georgetown
University Law Center, Washington, D.C. in 1991. Mr. Wuersch is admitted to practice in the State of New York, before the
United States District Court for the Southern District of New York, and in Switzerland. Prior to founding Wuersch & Gering
LLP in 1997, Mr. Wuersch practiced international corporate and securities law with Fried, Frank, Harris, Shriver & Jacobson
and Morgan Lewis & Bockius in New York, as well as Homburger/Baker & McKenzie in Zurich, Switzerland.
Mr. Wuersch has written and co-authored books and articles on United States and Swiss corporate and contract law and the
law of the European Union. Mr. Wuersch is a frequent speaker on legal issues involving business activities of foreign
companies in the United States. He is Chairman and a past President of the Swiss Society of New York, a member of the
Chapter Board Doing Business in USA of the Swiss American Chamber of Commerce, and a member of the Board of Trustees
of the Swiss Institute. Mr. Wuersch also serves on the European Alumni Advisory Board of Georgetown University Law Center.
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Process Expo
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INDUSTRY ASSOCIATIONS:
AACC American Association of Cereal Chemists
AACC International is a nonprofit organization dedicated to advancing the knowledge and understanding of cereal grain
science through research leadership, education, superior technical service, and advocacy.
3340 Pilot Knob Road, St. Paul, MN 55121
Tel: +1 (651) 454-7250
Fax: +1 (651) 454-0766
Website: www.aaccnet.org
Email: aacc@scisoc.org
ABA American Beverage Association
The American Beverage Association (ABA) is the trade association that represents America's non-alcoholic beverage
industry. ABA was founded in 1919 as the American Bottlers of Carbonated Beverages, and renamed the National Soft Drink
Association in 1966. Today the ABA represents hundreds of beverage producers, distributors, franchise companies and
support industries. Together, they bring to market hundreds of brands, flavors and packages, including regular and diet soft
drinks, bottled water and water beverages, 100 percent juice and juice drinks, sports drinks, energy drinks and ready-to-drink
teas.
1101 Sixteenth St. NW, Washington, DC 20036
Tel: +1 (202) 463- 6732
Fax: +1 (202) 659-5349
Website: www.ameribev.org
Email: info@ameribev.org
ABA - American Bakers Association
ABA advocates on behalf of more than 700 baking facilities and baking company suppliers. ABA members produce bread, rolls,
crackers, bagels, sweet goods, tortillas and many other wholesome, nutritious, baked products for Americas families.
1300 I Street NW, Suite 700W, Washington D.C. 20005
Tel: +1 (202) 789-0300
Website: www.americanbakers.org
email: info@americanbakers.org
ABI American Beverage Institute
The American Beverage Institute is a restaurant trade association dedicated to protecting the on-premise dining experience
which often includes the responsible consumption of adult beverages.
1090 Vermont Ave., NW, Suite 800, Washignton DC 20005
Tel: +1 (202) 463-7110
Website: www.abionline.org
AFI Association of Food Industries
The Association of Food Industries Inc. is committed to developing programs that facilitate the business of its member
companies, encourage free and fair trade, and foster compliance with US laws and regulations.
3301 Route 66, Suite 205, Bldg. C, Neptune, NJ 07753
Tel: +1 (732) 922-3008
Fax: +1 (732) 922-3590
Website: www.afius.org
email: info@afius.org
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professionalism of the food industry association executive, and serves as a vehicle for the advancement of the food industry's
agenda.
5657 W. 10770 North, Highland, Utah 84003
Tel: +1 (801) 599-1095
Fax: +1 (815) 550-1731
Website: www.fiae.net
Email: jolsen@fiae.net
The Food and Beverage Association of America
The Food and Beverage Association of America is dedicated to promoting and advancing friendly relations between members,
encouraging continuing education, assisting in career growth, providing industry-related scholarships, and providing
philanthropic support for critical social issues.
111 East 14th Street,Suite 390, New York, NY 10003
Tel +1 (212) 344 8252
Fax +1 (212) 504 9536
Website: www.fbassoc.com
Email: office@fbassoc.com
FPI Foodservice Packaging Institute
Established in 1933, the Foodservice Packaging Institute is the trade association for the foodservice packaging industry in
North America. FPI's members include raw material and machinery suppliers, packaging converters, foodservice distributors
and operators/retailers.
