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Change Imperative within the Food & Drink Industry. FDII Annual Conference April 27 th , 2006. 1. Deloitte. Audit. Tax. Consulting. Corporate Finance. Deloitte Overview. Deloitte has been advising clients since 1845 12 consecutive years of revenue growth - PowerPoint PPT Presentation
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3 ©2006 Deloitte. All rights reserved19 Apr 2023
Deloitte has been advising clients since 1845
12 consecutive years of revenue growth
Irish Offices in Dublin, Cork, Limerick and Belfast
Deloitte Overview
DeloitteDeloitte
Corporate Finance
Corporate FinanceConsultingConsultingTaxTaxAuditAudit
5 ©2006 Deloitte. All rights reserved19 Apr 2023
Check out Deloitte.com for our latest publications
Deloitte - “Famous for Food”
6 ©2006 Deloitte. All rights reserved19 Apr 2023
What‘s Happening?
Change Imperative
Change Imperative
• Health & Food Safety
• Changing Lifestyles and Retail Behaviour
• Food Deflation, Discounting and the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
• Health & Food Safety
• Changing Lifestyles and Retail Behaviour
• Food Deflation, Discounting and the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
• Shift in Cost Base & focus on cost
• Re-structuring of the Grocery Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
• Shift in Cost Base & focus on cost
• Re-structuring of the Grocery Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
International MarketInternational Market Domestic MarketDomestic Market
Trends and Events affecting the Food and Drink Industry
Source: Deloitte Analysis
8 ©2006 Deloitte. All rights reserved19 Apr 2023
Food Safety through the years
• 2006 – Avian Flu?
• 2004: “Sudan 1” red dye– Illegal dye, classified as carcinogenic.– Found in various UK food products, e.g. pesto, chilli products, curry sauce.
• 1997: E.Coli food poisoning– Outbreak in Britain.– 20 deaths in Scotland.
• 1992: Listeria in French cheese and pork
• 1989: Salmonella in British eggs– 23 people died.– £25 million government rescue package.
• 1985: Antifreeze in Austrian and Italian wines– At least 21 people died.
9 ©2006 Deloitte. All rights reserved19 Apr 2023
Concerns Over Food Safety
• A Deloitte survey of executives in the food industry showed that product traceability is a key concern for all respondents (100%). 57% believe that food safety will only increase in importance.
• Related concerns about ethical employment in the supply chain and environmental impact simply add to growing challenges faced by the industry.
• Governments responding with increased legislation and the EU directive 178 that came into effect in 2005 - Article 18 of this directive addresses traceability specifically.
• Almost half of respondents to the survey feel that poor collaboration in the supply chain is a real barrier to food safety. The perception is that the greatest risks are “up the supply chain”.
10 ©2006 Deloitte. All rights reserved19 Apr 2023
Initial ProcessingHarvest
Laboratory /QA Logistics
Retail / RiskManagement
Manufacturing /Transformation
• ID & handling
• Stock & monitoring
• Pest & Treatment history
• Growth-stage monitoring
•In-process measure
•Piece ID and optimum usage scenarios
•Storage monitoring (temp & humidity)
•Physical, chemical, and biological testing
•Hazard analysis
•Storage of lab data with cross-reference to inventory
•Planning & Control of production
•Resource allocation
