Consumers Drive Food Industry Transformation
-- Global Brands, Retail Formats, Consolidation -- Says
New Report
Study From Cap Gemini Ernst & Young
Finds Better Supply Chain Integration Can Save Manufacturers
and Retailers 16 Billion Euros
Paris, France, and New York, NY, February 14, 2002 - 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
today by Cap Gemini Ernst & Young titled "State of the
Art in Food: The Changing Face of the Food Industry."
The 600-page report draws its conclusions from a survey
of 220 leading food executives from 19 countries in Europe,
North America and Asia Pacific, and detailed interviews
with 65 senior-level executives.
The research shows that global brands will dominate --
20 to 25 global brands will emerge 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 increasingly will
brand their stores and wrest 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."
Trend-setting manufacturers are looking beyond retailers
to market directly to consumers. According to the report,
75 percent 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 programs are key. Companies need
to build and never deviate from their 'brand pact' with
consumers."
Other findings of the study are:
Streamlined Supply Chains Can Realise Savings
The report shows that with better supply chain integration,
Europe could realise cost savings of 8 billion euros by
2010, while savings in the United States could total as
much as $7 billion if retailers and manufacturers worked
together.
Both manufacturers and retailers agree that the industry
needs a more reasoned approach to improving the supply
chain through better cooperation with business partners,
integrated technology that standardises information, and
greater focus on core business processes. But, according
to the report, the absence of collaboration at the current
time will make it difficult to realise significant cost
savings. The study also finds that retailers could achieve
greater efficiencies by partnering with other retailers
on warehousing and distribution systems, something very
few companies do right now.
Conventional Supermarkets Are Reaching the End of
Their Lifecycle
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."
The report concludes that 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 percent of the global food business in
10 years.
The Buying Process Evolves to Meet Consumer Demands
As the balance of power continues to shift in favour of
the retail segment, changes will occur in the buying process,
primarily in the area of fresh and chilled products. Fully
83 percent of manufacturers and 96 percent of retailers
expect the share of fresh products to increase, reaching
as high as 60 percent of store sales.
Retailers will no longer buy individual products or assortments.
Rather, they will buy - and control - the total process,
from ingredients through production, ensuring that the
finished product will meet the needs of consumers.
Strengths and Weaknesses Vary by Global Regions
While companies face the challenges that accompany
global growth, each region has strengths and weaknesses
that are endemic to its home marketplace, according to
the report. Western Europe, for example, ranked high for
efficiency, but low on service and hospitality. Southern
Europe, in contrast, received high marks for quality,
yet was criticised for its labour intensity. North America
scored highest in service and marketing, but did not fare
well on operational logistics. Asia-Pacific was recognised
for its service orientation but lacked overall efficiency.
Jan-Willem Grievink, vice president, Cap Gemini Ernst
& Young, who spearheaded the research project, points
out that because each country struggles with its own set
of weaknesses, it is important for global companies to look
outside their home region to learn from the strengths of
others. But the study revealed that very few enterprises
know much about the strategies of foreign operators.
"State of the Art in Food: The Changing Face of the Food
Industry," published jointly by Cap Gemini Ernst & Young
and Dutch-based publisher Reed Elsevier. It covers seven
areas in all: consumer markets, supply chain management/integration,
buying markets, food safety and health, e-business, financial
markets and human resource environments.
About Cap Gemini Ernst & Young
Cap Gemini Ernst & Young is one of the largest management
and IT consulting firms in the world. The company offers management
and IT consulting services, systems integration, and technology
development, design and outsourcing capabilities on a global
scale to help businesses continue to implement growth strategies
and leverage technology in the new economy. The organisation
employs about 57,000 people worldwide and reports global revenues
of more than 8.5 billion euros (2000 pro forma).
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