201 Park Washington Court, Falls Church, VA 22046
Tel: +1 (703) 538-3550
Fax: +1(703) 241-5603
Website: www.fpi.org
FPSA Food Processing Suppliers Association
The Food Processing Suppliers Association is the trade association for suppliers to the food processing and packaging industry
and the host of the largest and most affordable food processing trade show in the Americas. Our goal is to provide members
with networking, marketing and educational opportunities and to help assure the future of the industry through charitable
contributions and educational scholarships.
1451 Dolley Madison Boulevard, Suite 101, McLean, VA 22101-3850
Tel: +1 (703) 761-2600
Fax: +1 (703) 761-4334
Website: www.fpsa.org
FSMA Foodservice Sales & Marketing Association
FSMA was incorporated in November 2003 by firms formerly associated with the International Foodservice Brokers
Association/Association of Sales & Marketing Companies. The mission of FSMA is to promote sales and marketing agencies as
the preferred method for suppliers to come to market: to be the national voice of the sales agency community; to advocate on
behalf of sales agency interests, and to enhance relationships among suppliers, agencies, customers and other key stakeholders.
1810-J York Road #384, Lutherville, MD 21093
Tel: +1 (202) 293-1414
Fax: +1 (202) 293-1702
Website: www.fsmaonline.com
Email: info@fsmaonline.com
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Our primary member is the factory sales representative agency whose role is to professionally market foodservice equipment,
supplies, tabletop and furniture for their manufacturers, on a wholesale basis, and serve as the local factory branch office for
the dealer and operator communities (see foodservice industry map at right).
1199 Euclid Avenue, Atlanta, GA 30307
Tel: +1 (404) 214-9474
Fax: +1 (404) 522-0132
Website: www.mafsi.org
E-mail: info@mafsi.org
MWFPA Midwest Food Processors Association, Inc.
The Midwest Food Processors Association, Inc. is a trade association that advocates on behalf of food processing
companies and affiliated industries in Illinois, Minnesota, and Wisconsin. Established in 1905 as the Wisconsin Canners
Association, today the association represents a more diverse group of food processors on a variety of food issues. The primary
role of MWFPA is to influence public policy and make the Midwest a great place for food processors to do business. The
association's activities can be summarized in four words; advocate, educate, communicate, and facilitate. Go to Association
Profile for more information.
4600 American Pkwy, Suite 210, Madison, WI 53718-8334
Tel: +1 (608) 255-9946
Fax: +1 (608) 255-9838
Website: www.mwfpa.org
Email us: info@mwfpa.org
NBBQ National Barbecue Association
Since 1991, NBBQA has been dedicated to supporting the barbecue industry and the people who love it. Our goals are to
promote the recognition and image of the BBQ community, connect all facets of the industry, foster new business opportunities
for our members and educate and inform the public about the art and enjoyment of great barbecue. Our legacy is one of shared
strength, the strength of many perspectives focused on one passion. Our family of members is made up of many indusry
segments, including restaurateurs, caterers, pitmasters, competitors, backyard enthusiasts, writers, vendors and suppliers.
455 S. 4th St., Suit 650, Louisville, KY 40202
Tel: +1 (888) 909-2121
Fax: +1 (502) 589-3602
Website: www.nbbqa.org
Email us: nbbqa@hqtrs.com
National Cherry Grower & Industries Foundation
The National Cherry Growers & Industries Foundation (NCGIF) is a nonprofit corporation formed in 1948 for the purpose of
having a unified effort from the processed cherry industry to lobby against excessive cherry imports. It then evolved that
assessments were used for promotion of maraschino, canned and frozen cherries.
2667 Reed Road, Hood River, OR 97031
Tel: +1 (541) 386-5761
Fax: +1(541) 386-3191
Website: www.nationalcherries.com
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Distributors
International
Local Associations
Logistics Providers
Manufacturers
Regional Manufacturers
Retailers/Wholesalers
Sales Agents
Suppliers
4755 Linglestown Rd., Suite 300, P.O. Box 6069, Harrisburg, PA 17112
Tel: +1 (717) 657-8601
Fax: +1(717 657-9862
Website: www.nfraweb.org
email: info@nfraweb.org
RFA - Refrigerated Food Association
The Refrigerated Foods Association (RFA) is an organization of manufacturers and suppliers of prepared, refrigerated food
products united by a common interest: to advance and safeguard the industry.
