Look Into the Future: The State of Food & Beverage Industry
1/4/2010
Source: Food Processing
http://www.foodprocessing.com/articles/2010/foodbeverageoutlook.html?page=full

The food & beverage industry really is a collection of reasonably disparate yet surprisingly interconnected food categories. As distinct as milk may appear, dairy as an ingredient permeates many other categories. While fruits and vegetables may seem synonymous with fresh produce, they’re components in many other categories.

While the turn of the calendar page is an arbitrary milepost in the continuum that is time, it does cause people to pause, to reflect on the previous 12 months and to peer into the year ahead. That’s what we’re doing here.

So, to get a handle on the year ahead for the whole food & beverage industry, we’re going to break it down into nine discrete units and look backward and ahead at each. What emerges is a quilt of opportunities but also challenges for everyone in this business of food.

Bakery & Bread: Rise to the occasion
From breakfast bagels to lunchtime sandwiches to dinner rolls, the bread market is weathering the recession quite well. Originally predicted to grow 2.1 percent in 2008, Mintel International’s latest figures show the bread market instead grew 7 percent. Even higher growth is expected for 2009 and through 2013.

In 2008, the U.S. bread market reached $20.5 billion, according to Research and Markets. Fresh bread sales that year were $6.6 billion, compared to $545 million for frozen bread/roll/biscuits/pastry dough and $207 million for bread/rolls/bun dough, reports Baking Management. Bread sales in all categories had gains in 2008.

Key new product trends in the bread aisle include whole grains, fiber, added calcium and products designated organic, all-natural or HFCS-free.

Whole grain breads are expected to remain strong, and consumers also are demanding more natural breads with nutritional ingredients, premium breads that feature quality ingredients and artisan breads. Traditional or “ancient” grains, such as amaranth, quinoa, sorghum or spelt, will become more popular, especially for wheat-intolerant consumers, according to Mintel.

“An increasing number of consumers are adopting a ‘natural lifestyle’ with a focus on health and well being that includes green living, sustainability and natural products,” says Stephany Verstraete, vice president of bread marketing at Hostess Brands, Irving, Texas. To that end, Hostess – the new name for Interstate Bakeries Corp. – in the past year introduced what it claims is the only national brand of natural bread, Nature's Pride.

“Increasing the general nutritional content -- from calcium enhancement to fiber and other nutrients -- will continue to show strength as a trend,” she continues. “We introduced a reformulation of our Wonder Classic and Wonder Classic Sandwich breads to provide the same amount of calcium as 8 oz. of milk in two slices and a good source of vitamin D.”

Last year, some of the nation’s largest bread manufacturers introduced products for cholesterol-conscious consumers, hoping they will look to the loaf as a defense against elevated low-density lipoprotein (LDL), or bad cholesterol. Mexico-based bakery giant Grupo Bimbo’s Arnold (the brand name in the northeastern and southeastern U.S.), Brownberry (the name in the Midwest) and Oroweat each launched plant sterol-enriched loaves. Thomas’ also added the cholesterol-fighting fortifiers to new English muffin and bagel products. And supermarket chain Kroger recently launched six varieties of proprietary Active Lifestyle breads featuring plant sterols.

The irony is, most consumers say that they won't pay extra for healthful bakery items. But for those who will, whole-grain products top the list – along with other grains such as oats, barley, and sorghum -- or specialty products deemed "worth the extra cost." Bakery consumers also say they want products that are locally produced, healthful, all natural and organic — but only if they don't have to pay a premium.

Gluten-free continues to grow in the in-store bakery. An April 2009 Packaged Facts repo

Dairy: If prices stabilize …
The biggest issue in the dairy industry is one that affects other food categories that use dairy ingredients: raw milk pricing. The roller coaster of pricing over the past two years has not been good for milk producers or dairy processors. 2008 saw some of the highest raw milk prices in history while 2009 saw some of the lowest. The Class 1 price mover – the key pricing indicator -- was $18.97 per 100 lbs of milk in the third quarter of 2008, then dropped to $10.41 in the third quarter of 2009. It ought to be somewhere in between.

Pricing affects supply – and vice-versa. Low prices cause dairy farmers to take cows out of milk production and use them for meat. The following year, this causes a shortage of milk and skyrocketing prices. So more cows are brought into milk production … which causes the whole situation to repeat itself.

So the biggest new year’s wish for the people we talked to in the dairy industry simply is a stable and rational price for raw milk. Todd Dittman, vice president of business development and analysis at Dairy Management Inc. (DMI), the dairy industry’s marketing arm, says there are many reasons to be optimistic about dairy sales in 2010. “The recovering but still low producer price for milk, increasing retail food outlet sales, the popularity of specialty coffee drinks (some contain up to 75 percent milk) at fast food restaurants and the focus on functional foods are all contributors to a strong domestic dairy sales outlook.”

Dittman adds the 2009 price drop was exacerbated by a collapse of world dairy demand.

Lower producer prices allowed processors and retailers to lower their prices to the consumer – which helped increase volume sales. For the 52 weeks ending Nov. 1, 2009, the consumer price for milk was down 15.8%, cheese was down 4.0% and yogurt was down 1.0% from 2008. But volume sales data from IRI shows milk sales increasing 1.0%, cheese up 4.2% and yogurt up 2.8%.

