GLOBALISATION OF FRESH PRODUCE MARKETS_____________________________________________________
MIKE KNOWLES EUROFRUIT MAGAZINE
CHANCE· NECESSITY· RISK
CHANCE OPPORTUNITIES FOR GROWTH
NECESSITY THE NEED TO GROW
RISK OBSTACLES TO GROWTH
• AFFECTING ALL AREAS OF THE FRESH PRODUCE SUPPLY CHAIN– International expansion of retailers – Consolidation of importers / category managers– Related service providers also consolidating eg seed companies, transport providers
• CONSOLIDATION DRIVEN BY NEED TO…– Compete more effectively– Achieve economies of scale– Keep pace with consolidation among inputs and clients
• NOT JUST MERGERS AND ACQUISITIONS – Strategic alliances – Marketing partnerships– Sharing of research
CONSOLIDATING PRODUCTION WILL BE ESSENTIAL,BUT HOW THAT OCCURS REMAINS TO BE SEEN…
GLOBALISATION
EUROPE THE ESTABLISHED MARKET
EUROPE THE ESTABLISHED MARKET
• COMPETITION MORE AND MORE INTENSE
• COSTS HIGH COMPARED WITH POTENTIAL RETURNS
• RETAILERS AND OTHER BUYERS INCREASINGLY POWERFUL
• DRIVE TOWARDS VERTICAL INTEGRATION
• INCREASED USE OF TECHNOLOGY
• PRICE AS THE LEADING CONSUMER TREND
• STAGNANT CONSUMPTION LEVELS
• GOVERNMENT NOT HELPING AS MUCH AS IT COULD
• ENVIRONMENTAL AWARENESS AT ALL-TIME HIGH
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
Source: Five Forces Model – Michael Porter, Harvard Business School
BARGAINING POWER OF
INPUT PROVIDERS
BARGAINING POWER OF
CUSTOMERS
THREAT OF NEW MARKET
ENTRANTS
THREAT OF SUBSTITUTE PRODUCTS
€
AMOUNT OF COMPETITION
IN THE MARKET
FIVE FORCES WHICH CAN DETERMINE ITS COMPETITIVE INTENSITY…
How intense is competition in the European market?
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
Source: Andrew Grove, Intel; Martyn Richard Jones, Groupe Bull
NGOs GOVERNMENTS CONSUMERSFINANCIAL
INSTITUTIONS
OTHER FORCES WHICH EXERT AN INFLUENCE…
How intense is competition in the European market?
Fuel – traditional sources becoming more expensive
Transport – lot of consolidation, limited capacity growth
Logistics – some consolidation, options limited
Packaging – plenty of innovation, competition and crossover
Pesticides – food safety crackdown limiting options
Seeds – major groups consolidating, but some competition
BARGAINING POWER OF
INPUT PROVIDERS
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
Input provider switching cost relative to your switching cost
Degree of differentiation of inputs
Presence of substitute inputs
Input provider concentration to your concentration ratio
Employee solidarity (labour unions)
ATTRACTIVEUNATTRACTIVE
=
SUPPLY CHAIN BECOMING EASIER TO CONTROL AND TO MONITOR
Barcodes gradually being replaced by newer technologies like DataBar and RFID– greater amount of information can be stored– supply and demand more easily balanced
NOT KEEPING UP WITH SUCH DEVELOPMENTS ELSEWHERE ALONG THESUPPLY CHAIN CAN PUT THE SUPPLIER AT A DISADVANTAGE...
TECHNOLOGY
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
INFLUENCE OF FINANCIAL
INSTITUTIONS
Lines of credit restricted, unlikely to be fully restored
Tax-payers bailing out failed banks
ATTRACTIVEUNATTRACTIVE
=
Buyer concentration to your concentration ratio
Your dependency on existing distribution channels
Your ability to bargain on price (especially with high costs)
The number of different buyers
Buyer switching costs relative to your switching costs
Buyer access to market information versus yours
Vertical integration in supply chain
Availability of existing substitute products
Buyer price sensitivity
Differential advantage (uniqueness) of your products
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
BARGAINING POWER OF CUSTOMER
€
=
ATTRACTIVEUNATTRACTIVE
RETAILERS
THE EXPANSION CONTINUES DESPITE THE ECONOMIC DOWNTURN
RETAILERS
Rewe Group (Germany) – Best Alliance contract farming projects
Tesco (UK) – establishing direct sourcing initiative
Asda (UK) – now owns International Produce
Conad (Italy) – sourcing agreements with dedicated suppliers
MOVES TOWARDS SECURING SUPPLY
TOUGH ON SUPPLIERS, BUT INCREASINGLY SEEING VALUE OF FRESH PRODUCE
But in order to supply them, companies increasingly require...