1640 Powers Ferry Road, Bldg. 2, Suite 200A, Marietta, GA 30067
Tel: +1 (770) 303-9905
Fax: +1 (770) 303-9906
Website: www.refrigeratedfoods.org
e-mail: info@refrigeratedfoods.org
SCAA Specialty Coffee Association of America
Established in 1982 by a small group of coffee professionals seeking a common forum to discuss issues and set quality
standards for the specialty coffee trade, the SCAA is now the world's largest coffee trade association with nearly 3,000
company members. SCAA members can rightfully be credited for much of the growth and success the specialty coffee industry
has experienced over the past twenty-five years. We invite you to view some of our most defining moments:
330 Golden Shore, #50, Long Beach, CA 90802
Tel: +1 (562) 624-4100
Website: www.scaa.org
SFA Snack Food Association
SFA's governmental affairs team represents member companies' interests at the international, federal and state levels. SFA
actively engages in the development of legislation and regulations that impact its members' ability to manufacture and market
their products.
1600 Wilson Blvd., Suite 650, Arlington VA 22209
Tel: +1 (703) 836 4500
Fax: +1 (703) 836-8262
Website: www.sfa.org
Email: jmccarthy@sfa.org
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TRADE PUBLICATIONS
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Baking & Snack International Trends & Technology for the industrial baking market worldwide
Sosland Publishing Co.
4800 Main Street, Suite 100, Kansas City, MO 64112
+1 (816) 756-1000
+1 (816) 756-0494
www.bsimagazine.com
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Fancy Food & Culinary Products The gourmet products magazine for retailers
Talcott Communications Corporation
233 N. Michigan Avenue, Suite #1780, Chicago, IL 60601
+1 (312) 849-2220
+1 (312) 849-2174
www.fancyfoodmagazine.com
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Food Business News News, markets and analysis for the food processing industry
Sosland Publishing Co.
4800 Main Street, Suite 100, Kansas City, MO 64112
+1 (816) 756-1000
+1 (816) 756-0494
www.bsimagazine.com
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Food Engineering
BNP Media
2401 W. Big Beaver Rd, Suite 700, Troy, MI 48084
+1 (248) 362-3700
www.foodengineeringmag.com
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163
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Food Quality The science-based news magazine focused on quality, assurance, safety, and security in the
food and beverage industry.
Science Corporate
111 River Street, 9-01, Hoboken, NJ 07030
+1 (480) 419-1851
+1 (480) 718-7719
www.foodquality.com
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Functional Ingredients
Penton Medica, Inc.
1166 Avenue of the Americas/10th fl, New York, NY 10036
+1 (212) 204-4200
http://newhope360.com/functional-ingredients
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164
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Gourmet Retailer
Stagnito Media
570 Lake Cook Rd., Suite 310, Deerfiled, IL 60015
+1 (224) 632-8200
+1 (224) 632-8266
www.gourmetetailer.com
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Hotel F&B- Lodging food and beverage professionals in hotels, resorts, and casinos worldwide.
Hotel Forum LLC
5455 N Sheridan Rd Apt 3602, Chicago, IL 60640
+1 (773) 728-4995
www.hotelfandb.com
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Kitchenware News & Housewares Review Leading B-to-B publication covering the speciality
kitchenware market.
Oser Communications Inc.
1877 N. Kolb Road, Tucson, AZ 85715
+1 (520) 721-1300
www.kitchenwarenews.com
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Manufacturing Confectioner- the worldwide business, marketing and technology journal of the candy,
chocolate, confectionery, cough drop, and sweet baked goods industry.
MC Publishing Company
711 W. Water Street, P.O. Box 266, Princeton, WI 54968
+1 (920) 295-6969
+1 (920) 295-6843
www.gomc.com
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Meat & Poultry The business journal for meat and poultry processors
Publisher:
Sosland Publishing Co.
Address: 4800 Main Street, Suite 100, Kansas City, MO 64112
Tel:
+1 (816) 756-1000
Fax:
+1 (816) 756-0494
Website:
www.MeatPoultry.com
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165
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National Restaurant News- Leading source of foodservice industry news and information
Penton Medica Inc.
1166 Avenue of the Americas, 10th Floor, New York, NY 10036
+1 (212) 204-4200
www.nrn.com
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Prepared Food Network Global new product introduction, culinary trends, ingredient technology.
BNP Media
2401 W. Big Beaver Road, Suite 700, Troy, MI 48084
+1 (847) 405-4024
+1 (248) 283-6574
www.preparedfoods.com
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Tea&Coffee Trend Journal The international voice of the tea and coffee industries
Lockwood Publications, Inc.
3741 Crescent St., 2nd Floor, Long Island City, NY 11101
+1 (212) 391-2060
+1 (212) 827-0945
www.teaandcoffee.net
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166
ExportHelp
www.switzerland-ge.com/exporthelp
exporthelp@switzerland-ge.com
T 0844 811 812
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