Frozen pizza sales have been exceptionally strong this year, and that is helping cheese sales, he adds.
Dallas-based Dean Foods, the world’s biggest dairy, will be watching two trends in 2010, according to Rick Zuroweste, chief marketing officer of Dean’s Fresh Dairy Direct unit.

• Simpler, Fresher: “Many consumers are taking a simpler, more natural approach to the foods they eat,” he says. “They look for foods with only a few ingredients. In addition, they want foods as fresh as time and budget will allow.” Milk is a natural for those intertwined trends.
• Anywhere Health: “Without a doubt, the most important factor driving the healthy and functional food market mainstream has been the increased accessibility of healthy products through additional channels,” Zuroweste continues. “With today’s grab-and-go lifestyle, convenience stores have become a powerhouse for sales of some healthy products.” And milk has always been a big mover at C-stories. “In addition, our WhiteWave Foods business offers healthy, innovative, responsibly produced foods like Silk Soymilk and Horizon Dairy brands in a variety of distribution channels to fill a broad range of consumer needs.”

Frozen Foods: Microwave safe
“Recession proof” frozen food sales grew substantially in 2008, up 6.5 percent to $51.8 billion, according to a new Packaged Facts report, and the prediction is sales will increase by 25 percent to $64.8 billion by 2013. Within the category, breakfast foods were the strongest performers, with a 21.9 percent growth rate between 2004-2008 and a compound annual growth rate of 5.1 percent. Packaged Facts predicts sales of frozen breakfast foods will grow an additional 6.8 percent for the next five years along with vegetables/appetizers/snacks/sides at 6.5 percent for the same period.

As economic problems caused consumers to increase their at-home meal preparation and consumption, Chicago-based NPD Group’s annual National Eating Trends data found that consumers prepared or consume

Meat & Poultry: Are thing settling down?
The meat & poultry category continues to wrestle with issues of supply, food safety, animal care and environment. Animal protein suppliers were among the hardest hit by skyrocketing feed costs in 2008. Costs greatly abated in 2009, but not before Pilgrim’s Pride, the country’s largest poultry processor, declared bankruptcy, Tyson Foods recorded a $537 million net loss for its fiscal 2009 and Brazilian meat packer JBS gobbled up several assets of U.S. firms.

JBS was the answer to several distress calls. In 2007 it bought beef processor Swift & Co., in late 2008 it acquired Smithfield Foods’ Beef Group and some feedlots and in September 2009 it announced a deal, still pending, to acquire most of Pilgrim’s Pride, enabling that company to exit bankruptcy protection. As a result, it’s now the world’s largest animal protein company. JBS USA in November filed a plan to launch a public offering of stock, as of press time not executed, to raise an estimated $2 billion.

If it’s any consolation, “Americans spend less than any other developed nation in the world on meat and poultry products — about 1.7 percent of our incomes per year today down from over 4 percent in 1970,” said J. Patrick Boyle, president of the American Meat Institute (AMI). “It is amazing to think we are achieving these efficiencies while animal agriculture's environmental footprint is shrinking and its contribution to greenhouse gas emissions (GHG) has remained nearly constant since 1990. This is impressive considering U.S. increases in meat production of almost 50 percent, milk production of 16 percent, and egg production of almost 33 percent.”

Meat and poultry figures to play prominent roles in food safety initiatives in 2010, including a reworking of the FDA and its relationship with the USDA in the Food Safety Enhancement Act and in expected stronger track and trace regulations to speed recalls.

Also on the legislative front, AMI joined the discussion on immigration reform, including implementation of the E-Verify new hire screening program.

Salty Snacks: Let the chips fall where they may
After four years of mediocre sales increases, partly the result of sodium consciousness, consumers are again reaching for potato chips, tortilla chips, popcorn and cheese snacks, according to Chicago-based Mintel International. The recession may have helped: Eating out less, brown-bag lunches and the relative low price of these products have helped snack sales over the past year. But Mintel expects less stellar results as the economic recovery takes hold.

Crunching the numbers on salty snacks, potato chips are the clear winner for the past two years. Sales were up 22 percent (if only our stock portfolio could do as well). Other salty snacks also did mightily well during the same period: cheese snacks saw gains of 20 percent, tortilla chips were up 18 percent, and popcorn popped up 17 percent.

Mintel reports that 50 percent of kids, teens and 18 to 24-year-olds say they eat salty snacks five times a week or more, and adults eat salty snacks 4.8 times per week on average. Some 65 percent of the adults interviewed say they are interested in healthier alternatives, such as grain or baked varieties, while 57 percent say they want to see more pita chips or crackers. However, half of the respondents do not think lower-fat/sodium snacks taste as good as the originals.

"Salty snacks have fared very well amid the recession, and Mintel predicts that sales will increase 22 percent from 2009 to 2014 to reach $21.7 billion,” says Senior Analyst Chris Haack. “In 2010, we expect a sales increase of 4.4 percent as people continue eating in and brown-bagging it."

Last year, the Snack Food Assn. (SFA) hired Cypress Research Associates to interview executives from salty snack companies to identify the impact of the U.S. economy on their firms and what strategies they have for growing sales. Most agreed the primary<