– CRITICAL MASS
– INTEGRATED SUPPLY CHAINS
– A RANGE OF PRODUCTS AND / OR SOURCES
– ALTERNATIVE DESTINATION MARKETS
eg. Univeg, Total Produce, The Greenery
GOING DIRECT
TRIMMING COSTS, BUT ALSO A NEED TO FIND THE RIGHT PRODUCTS
There is no point in having several teams buying for our individual country markets. We need experts in production who are close to our sources of supply, understand the difficulties associated with that production and know where to find the best products and suppliers.
“
”SANDY NORMAN – TECHNICAL MANAGER, TESCO
NINE TECHNICAL HUBS WORLDWIDE
North Africa / Mid East
Oceania
Asia-Pacific
EasternEurope
Central America
North America
South America Africa
WesternEurope
TESCO’S DIRECT SOURCING STRATEGY
MORE STREAMLINED
ECONOMIC NECESSITY, FOOD SAFETY, COMMITMENT TO QUALITY
A lot is said about short supply chains and localised food markets, but the future of food retail and needs of consumers are completely different. We want to guaranteee long supply chains of quality, bringing the excellence of Puglia's production, for example, to Parma, and vice-versa. Consumers go to modern retailers; that is the reality rather than the nostalgia.
“
”FRANCESCO PUGLIESE – GENERAL DIRECTOR, CONAD
The existence of barriers to entry (patents, rights, etc)
Economies of product differences
Brand equity
Switching costs
Capital requirements
Access to distribution
Customer loyalty to established brands
Absolute cost advantages
Learning curve advantages
Expected retaliation by incumbents
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
THREAT OF NEW MARKET
ENTRANTS =
ATTRACTIVEUNATTRACTIVE
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
THREAT OF SUBSTITUTE PRODUCTS
Buyer propensity to substitute
Relative price performance of substitutes
Buyer switching costs
Perceived level of product differentiation
=
ATTRACTIVEUNATTRACTIVE
Quality and number of competitors
Sustainable competitive advantage through improvisation
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
AMOUNT OF COMPETITION
IN THE MARKET =
ATTRACTIVEUNATTRACTIVE
DESTINATION MARKETS – POLISH APPLES
Source: WAPA / Prognosfruit
64%
36%
PROCESSINGFRESH
50%50%
2008/092004/05
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
INFLUENCE OFNGOs = Environmental – eg Greenpeace, WWF, Rainforest Alliance
Social – eg Oxfam, Fairtrade
Food safety – eg Greenpeace, Friends of the Earth
ATTRACTIVEUNATTRACTIVE
WATER USAGE (LITRES)
Source: FAO
0
50
100
150
200
one tomatoone potato
one orangeone apple
one glass orange juiceone glass apple juice
1325
5070
170190
WATER USAGE (LITRES)
Source: FAO
0
600
1200
1800
2400
one hamburger
2400
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
INFLUENCE OF GOVERNMENTS = EU funding for Producer Organisations
Individual EU members slow to act on healthy eating schemes
Generally not as powerful as the retailers
ATTRACTIVEUNATTRACTIVE
GOVERNMENTS
EU MARKETING STANDARDS – 1 JULY 2009
apricotsartichokesasparagusauberginesavocadosbeansBrussels sproutscarrotscauliflowerscherrieschicorycourgettescucumbers
garlichazelnuts in shellheaded cabbageleeksmelonsmushroomsonionspeasplumsribbed celeryspinachwalnuts in shellwatermelons
applescitruskiwifruitlettucepeachesnectarinespearsstrawberriessweet pepperstable grapestomatoes
NO MORE SPECIFIC MARKETING STANDARDS
SPECIFIC MARKETING STANDARDS REMAIN
BUT EXEMPTIONS CAN BE SOLD IF LABELLED
GOVERNMENTS
MANY FEEL STANDARDS REVISED IN RESPONSE TO PRESSURE FROM RETAILERS
Pisa, May 2009
HOW ATTRACTIVE IS THE EUROPEAN MARKET?