•Tracking of material movement, splitting, combining, consumption, & production
•Plant diagnostics and online HACCP & SPC/SQC
•Tracking of product movement
•Automatic generation of labels & shipping documen-tation
•Consumer package tracking
•Consumer habit and demand tracking
•Genealogy back to production and origin history of all ingredients
Enabling TechnologiesEnabling Technologies
Process Steps
Traceability from “Field to Fork”
12 ©2006 Deloitte. All rights reserved19 Apr 2023
International Trends – Changing Lifestyles and Retail Behaviour
• Convenience Shopping – “Food on the Go”
– Prepared Foods / Meal Solutions
– Eating Out
• Retailer Brands
• Innovation
• Successful Collaboration & Account Management
13 ©2006 Deloitte. All rights reserved19 Apr 2023
Food & Non Alcoholic Beverage Price Index (2005 = 100)
93
94
95
96
97
98
99
100
101
102
2002 2003 2004 2005 2006
EU15 All Goods
DE Food
UK Food
IE Food
International Trends – Stalled Food Prices
Source: Eurostat
14 ©2006 Deloitte. All rights reserved19 Apr 2023
Stalled Pricing - Retail Reaction
1. “Food Deflation”
2. Retailer Margins Reduce
3. Non Food grows
within the mix
4. Pressure on Space for Food
5. Category Range Review
6. Focus on Brand Leaders &
Own Label
Distribution for Mid Range Products Under Threat
Distribution for Mid Range Products Under Threat
15 ©2006 Deloitte. All rights reserved19 Apr 2023
International Trends: Concentration of Retailers
Carrefour (Fr)Carrefour (Fr)22
Home Depot (US)Home Depot (US)33
Metro (AG)Metro (AG)44
Tesco (UK)Tesco (UK)55
Kroger (US)Kroger (US)66
Costco (US)Costco (US)77
Target Corp. (US)Target Corp. (US)88
Ahold (NL)Ahold (NL)99
Aldi (Germany)Aldi (Germany)1010
Walmart (US)Walmart (US)11 285,222285,222
89,56889,568
73,09473,094
69,78169,781
62,50562,505
56,43456,434
47,14647,146
45,68245,682
44,79344,793
42,906*42,906*
Top 10 Retailers 2005
2004/05 Sales $m
Source: Deloitte
1010
3535
55
2929
1313
11
88
11
88
1212
No. Operating Countries
America
Europe
Asia
Top 10 Retailers 2001
Walmart (US)Walmart (US)11
Carrefour (Fr)Carrefour (Fr)22
Kroger (US)Kroger (US)33
Home Depot (US)Home Depot (US)44
Metro (Germany)Metro (Germany)55
Ahold (NL)Ahold (NL)66
Kmart (US)Kmart (US)77
Albertson’s (US)Albertson’s (US)88
Sears (US)Sears (US)99
Target (US)Target (US)1010
191,329191,329
59,70359,703
49,00049,000
45,73845,738
42,43942,439
41,53941,539
37,02837,028
36,76236,762
36,54836,548
36,36236,362
2000/01 Sales $m
16 ©2006 Deloitte. All rights reserved19 Apr 2023
0
50
100
150
200
250
300
2000 2001 2002 2003 2004
Agricultural Production Food Processing Food Retailers Food Wholesalers & Distributors
International Trends: Manufacturer Consolidation
• Gillete / Procter & Gamble $57B
Source: The Food Institute Report
Bestfoods / Unilever $25BNabisco / Altria $19B
Quaker Oats / Pepsi $14BDiageo / General Mills $10B
Miller / SAB $5.5B Interbrew / Ambev $11.9BS&N / Spirit Group $4.2B
• Pernod Ricard / Allied Domecq $13B
17 ©2006 Deloitte. All rights reserved19 Apr 2023
International Trends: Imperatives for FDII Members
• “Best in Class” Supply Chain Integrity
• Continued Focus on Innovation
• Brilliant Customer Relationships– Account Management
– International / Global Partner?
• Be Prepared for the Opportunities & Threats from Consolidation– Local, Mid - Range Brands are available!!
– Loss of Agency Rights
– Competition for Shelf Space
18 ©2006 Deloitte. All rights reserved19 Apr 2023
What‘s Happening?
