In the Consumer Goods Markets space, whilst the key issue remains the ongoing power battle between retailers and food & drink manufacturers, the novelty is the booming food price hike and its consequences on many players across the food value chain.

The paradox between retail power and supplier ability to pass on increased cost of consumer goods

Manufacturers traditionally faced hard times negotiating price increases to retailers. 2007-2008 saw a major change in that suppliers were largely able to pass on increases in raw materials and fuel prices. In a context of continued tension due to the classical power game between retailers and manufacturers, we have seen retailers increase to further heights the market share of their own private label offerings, which are going premium full steam ahead, just like many of the branded food and beverage products. The gap between the premium end of own label and the mainstream brands is narrowing dangerously. Dangerously because what is at stake today more than ever before, is the capability to survive the rising innovation pressure for brands which are not number 1 or 2 in their core markets.

Aside from the challenging and potentially costly quest in keeping an edge over premium private label food offering and therefore brand differentiation, manufacturers will probably look to strip off costs even further and forcing them to make though calls on any remaining non-core assets they hold.

The link between retail power, multi format retailing and innovation

The main result of private labels gaining further market share is that there is less and less shelf space for branded products of established food & drink manufacturers. This shelve space conflict is exacerbated even further in retail markets where the hypermarket format is less developed, but also in mature markets due to the emergence of innovative store concepts like Tesco Express, Kesko Extra, Delhaize “Shop’n go” or “Albert Heijn to go” who are making the fight for shelf space even more intense. Lots of collateral damage ahead? Yes, but there is hope, as the two European hard discounting superpowers, Lidl and Aldi, are shifting their strategies to take up market leading brands in their assortments. Will this help the large majority of brands which do not enjoy a number 1 or 2 position in their category? Clearly, the future for those brands will be a challenging one. Their survival kit will need much more than traditional innovation and differentiation efforts. Those brand owners have the choice between redefining their future core business (i.e. migrating to a private label specialist manufacturer or moving up the positioning of their brand proposition) or hoping to benefit from a consolidation in their category and selling out.

The impact of premiumisation on food giants’ R&D and Innovation strategies

At the current pace, many food & drink manufacturers can be expected to continue to migrate from mainstream food into highly differentiated value-added areas, mainly into products combining one or more of the premium, organic, sustainable, fair-trade, health & wellness, functional, and nutritional attributes.

Taken together, the overall premium food market is expected to reach a similar market value as the well-established discount retail sector.

This creates an enviable prospect for niche players (like Innocent, Gu, Newtree and a myriad of others) becoming attractive take-over targets for either private equities or food giants.

What is new is the trend of food giants acquiring ultra innovative niche players to use them as incremental R&D platforms. An example is Nestlé, entering the capital of the Belgian super premium Marcolini chocolates early 2008 in a quest to boost its upscale confectionery capabilities.

New York, the city that never sleeps

Looking at the category level, the frozen food market is a perfect example of an entire category that lost track of what New York stands for, and got asleep a decade ago. Driven by the overwhelming dynamism of the chilled foods category, it is now undergoing a massive transformation across Europe, largely re-inventing itself and battling hard to gain market share back from the chilled foods segment. Bonduelle, the French based worldwide frozen food player is an example of a company that is shifting from being a lower end commodity vegetable provider into a more sophisticated frozen foods category leader.

Frozen foods are in a come back, as shown by recent category reports in France as well as by frozen food industry campaigns promoting the freshness and nutritional value of frozen food as being at least as good as fresh and chilled offerings. Time will tell whether Unilever’s decision to dispose of its frozen food arm was adequate…

How much more Health & Wellness can we take?

Consumer interest in health & wellness is gaining massive traction and dominates the food & drink innovation space. H&W is not just about more healthy ingredients or recipes. The latest rage comes, unsurprisingly, from the UK market. Next to the “Enriched with” functional foods like bread, milk and eggs with Omega 3 or flavanols and plant sterols, the new kid on the block is now the “Free from” food assortment flourishing across the food aisles. “Free from” is not just free from GMOs, it expands to bad cholesterol, animal testing, trans-fatty acids, gluten and more.