INFLUENCE OF CONSUMERS = Money concerns pushing prices down but increasing competition
Food safety and CSR concerns increasing certification costs
Health concerns favouring increased consumption
Environmental concerns favouring local produce
Consumption levels decreasing
ATTRACTIVEUNATTRACTIVE
FORECAST RETAIL GROWTH IN EUROPE, 2008-2012
Source: Planet Retail
0
2
4
6
8
4.035.74
5.866.38
6.69
7.19
ForecourtsHypermarkets
SupermarketsConvenience
Cash & Carries
Discounters
%
IMPACT OF DISCOUNT TREND
SQUEEZING OUT VALUE!
Buy 1, Get 1
FREELATER
IMPACT OF DISCOUNT TREND
FRESH PRODUCE STILL IN DEMAND, BUT IT’S AN EVEN TOUGHER MARKET
Many Italian consumers want convenience, low prices and top-quality food. Whether rich or poor, they tend to save on non-food products such as detergents and then seem happy to spend what they have saved on high-quality food.
“
”VINCENZO TASSINARI – CHAIRMAN, COOP ITALIA
IMPACT OF DISCOUNT TREND
THOSE DOING WELL ARE THOSE PROVIDING VALUE
Sales of €5.7bn in 2008, up from €5.4bn
Sales growth forecast at 8.1 per cent
Food accounts for 78 per cent of sales
Regular discount offers – 30, 40, 50 per cent
IMPACT OF DISCOUNT TREND
OTHER RETAILERS FOLLOWING THE DISCOUNT TREND
Bis
Promotion offering 2 for 1
“Helping you make ends meet in a difficult period”
IMPACT OF DISCOUNT TREND
PRICE WARS BREAKING OUT ACROSS EUROPE
Madrid, November 2009
IMPACT OF DISCOUNT TREND
PRICE WARS BREAKING OUT ACROSS EUROPE
IMPACT OF DISCOUNT TREND
PRICE REMAINS MOST IMPORTANT; OFFERING VALUE IS ALL THE MORE CRUCIAL
IMPACT OF DISCOUNT TREND
PRICE REMAINS MOST IMPORTANT; OFFERING VALUE IS ALL THE MORE CRUCIAL
LOSS LEADERS
Harry Potter and the Deathly Hallows*****************************************************
WHOLESALE PRICE:
Recommended retail price:
INDEPENDENT RETAILER:
ASDA:
LOSS:
*****************************************************
9.89
17.99
10.99
£
*****************************************************
8.87
1.02
WHAT MATTERS MOST TO RETAILERS IS GETTING SHOPPERS TO COME BACK
PER-CAPITA FRESH PRODUCE CONSUMPTION – EU
Source: Freshfel Europe / Eurostat
0
50
100
150
200
250
300kg
2002 2003 20042005
20062007
Fruit Vegetables
HOW ATTRACTIVE IS THE EUROPEAN MARKET?How intense is competition in the European market?
