Where corporate social responsibility, sustainability and retailer pressure may have figured highly in the minds of the global Top 100 food and beverage companies in recent years, it’s the evermore extensively prevailing world recession that’s grabbing their attention most of all in 2009.
“This is without any doubt the longest and deepest recession during the post world war period, and while it may have bottomed out, we don’t believe that there are any signs of a fast recovery,” says Paul Polman, CEO Unilever. “In fact, we expect many parts of the world such as western and eastern Europe still to soften before bottoming out. The World Bank has continued to lower its forecast for global Gross Domestic Product growth in 2009 – now down to -2.8% – and even if the outlook for 2010 is slightly positive, which is by no means guaranteed, we’re still well behind the levels we’ve seen in 2008 and before.”
CIES – The Food Business Forum – echoed these thoughts in its update of its Annual Top of Mind survey in June, which saw the economy and consumer demand reaching top of the list, knocking corporate social responsibility (including sustainable development, social standards and corporate governance) to fifth place. Similarly, the retail/brand offer, which includes pricing, assortment and format, climbed from fifth place in January to third place in June.
“This shift demonstrated in our survey is timely and to be expected,” says CIES CEO, Alan McClay. “With the current sharp decline in consumer demand, the industry needs to concentrate on keeping its customers satisfied and its employees in work. The industry must make adjustments to its core offers, reviewing prices to support those hardest hit by the downturn and ensuring assortments remain relevant. We have seen our retail members respond by enlarging their low price store brand ranges, and tweaking formats to help shoppers find the best deals quickly.
“The industry has for years worked hard on sustainability. Now that the systems are in place to learn how to minimise the environmental and social impact of doing business, the industry must turn its attention to supporting consumers through the current downturn.”
According to a recent Nielsen survey, consumer confidence remains low, and 48 out of 49 countries recorded a further drop in consumer confidence over the first half of 2009 vs the previous half year. Unemployment is also likely to continue to rise in Europe and the US.
“While major ticket items will be first affected, we also see grocery spend drop by about 10% when unemployment hits,” says Polman. “Fortunately, our categories are less affected and we believe that this will continue to be the case. However, the rate of growth in our category in volumes has clearly slowed from the periods prior to the recession and we expect it to stay at these levels for a while.”
He points to possible negative volume growth in Europe, with the possibility of a 3% growth rate in the developing nations, with private label and other branded competition profiting from consumers’ needs to economise.
“The way we respond to consumer needs will differ within different categories and between different countries,” says Polman. “To do this well, the company requires a deep understanding of consumer needs and behaviours. Research in the UK and Germany shows, for example, that it’s not always private label that benefits. While some consumers are trading down, they’re not necessarily fleeing to discounters; they’re looking for value without frills. An equally large section of the population is, however, moving up, looking for premium positioned market leaders that are well supported, differentiated and have strong innovations.”
To this end, Unilever is planning to expand its US Customer Insight and Innovation Centre to Europe and Asia; has already brought out new product launches such as its Magnum Temptations; and plans to sell Europe’s first low-fat, ISP-based (ice structuring protein – developed in-house using genetically modified baker’s yeast in a fermentation process) ice creams in 2010 following EU approval for ISP in April this year.
Innovation, wellness and value are the focus for Campbell Soup Company, which has slipped from 39th position to 45th in this year’s Top 100 ranking, as its core drivers for surviving the recession and fulfilling on consumer demand.
See the Top 100 Food Groups list.
“The fiscal year 2009 has been a successful year for Campbell, especially considering the unprecedented upheaval in global financial markets,” says Craig Owens, Campbell’s chief financial officer and chief administrative officer, who pointed to growth in the company’s US soup business. “We’ve introduced market-leading innovations with the successful launch of several new products, making significant gains in the ready-to-serve segment with our Campbells’ Select Harvest line, and improving our position in the highly competitive broth segment.”
According to Denise Morrison, Campbell’s president of North America Soup, Sauces & Beverages, Campbells’ soups provide the ideal simple meal, particularly for shoppers focused on value.
“We’re committed to being people’s first choice for affordable and nourishing meals by continuing to innovate faster, better, more completely and more uniquely than any other company in the category,” says Morrison.
As part of this innovation process, the company intends to enhance its Campbell’s Chunky soups range with better-for-you features such as leaner meat and 30 varieties containing a full serving of vegetables. It also plans to increase its emphasis on value with a focus on money-saving meals, in-store merchandising, and an extended Campbell’s Kitchen website providing consumer tips on finding and preparing affordable, tasty meals.
The company is also investing in Russia, where it has recently signed a distribution agreement with Coca-Cola Hellenic Bottling Company for the distribution of its Domashnaya Kassika (Home Classics) concentrated broth and other soup products.
“The emerging markets of Russia and China both represent a significant growth opportunity in the business, and these markets will play an important role in Campbell’s future as we gain momentum in our key areas of focus,” says Douglas R Conant, president & CEO, who confirmed that under the terms of the agreement, Campbell’s would remain responsible for all consumer and market research, brand management, marketing, product development and production. Coca-Cola Hellenic takes over responsibility for distribution, sales, in-store marketing and trade receivables.
