Food manufacturers and retailers face substantial consolidation and internationalisation over the next five years as they innovate with brands and retail formats to satisfy changing consumer habits and demands, according to a report released this week by Cap Gemini Ernst & Young.
Research for the report, "State of the Art in Food: The Changing Face of the Food Industry,'' reveals that global brands will dominate with 20 to 25 global brands emerging in various categories of fast-moving consumer goods. These brands will occupy a leadership position in more than 100 countries and will be owned by approximately 10 global brand manufacturers. At the same time, manufacturers will "marry'' global brands with "local jewels" to meet consumers' growing demands for local products.
In addition, retailers will increasingly brand their shops and gain more control of the supply chain as they attempt to build stronger relationships with consumers.
"For an industry where change is typically measured in decades, the pace and magnitude has really accelerated,'' said Fred Crawford, executive vice president of Cap Gemini Ernst & Young's Consumer Products, Retail and Distribution global practice.
"The consumer is wielding unprecedented power and the need for establishing a powerful brand - whether retailer or manufacturer - grows as companies try to reach consumers in multiple regions. Understanding these trends and implementing strategies to deal with them effectively are shaping the future of the industry.''
The report highlights that trend-setting manufacturers are looking beyond retailers to market directly to consumers. According to the report, 75 per cent of manufacturers surveyed fear the consequences of the retail channel's increasing strength.
"The lines between the food segments are increasingly blurred as both sides vie for the consumer's wallet,'' said Roberto Iorio, vice president of consumer businesses, Europe, for Cap Gemini Ernst & Young. "Improved customer relationship management and loyalty programmes are key. Companies need to build and never deviate from their 'brand pact' with consumers.''
The study also found that with better supply chain integration, Europe could realise cost savings of €8 billion by 2010, while savings in the United States could total as much as $7 billion if retailers and manufacturers worked together.
According to the report both manufacturers and retailers agree that the industry needs a more reasoned approach to improving the supply chain through better co-operation with business partners, integrated technology that standardises information, and greater focus on core business processes.
But, the report stresses, the absence of collaboration at the current time will make it difficult to realise significant cost savings. The study also found that retailers could achieve greater efficiencies by partnering with other retailers on warehousing and distribution systems, something very few companies do right now.
Economic conditions and market efficiencies are leading to the end of the smaller conventional supermarket format, as factors such as high overhead, low volume and limited assortments take their toll, according to the report.
At the same time, hypermarkets and larger supermarkets are expanding services and product mixes; discounters are moving in the direction of "quality discounting," offering higher-quality products at the lowest prices; and convenience stores are catering to "eating moments."
Perhaps not surprisingly the Internet is nowhere near its full potential. According to the report, most food retailers have had little success utilising the Internet as a viable option to reach the consumer. The research indicates that the e-commerce channel will remain a challenge and will represent no more than 5 per cent of the global food business in ten years. It is clear that the food industry must use the Internet more intelligently to achieve true savings, increased marketing power and enhanced efficiency.