Next to the “bad for your healthy diet” trend, there is the “good for you” trend. Building further on the functional food and beverage trend, the latest most talked about hype is “super-foods” like mangosteen or garbanzo beans and super-fruits like the acai berry which are seen as “must have” ingredients for the beverage and ice cream industries. Super-fruits are hype for their incredible antioxidant properties. Surfing on the same wave is the largely promoted “eat 5 portions of fruit a day” campaigns in several European countries. Chocolate makers too are leveraging the healthy properties of their dark gold. Barry Callebaut, world leader in industrial chocolate, is promote the numerous health benefits of dark chocolate intake, playing its Acticoa card.

And beyond Health & Wellness?

H&W is still largely a “developed” markets thing. In the awaiting of the explosion of this megatrend in the emerging BRIC markets, the food & beverage industry needs to prepare for other megatrends too.

Ethical consumer considerations, which encompass fair trade and sustainable food production, are growing faster amongst the new generations of shoppers. Manufacturers should anticipate this impact on their sourcing and innovation strategies, as this market could well overtake the organic food category in value terms.

Another interesting trend to watch is “cosmetofood”, (combination of food and cosmetic attributes) of which Danone’s Essensis yogurt is a pioneering example claiming an impact on your beauty from within. All these megatrends are likely to significantly influence consumer choices.

Green living, Global sourcing and food value chain sustainability

While global sourcing and sustainability have clearly moved up the ladder of CEO’s agenda, the consumer agenda is getting filled with green considerations. Less pesticides, antibiotics, carbon emissions are up on their agenda.

With strong domestic Chinese and Indian food manufacturers preparing for expansion beyond Asia, European food and retail companies need to engage with and/or prepare to compete more intensively with suppliers from emerging markets, while managing their carbon footprint and their overall Corporate Social Responsibility image.

Global procurement of raw materials by manufacturers and global sourcing of semi to finished products by retailers are forcing both to redesign the organisation charts, to enhance their business processes and to review their food safety standards. As a result, we expect increased regulation from the European Food Safety Authority to provide the industry with a clear framework for food safety and reliable track and trace solutions.

Major technology breakthroughs ahead

We expect technology to continue to impact the food value chain, essentially through nanotechnology and RFID.

Nanotechnology, even in its infancy, should be considered seriously by all food manufacturers, as its impact on the cost base may be significant. Small and medium sized food companies should consider pooling resources in order to bridge their lack of scale, potentially keeping them to watch the nanotechnology revolution from the sidelines.

Rolling out the RFID technology down to the consumer item level in the food and beverage industry remains still largely uneconomical. In the meantime, self scanning in store and also self check outs in supermarkets see a widespread proliferation, slowly but surely preparing consumers for the “Store of the Future” era, where the EPC global revolution will remove queues at check outs and take further costs out of the value chain. Whether we as consumers will pay less for our groceries with more efficient supply chains remains to be seen…

About the author: Erwin De Spiegeleire is currently CEO Europe for a leading manufacturer in the premium segment of baby/infant strollers. His prior roles in international General Management positions include Head of European Consumer Goods at KPMG, Chief Operating Officer worldwide at GS1 and VP & Managing Director EMEA at Hasbro’s Games division.

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Business processes: How to reduce cost with Nano technology

In times of financial prudence, credit scarcity, retrenchment, solvency risk and everyone demanding more for less, how can business organizations improve their business processes and grow their profits? How can compliancy in best business practice mean reduction in facility costs? Are there still opportunities to do things better? What if you could add remarkable value to your company products? Or indeed remove an entire manufacturing or business process? Can innovation in technology really deliver cash savings?

Almost every business organisation (and Government Department) today is unaware of nano-coatings; thin film coatings that are up to 100 000 times smaller than the diameter of a fly-hair! These smart fluids including varnishes and related paints can offer incredible functionality to products; assets and infrastructure, saving businesses and cash strapped Local Authorities billions of pounds in revenue costs.

Smart fluids change surface chemistry, adding value, strength, diversity and functionality. Classic chemistry is unaltered, just our understanding of what happens is new when one controls atoms and molecules at the molecular scale and consolidating new ingredients for stability in robust fluids.

So how can our busy CE0’s, SME’s and Senior Government Employees benefit from knowledge of these business processes and applications?

