Executive summary
New markets, new technologies and changing patterns of customer behaviour are having a dramatic impact on the food and drink sector. In this report, we look at five key areas that will re-shape the sector in the years to come.
On Europe’s doorstep
The accession of eight countries to the EU in May 2004 is already changing Europe’s food and drink landscape. Multinational retailers and brand owners see a market of 100 million consumers with rising disposable incomes, while manufacturers see a low-cost labour market perfectly situated to service theWest, particularly with perishable goods. There is a huge opportunity on both counts, but it will not be easy pickings for companies and investors. Each country is unique, with marked differences in the supply chain, from agricultural beginnings right through to the dinner table. But, as the experience of leading French dairy group Senoble shows, you will need to choose well to be a winner.
The healthy option
Health and wellness are moving up consumers’ agendas, and food groups are repositioning themselves to take advantage of the higher growth – and margins – available in this segment. Healthy eating for today’s consumers is about more than fruit and vegetables, and food companies are finding ways to nutritionally enhance foods, with added
vitamins, minerals and phytochemicals. Unilever is devoting half its $50m budget for ice cream R&D to develop healthier products. Innovative companies are grasping the
opportunity, both for their own products and to fill the product pipelines of the multinational producers and brand owners.
Know your customers
Satisfied customers who keep coming back for more are the dream of every business. Food retailers are among the most sophisticated users of customer data. UK supermarket chain Tesco’s pioneering Clubcard not only enabled it to grow its grocery business, but also provided the platform for a financial services operation that is now one of the largest in the UK. Advances in technology are opening up new opportunities right through the food supply chain. Manufacturers can tap into data to better develop products, while retailers and advertisers will be able to use RFID technology to target consumers more effectively. The possibilities are endless.
To the table
With multiple ingredients, multi-stage processing and a dispersed market, managing the supply chain has always been crucial for food and drink companies. Now it is about more than simply getting food from the farm to the table. Understanding and leveraging the supply chain is key to creating value. Sophisticated manufacturers are able to use their expertise and, increasingly, economies of scale, to turn the tables on the traditionally dominant retailers and brand owners.
A perfect diet for private equity
Private equity investors have played a significant role in the restructuring of the food and drink industry over the past decade. European companies, particularly quoted and family-owned mid-caps, are recognising the benefits of private equity funding, as both a source of investment capital and strategic guidance. A recent Mergermarket survey found that 49% of food industry executives expect private equity to play a greater role over the next 12 months, against just 7% who expected less activity. Netherlands-based private label juice bottler Refresco is a perfect example of how well private equity in the food sector can work. Since 2000, 3i-backed Refresco has increased sales organically and by acquisition from €219m to €650m and is on track to top the €1bn mark in a couple of years. Refresco has benefited from 3i’s capital, expertise, focus on value creation and international network in its drive to become a market leader in the private label drinks market.