INPUTS CUSTOMERS NEW ENTRANTS & PRODUCTS COMPETITION NGOs GOVERNMENTS CONSUMERS BANKS
€
ATTRACTIVEUNATTRACTIVE
ELSEWHERE THE NEW MARKET
INCOME US$16,000+FROM 352m IN 2000 20302,100,000,000
DEMAND SET TO OUTSTRIP SUPPLY
9,100,000,000WORLD POPULATIONSET TO RISE BY 40% 2050
ARABLE LAND LEFTIN THE WORLD FAO12% MAINLY IN RUSSIA
Source: Bidwells Agribusiness, FAO,
+70-100%FOOD DEMANDSET TO DOUBLE 2050
ECONOMIC GROWTH FORECASTS 2010
5.5%ASIA-PACIFIC (EXCL. JAPAN)
4.4%MIDDLE EAST & NORTH AFRICA
0.6%EUROPE
3.1%SUB-SAHARAN AFRICA
2.4%LATIN AMERICA
2.4%NORTH AMERICA
Source: Economist Intelligence Unit
EMERGING MARKETS
CHINA
Massive market, high-value outlets in Beijing, Shanghai, Hong Kong
Retail sales and investment still growing, albeit more slowly
Tesco, Wal-Mart, Carrefour attracting more customers from wet markets
Government investing in infrastructure – Yn4 trillion stimulus package
Fall in sales during 2008 and early 2009
Notable slowdown during the Olympics, followed by credit crunch
Yuan holding strong, hurting exports, favouring imports » tougher market
Grey trade slowly disappearing, increased shipments direct to north
Increased quarantine hurdles and more formal duty structure
FRESH PRODUCE TRADE – EU AND CHINA
Source: CSO / Istat
0
200,000
400,000
600,000
800,000
Tonnes
2003
2008
EU > CHINA CHINA > EU
INDIA
EMERGING MARKETS
Interest from big industry players – Total Produce, Capespan, Del Monte
Bharti Wal-Mart, Reliance, Birla targeting back-end improvements
Foreign direct investment up to 100 per cent allowed
Growing preference for imported fruits, particularly among middle class
Per-capita spending on fruit and vegetables up 8-9 per cent each year
Supply chain and infrastructural deficiencies
Domestic production continuing to expand and improve
Retail development slowed by public suspicion of modern formats
Organised retail still only accounts for less than 1 per cent of sales
Investment tends to be more focused on front end, rather than supply chain
INDONESIA
EMERGING MARKETS
Consumption growing, especially for fruit imports
Imports of citrus, apples, pears and tropicals all increased 2006-2008
466,000 tonnes imported last year, against 72,6000 tonnes in 1994
Average annual growth of 39 per cent in imported volumes
Modern retail sales due to rise 15 per cent in second half of 2009
Double-digit growth in retail sector sales since 2003
Major competition on import trade from China (65 per cent share)
Quality of local production increasing, providing tougher competition
Domestic crop doubled from 7.2m tonnes in 1998 to 16.6m tonnes in 2007
Tighter rules on imported produce, stricter MRLs coming into play
PHILIPPINES
EMERGING MARKETS
Together with other ASEAN nations, market of almost 600m people
Philippines – Zespri spending 20 per cent of SE Asia marketing budget here
Philippines – Turkish citrus imports growing, Aksun 200+ containers
Vietnam – major growth in tourist numbers, foodservice
Vietnam – grocery sales reported up in first half of 2009
Malaysia – expansion of modern retail sector, foreign investment
Malaysia – target market for Dutch onions, European kiwifruit, Washington apples
FTA between Australia, NZ and ASEAN increasing competition in SE Asia
Philippines – tight controls on shipments following recent illegal imports
Vietnam – inflation in second half of 2008 dampened demand
Malaysia – Tesco and Carrefour competing aggressively on price
Strong competition from local and Chinese produce
VIETNAM
MALAYSIA
EMERGING MARKETS
MAJOR SUPPLIERS TURNING ATTENTION TO OTHER PARTS OF THE WORLD
Our competition has already realised that Asia is the growth market of the future. Leave behind the staid and traditional old UK, move on from the frustrating EU and forget about the self-sufficient US. Asia is hungry, ready to buy and eat, and rocketing forward in wealth. It is the fastest-growing market in the world. There is risk but there is also money to be made.
“
”ANDREW FENTON – PRESIDENT, HORTICULTURE NZ
473,820 tonnes 474,232 tonnes
ITALIAN KIWIFRUIT
Source: CSO / Istat
61% 71%
2004/05 2008/09
286,260 tonnes 335,440 tonnesPRODUCTION
EXPORTS
EMERGING MARKETS
RUSSIA
Huge focus on food retail, sales accounting for 40 per cent of consumer spending
Consumer confidence and retail sales expected to recover in 2010
In major urban areas, 67 per cent of consumers buy groceries at supermarkets
Rising foreign retail investment – Metro, Auchan, Rewe (Billa, Selgros), Globus, Lotte
Kesko due to introduce grocery format in 2010
Possible entry for Schwarz (Lidl), Coop Norden, Wal-Mart?