Change Imperative
Change Imperative
• Health & Food Safety
• Changing Lifestyles and Retail Behaviour
• Food Deflation, Discounting and the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
• Health & Food Safety
• Changing Lifestyles and Retail Behaviour
• Food Deflation, Discounting and the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
• Shift in Cost Base & focus on cost
• Re-structuring of the Grocery Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
• Shift in Cost Base & focus on cost
• Re-structuring of the Grocery Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
International MarketInternational Market Domestic MarketDomestic Market
Trends and Events affecting the Food and Drink Industry
Source: Deloitte Analysis
19 ©2006 Deloitte. All rights reserved19 Apr 2023
Re-Structuring of Irish Grocery Supply Chain
• Market Concentration– Multiples
– Symbols
• Centralised Distribution
• Implications for Wholesale and Cash and Carry– And for Servicing of Independent Retail and HORECA channels
• All Island Dimension
• Difference from UK:-– Importance and Sophistication of Convenience Format
– Planning Guidelines, with respect to Store Size and Location
20 ©2006 Deloitte. All rights reserved19 Apr 2023
Groceries Order
Long terms effect on commercial & pricing approaches
• Significant Portion of Discounting Off Invoice (Marketing Agreements)
• Ability to establish “Floor”
• Relationship Dependent
• Arrangements had developed over time
• No / Low Level of Visibility
• Significant Portion of Discounting Off Invoice (Marketing Agreements)
• Ability to establish “Floor”
• Relationship Dependent
• Arrangements had developed over time
• No / Low Level of Visibility
CurrentCurrent
• Greater Portion of Discount On Invoice or Volume related Rebate
• Share of Pool will Migrate towards Larger Accounts
• More Specific “Contracting” for Trade and promotion monies
• Occasional Wars on Brand Leaders
• Greater internal focus on deals, and greater central control over pricing decisions
• Greater Portion of Discount On Invoice or Volume related Rebate
• Share of Pool will Migrate towards Larger Accounts
• More Specific “Contracting” for Trade and promotion monies
• Occasional Wars on Brand Leaders
• Greater internal focus on deals, and greater central control over pricing decisions
FutureFuture
21 ©2006 Deloitte. All rights reserved19 Apr 2023
European Sourcing
• Outsourcing & Offshoring are here – it’s a case of Economics
• Branded Goods at risk from Imports – Particularly Alcohol.
• Non Branded Commodities provided through “Outsource” or “Generic” format.
• European Sourcing will grow because the market is demanding it.
• Rising Energy Costs
• Food Safety Concerns
23 ©2006 Deloitte. All rights reserved19 Apr 2023
Domestic Trends: Imperatives for FDII Members
• Cost Leadership is a MUST
• Restructure your Operating Model to reflect the changed environment– Supply Chain
– Sales & Customer Service
• Sophisticated Pricing Approach
• Embrace European Sourcing Opportunities and Threats– Be proactive!!
25 ©2006 Deloitte. All rights reserved19 Apr 2023
Summary
Continued Success
Continued Success
• MAINTAIN QUALITY & INTEGRITY
• HAVE A STRATEGY FOR GROWTH
• INNOVATE TO MEET CONSUMER NEEDS (or niche)
• BUILD CUSTOMER MANAGEMENT CAPABILITY
• RE-STRUCTURE OPERATING MODEL
• MAINTAIN QUALITY & INTEGRITY
• HAVE A STRATEGY FOR GROWTH
• INNOVATE TO MEET CONSUMER NEEDS (or niche)
• BUILD CUSTOMER MANAGEMENT CAPABILITY
• RE-STRUCTURE OPERATING MODEL
• IGNORE THE ECONOMICS
• LOOK FOR SILVER BULLET: PERFORMANCE REQUIRES EXCELLENCE
• STRATEGY TO STAND STILL – OFFENSE NOT DEFENSE
• UNDERESTIMATE YOUR ABILITY
• IGNORE THE ECONOMICS
• LOOK FOR SILVER BULLET: PERFORMANCE REQUIRES EXCELLENCE
• STRATEGY TO STAND STILL – OFFENSE NOT DEFENSE
• UNDERESTIMATE YOUR ABILITY
DO’SDO’S DON’TSDON’TS
Strong Imperative for Change within the Food and Drink Industry
Source: ....