19 May 2009 17:59 [Source: ICB]
Food ingredients offer money-saving alternatives as the global recession chills spending
THE PRESSURE is on for food and beverage manufacturers to cut costs as the global recession drives changes in consumer spending and behavior.
While most of 2008 saw positive demand growth for food and beverages, the volume of products being sold has slowed down, especially in the past six months, according to several food ingredient companies. Consumers are said to be reducing their discretionary spending on certain product categories.
"The types of food and beverage products consumed changed significantly in 2008 due to the economic pressures," says Beth Warren, director of food ingredients at distributor Univar USA. "While the total spending grew with inflationary costs, the volume of food products sold was reduced."
The beverage and confectionery categories have been negatively impacted, Warren notes, while the frozen dinner and prepared foods segments continue to grow at faster rates "as consumers eat more meals at home to manage their food budget effectively."
As more people stop eating out, the food service market has been impacted especially in the last 3-4 months, says Clara Millard-Dereudre, global marketing manager for US-based Dow Chemical's Food & Nutrition business.
"This clearly has an effect on food producers who are selling products into this industry. In addition, we've seen the introduction of new products that provide health benefits being postponed as the current focus of the industry is on controlling costs," she adds.
The production index by volume for the food and beverage industry in the EU 27 fell by 2.5% in December 2008 compared with December 2007, according to DSM. In November, the index had fallen by 3.3% and in October, it was down by 3.4%.
"The need for cost-saving in 2009 is pretty clear to all of us within the food and beverage business, with reduced consumer demand and increased fluctuations in the cost and supply of raw materials," says Mario Pires, business manager, baking and beverage enzymes, for DSM Food Specialties.
Food and beverage demand has not declined to the same extent as other industries but a lot of players are still trying to reduce stocks, notes Bernhard Kott, Symrise's vice president, marketing service and sensory science, in the Flavor & Nutrition business.
Higher-than-usual uncertainty and opacity caused by the economic slowdown already has had a short-term negative impact on the food ingredients businesses, says Danisco spokeswoman Natalie Weber.
"Destocking and cost-containment efforts among our customers, coupled with sluggish demand at the consumer level contributed to this volume-driven slowdown," says Weber.
"We have already taken proactive measures to adjust Danisco to these outside pressures, and we will continue to closely monitor developments and align our organization," she adds.
Product reformulation and substitution, especially in certain sectors, are on the rise, as food manufacturers face internal budget cuts and increasing external competition.
Danisco says it has a global database of cost-reduction solutions to help food manufacturers weather the recession.
"Overconsumption is now out, eating at home is in, and the hunt is on for more value for money," says Weber.
Basic areas for saving costs, notes DSM's Pires, include the reduction in ingredient use; use of alternative raw materials; and better processing aids. In March, the company launched its cost-savings website www.dsm-food-saving4u.com focusing on the baking, brewing, dairy, savory and food protection market sectors.
"Any opportunity to reduce formulation and/or process costs is very well received by our customers, although product quality must not be compromised as a result of these changes," says Pires. "This has been a key need for our customers in the brewing and baking industries. This has been the case even longer for the savory industry with the rising dairy and meat prices."
Both Dow and Univar emphasize their diversified product portfolio to help customers look for low-cost solutions. Dow's cellulosics business, Germany-based Dow Wolff Cellulosics, says it will continue to offer market-specific experience to help customers set competitive standards in cost/performance differentiation.
"Our continued investments in innovation as well as asset optimization can offer high reliability and solutions that customers potentially are looking for in recessionary times," says Martin Sonntag, general manager of Dow Wolff Cellulosics.
Major players in the consumer industry see recession as an opportunity, he notes.
"This will continue to drive innovation while undoubtedly, there will be continued impact on greater industry competition," says Sonntag.
Innovation is still key for food ingredient manufacturers when it comes to beating their competitors, says Univar Europe's Jo Lemmens, Food EMEA (Europe, Middle East, Africa) business development manager.
"As many companies invest now in research and development (R&D) for new product launches, Univar is partnering with technical capabilities to help customers solve formulation issues and promote new concepts," says Lemmens.
Many food and beverage manufacturers, however, faced with low consumer confidence and reduced spending are cutting back on product development and new product launches, according to US market data provider Mintel.
Total US food and drink product launches are said to have been cut in half since last year, with a 51% decline from the first quarter (Q1) of 2008 to Q1 2009, notes Mintel.
"Fewer new products are showing up on supermarket shelves this year as companies cope with the changing economy," says Mintel's leading new product expert Lynn Dornblaser in a statement.
"Many companies face internal budget cuts that affect everything from new product ideation to development and marketing."
Compared with Q1 2008, Mintel reported higher-than-average product launch declines - for non-alcoholic beverages (56%), chocolate (55%), sugar and gum confectionery (64%), and dairy product launches (60%).
According to DSM, the global food and beverage industry enters January 2009 with a sharp fall in new product launches pegged at around 5,000 compared to the level a year ago, which was around 7,000 new products.
The lower product launch numbers are not expected to last long, says Mintel.
"Consumer confidence has leveled off for the time being which marks an opportunity for manufacturers. Now is the time for ideation and innovation for products that answer shoppers' desires for value, quality and pleasure," says Dornblaser.
Most food-ingredient companies agree that health and wellness continue to be a major focus in product innovation.
"In the developed market, there remains a trend towards products that have proven effects on health like non-saturated fats, added fibers, minerals and vitamins, and those containing lower fat and reduced-added sugar. The new health claim regulation will set a clear framework," says Univar's Lemmens.
In the US, regulations such as trans fatty acid bans and calorie-labeling in chain restaurants also added pressure to quickly reformulate foods without sacrificing taste or texture, says Dow's Millard-Dereudre.
With customers focusing their resources on cost reduction, she adds that some innovation activities might be postponed to the end of 2009 or 2010.
"We anticipate the demand in the food-service industry to remain lower as consumers look to eat out less, along with an increased focus on private labels as consumers become more sensitive to food prices."
Univar's Warren also expects more organic ingredients to become available. Other innovation trends expected in the food and beverage industry include allergen-free ingredients and products, and traceable products that meet stringent safety and sustainability requirements.
Warren expects the US food ingredients market to grow by 4-5% in 2009 and 2010, while Lemmens believes that the food ingredients market in Europe in 2009 will end close to the levels of 2008.
"R&D work will continue this year in order to be prepared for the launch when the market economy returns to positive growth," adds Lemmens.
DSM says it will stay focused on developing ingredient solutions for healthy eating and sustainable food manufacturing at an affordable cost.
FOOD FRIGHT: OTHER CHALLENGES FOR FOOD INGREDIENT COMPANIES IN 2009
The EU's Reach regulation has a significant impact for food ingredient companies like all other chemical suppliers.
The H1N1 flu will also have an impact, as companies will need to produce papers of conformance, evidence of origin of food ingredients, etc.
Uncertainty about genetically modified organisms and potential cross- contamination, especially in Europe.
Regulation of the use of food enzymes at the EU level.
Volatility of raw material costs.
Food safety guidelines; natural/organic labeling; US nutritional guidelines impacting obesity, heart disease and diabetes.
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