Import sector shaken up by economic downturn, loss of key players eg. Sorus, Sunway
Very hard to know who to deal with and who to trust
Retail sector still dominated by a small number of local players
As economy develops, consumers could spend more on luxury items, less on food
Long-term approach to development is required
Modern retail beyond major cities still in its infancy
EMERGING MARKETS
RUSSIA
OCTOBER 2008
Russia’s three largest fruit importers estimated to account for as much as 85 per cent of the Russian market
15%
20%
30%
35%SunwayJFCSorusOther
Source: Samokhval / Sales Business Journal
EMERGING MARKETS
RUSSIA
NOVEMBER 2008
Sorus files for bankruptcy, having defaulted on two loan payments
MAY 2009
Sunway suffers a similar fate, partly due to a rapid fall in demand for exotic fruit
EMERGING MARKETS
RUSSIA
JFC HOLDS STEADY
• Increased focus on strong categories like bananas, mangoes, pineapples• Fewer financial risks – bank support to help fund coldstorage development
0
12.5
25
37.5
50
End 2007 End 2008 Q1 2009 Q2 2009 Future...?
% s
hare
Source: Uralsib
EMERGING MARKETS
BRAZIL
MEXICO
Brazil – Major investment from big retail players including Wal-Mart
Brazil – growth in demand as currency strengthens, more demand for imported fruit
Brazil – exporters with experience of supplying now turning their expertise to imports
Brazil – expected to be world’s fifth-largest economy by 2014, boosted by new oil revenue
Mexico – with 110m people, a significant market despite broad range of domestic produce
Mexico – 44 per cent of population under 20, bodes well for modern retail development
Mexico – positive attitude towards eating fresh fruit and veg, buoyed by healthy eating schemes
Brazil – New oil revenues likely to make imports cheaper but exports more difficult
Brazil – domestic producers and supplier looking to grow their sales at home
Brazil – unemployment high at around 7.6 per cent
Mexico – fairly fragmented retail sector, top five account for just 30 per cent
Mexico – modern retail investment fell by more than half in 2010 to US$1.3bn
EGYPT
EMERGING MARKETS
IRAN
Egypt – strong retail growth of 5-15 per cent per annum over past decade
Egypt – consumers “beginning to expect cleanliness, quality and a wider variety of products”
Iran – one of world’s top 10 fruit consumers, but still a net importer
Iran – long-standing tradition of fruit consumption, frowned upon not to offer guests fruit
Both markets set to become more used to modern retail outlets (especially hypermarkets)
Improving economies, inflation coming under control, consumer spending set to increase
Middle Eastern markets generally receiving more attention from major suppliers
Potential for political upheaval means foreign retail investment could be hampered, especially Iran
Iran – Carrefour due to enter in 2009, but pulled out in September
Tough phytosanitary protocols for imported produce
Strong local production, with potential for future development
Both major producers themselves, Egyptian suppliers able to compete and meet high standards
EMERGING MARKETS
TURKEY
Univeg acquisition of Alara Agri – development of import structures
Some slow but positive steps towards European Union membership
World’s 15th largest per-capita GDP (PPP), generally good growth
Retail sales grew by 11 per cent to €118bn in 2008
Good levels of investment over past 15 years following EU trade agreement
Young and urban population (66.5% aged 15-64; 70.5% living in cities)
Some doubts remain over possible EU accession
Retail sector remains relatively under-developed
Majority of food sales remain through independent retailers
Strong domestic production, which could certainly expand
EMERGING MARKETS
SOUTH AFRICA
World Cup 2010 set to give economy huge boost
Well-developed infrastructure supporting efficient distribution of goods
Affirmative action and empowerment schemes helping raise productivity and earnings
Big opportunities for Southern European and North African grapes and stonefruit
Increasing volumes of imported berries and cherries appearing
Imported kiwifruit from Italy and New Zealand gaining in popularity
November to early February – imported avocados and citrus
Around a quarter of the population unemployed
Development is localised and leaves large swathes of country untouched
Volatile and unpredictable currency – strengthening post-World Cup
Rush to supply country during June-September has led to quality concerns
Despite some retail markets weakening, the long-term outlook remains positive for investors in the world's key emerging markets. Growth is expected to gather momentum again in 2010, providing both retailers and suppliers with attractive long-term investment opportunities.