Smart fluids (paints, varnishes & thin film coatings) offer every business new and positive business processes. From enabling entire building and food processing units, health centres to be cleaned (with 75% reduction in aggressive cleaning materials, 40% reduction in water usage, 40% reduction in labour), to preventing wear and fatigue in all moving mechanical parts like lifts, (bearings, gears and pistons). Imagine no mechanical wear! It’s not just farmers and drilling rigs that can benefit here. Anyone with large transport fleets can benefit with savings of around 11% in fuel, less maintenance and reduced emissions. Frankfurt Airport reduced the costs of aircraft generators by a reasonable margin by being aware of metal protect fluids. And savvy wind turbine owners and operators know how to keep their blades clean, their gears working and electronics in good shape by being ahead of the game in smart fluid functionality. Some big insurance companies already have their entire buildings protected against employee cross-infection. Hospitals can learn from the risk prevention specialists!

What if we could add this magic protection to CCTV cameras, making the internal heat resisters impervious to corrosive moisture? How much would that save the UK taxpayer? Additionally, one could add more functionality to legacy CCTV’s, say the ability to detect radiation! Would that reduce hospital costs and provide superior security to London commuters?

Water and electronics don’t normally mix. Would it be good to protect all electronic equipment (+ cables) from the menace of water, moisture and dust? What is the fire risk associated with corrosive cabling in old buildings and underground infrastructure? Sometime the obvious is slow to reach the decision maker. It took bar-codes fifty years!

Imagine sound proof barriers and heat shields at the end of a painter’s brush! No more heavy and costly insulation: just a few coatings of paint and bingo your home, office, mobile-fridge, ServerSite or warehouse is energy efficient and BREAM compliant. Could this save your plant and engineering processes revenue? Look at the possible savings in material costs alone.

From textiles to steel, wood, glass, concrete to paper, jewellery and leather, even ceramics; you name it and there are coatings that can add magic functionality. Surfaces can be made super-repellent to water, oil, dirt and grime. In fact most of these materials can be rendered positively antimicrobial also, reducing the risk of MRSA/C.Diff etc. Would this save the NHS revenue?

Reduce costs and improve business processes in the food sector

What about the food sector? How can these fluids increase hygiene, reduce costs and improve business processes, from grower to processor and onward to supermarket and consumer.

Could we improve packaging, could we add additional value? Hundreds of applications exist to enhance seed and root development, to remove risk of drought or over-watering by using new technologies like a tank inspection camera, to prevent toxic river-discharge, and remove bacterial damage to seeds, to eradicate spider-mite in poultry farms, to enhance hygiene across every level of breeding and production.

That life can be enhanced for transport infrastructure and city dwellers there is little doubt. Air and enhanced water quality via nano-filters are coming. Hygiene on public transports will improve. Light and colour will improve as materials are selected for new intrinsic value.

Roads will last 100 years, not 20. Bridges will become anti-corrosive. Wood will be naturally protected much like the broccoli leaf and in time deflect termites and dirt. Lots of preservatives and external coatings that sell annually will be redundant. Property by the sea will be painted perhaps once in twenty years, or longer.

The manipulation of materials at the molecular scale offers amazing hope in the fight against disease. Prevention of course is better than cure and our ability to see early stage cancer or cell degeneration offers scope not just to fight disease but extend life itself far in excess to what we imagine today.

Innovation is a step by step process. The big eureka moment is a myth. Whilst today surface coatings offer remarkable value for business process efficiency, tomorrow this technology will transform everything we experience throughout every step of life. So whilst human cell innovation and research is happening now, the market is already offering thin-film coatings that can add compelling value to your business today. Why wait and waste revenue! Smash the mindset that locks innovation and change within your business. Give your cleaning staff a microfiber cloth for Christmas! Remove every item of polish, bleach, wax, detergent and aroma snake-oil from your cleaning cupboards and start to clean environmentally, saving revenue in the process. The knowledge you receive from surface coatings will create numerous alternative innovations as you deploy this new science to every aspect of you commercial and personal life.

About the author: Dermott Reilly is passionate about making technology deliver. He worked in the food sector for many years where he had hands on experience of wastage and inefficiency in that sector. Over the last decade Dermott spearheaded a number of projects where emerging technologies helped improve business and quality of live. Dermott has four patents registered and helps companies drive innovative projects forward. He is Training Manager EMEA for RFID4U and Strategic Consultant for emerging technologies.

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