“”
EMERGING MARKETS 2009, PLANET RETAIL
GENERALLY POSITIVE AND IMPROVING OUTLOOK
EMERGING MARKETS
DUBAI
US
CANADA
ABU DHABI
BUT DON’T FORGET… DEVELOPED ALTERNATIVES
JAPAN
HONG KONG
SINGAPORE
SOUTH KOREA
EMERGING MARKETS
COMPANIES EXPANDING BEYOND THEIR TRADITIONAL MARKETS
Fruit is a commodity, service is the differentiating factor
“Suppliers must evolve to provide world-class products & service”
South African sourcing no longer enough – must be global, 365-day
Developing strong partnerships crucial to retaining advantage
CASE STUDY - CAPESPAN
FIGHTING BACK WITH A NEW STRATEGY
Source: Louis Kriel presentation – Eurofruit Congress Southern Hemisphere 2009
• Global sourcing
• Superior supply
• Financial competitiveness
• Innovation & sophisticated systems
Global customers demand:
Present in 60 countries worldwide
Global volumes down just 0.1 per cent to week 41
Overall returns forecast up NZ$0.47 per tray
Forecast returns for Green down NZ$0.07 per tray
Forecast returns for Gold up NZ$1.97 per tray
Strong, sustained marketing campaign
Drive towards more efficient, streamlined business
CONSOLIDATION – GOOD OR BAD?
NEW ZEALAND KIWIFRUIT
Source: Zespri Kiwiflier – October 2009
Industry deregulation has led to fragmentation
Several smaller growers and exporters out of business
44 individual exporters supplying fruit to Europe
Heavily reliant on one market – the UK
Now investigating possibility of national branding as well as
ways to consolidate arrivals and streamline operations
CONSOLIDATION – GOOD OR BAD?
NEW ZEALAND APPLES
Source: Pipfruit NZ – August 2009
CONSOLIDATED MARKETING – CROSS-COUNTRY
BLUEBERRIES FROM THE SOUTH – CHILE, ARGENTINA & URUGUAY
CONSOLIDATED MARKETING – CROSS-CATEGORY
SOUTH AFRICA – MAJOR CAMPAIGN FOR STONEFRUIT, GRAPES & TOPFRUIT
WHAT TO EXPECT…
• FURTHER CONSOLIDATION– All areas: retail, category management, logistics, transport, R&D Don’t let the crisis pass you by!
• RETAIL– Discount trend slowing down, but still advancing– Renewed focus on direct sourcing and shorter supply chains– Doubts over practicalities of direct sourcing in short term, but some will be tempted– Retail consolidation advancing as drive to open new markets and cut costs continues
• MARKETING– Major shift towards country- and region-based marketing, as well as cross-category– Time for geographical indications / denominations of origin to come to the fore?– Support of governments essential, but investment in agriculture more likely
• EMERGING MARKETS– Some have slowed, but their emergence will continue– Need to spread the risk now even more urgent– Reduce reliance on traditional markets and investigate, trial, conquer new ones
TOP FRESH PRODUCE TRENDS FOR 2010
• HEALTH– Even more valuable to consumers in a downturn
• INNOVATION– New varieties, products, services to escape the commodity trap
• INPUTS– More cost increases especially for fuel, but input and service providers under pressure to trim costs– Technology and packaging companies compelled to innovate and help reduce costs / boost efficiency
• ENVIRONMENT– Continued need to respect and act upon environmental issues– Some will coincide with economic necessity, others will require investment– Big emphasis on sustainability from retailers and leading suppliers
• FINANCE– Gradual restoration of confidence and credit lines– Agriculture seen increasingly as a good investment
TOP FRESH PRODUCE TRENDS FOR 2010
P s. ’OP S. . .O
PREPAREDPROGRESSIVEPROMOTING
ORGANISEDORIGINALOVERSEAS
PO
on screenin printEurofru i t
in person· ·Mike Knowles· Editor, Eurofruit Magazine· [email protected]· +44 20 7501 3702