It’s not just Campbell’s that’s investing in the emerging markets of Russia and China, which have long been the bedrock of growth for the top players, and never more so than now when the more developed markets’ growth is stagnating.
“I’m delighted to announce that over the next three years we expect to invest $1bn in our beverage and food business in Russia,” said PepsiCo chairman and CEO, Indra Nooyi, at the opening of PepsiCo’s new bottling plant in Moscow in July.
Further investment will include a new snacks manufacturing plant due for completion at the end of this year, a warehousing and distribution infrastructure for the company’s Lebedyansky juice business, and further investment in local agriculture in Russia, where PepsiCo is the largest private user of potatoes. “This investment reflects very clearly our great confidence in Russia and our long-term commitment to this very important market,” she added.
The new plant will be larger than any of PepsiCo’s plants and will produce a range of beverage brands, including Pepsi-Cola, Aqua Minerale water and ready-to-drink Lipton Ice Teas (a result of PepsiCo’s joint venture with Unilever). It incorporates water saving and energy saving features designed to reduce its environmental impact, and a water filtration system that uses ozone molecules for purification. It’s also equipped to produce ultra-light PET plastic bottles on all bottling lines, with labelling technology that uses no glue, less plastic and less energy than traditional labels.
Indra Nooyi flew to China in June for the opening of PepsiCo’s first ‘green’ plant overseas. “Despite the current uncertainty in many parts of the world, we have no doubt that China will remain a powerful engine of global economic expansion,” she said. “This is the largest, most ambitious development effort we have undertaken in our more than 25 years of doing business here.”
The facility is designed to use 22% less water and 23% less energy than the average PepsiCo plant in China. To achieve this, it uses a high-pressure cleaning system and water-free conveyor belt lubricants, as well as natural lighting in 75% of the plant (including a skylight in the packing area and warehouse). A roof garden insulates the office building and saves energy for cooling and heating. These initiatives are expected to help PepsiCo reduce its annual greenhouse gas emissions by 3,100 tonnes, water usage by 100,000 tonnes, and overall energy use by four million kilowatt hours compared to its previous plant.
Such green initiatives as adopted by PepsiCo, despite the recession, continue to be an underlying imperative for all commercial decisions whether they’re to introduce more ‘value’ product offerings or to cut costs. The savings that can be made by cutting energy and water consumption are of significant interest, and retailer drivers such as Asda Walmart’s recent decision to introduce a ‘green’ rating for all its products are also critical to the future success of any of the Top 100 players.
And it’s not just energy and water saving that’s being scrutinised. In the UK, a Free Green Market has been launched online to help consumers search through the green and ethical credentials of products sold by a range of different retailers. It offers advice, product reviews, vouchers and views from celebrities and experts.
According to Mintel International, terms such as ‘organic’, ‘natural’, ‘local’, ‘Fairtrade’ and ‘carbon footprint’ continue to evolve in consumer consciousness. The number of people classifying themselves as green consumers has risen and that will continue, according to Lynn Dornblaser of Mintel at this year’s Institute of Food Technologists Annual Meeting & Food Expo in Chicago in June.
“About 40% more say they are more concerned about the environment than they were just a year ago,” said Dornblaser, who pointed out that the latest new product introductions are making more and more ethical and environmental claims.
The Institute of Grocery Distribution (IGD) in the UK’s ‘Shopper Trends 2009 – Food Shopping in a Recession’ highlighted that 25% of British consumers claimed to have purchased foods that support Fairtrade during January this year, which is almost three times the number doing so in 2006.
“While becoming increasingly price-sensitive in these challenging times, shoppers are not leaving their ethical concerns at home when they go food shopping,” says Joanne Denney-Finch, chief executive, IGD. “The aspiration for high-quality, more sustainable food remains, but people are scrutinising closely to get the best value for their values. Only organic seems to have suffered a small decline, but we believe this is partly due to a swing towards other ethical options and it’s mainly among more casual organic shoppers. A strong core of dedicated organic shoppers remains.”
Tapping into these opportunities are companies such as Cadbury, which has introduced a new Fairtrade version of its mainstream Cadbury Dairy Milk brand, which has led to a tripling of the company’s volume demand for Fairtrade cocoa from Ghana.
“This creates a tipping point for Fairtrade with Fairtrade Cadbury Dairy Milk bars available to all, with the same taste and at no extra cost,” says Trevor Bond, MD of Cadbury Britain and Ireland. “I’m proud that we’re the first mainstream confectionery product in the UK to display the Fairtrade mark, and will continue to explore what else is possible with other brands and in other markets.”
SABMiller, now firmly in top place as the world’s largest brewer, is pursuing many Fairtrade and sustainable initiatives throughout the organisation. In June, its Dutch beer brand Grolsch organised a sustainable agriculture-themed demonstration day for brewing barley growers in its malthouse in Kloosterzande (Zeelandic flanders) as part of its objective to brew all of its beer from sustainably grown barley malt extract.
“We share with our growers our pride and passion for our products,” says Jos Haeck, manager of the malthouse in Kloosterzande, which works extensively with a core group of growers locally in order to improve barley production and to create a proper chain structure. “On the basis of sustainable agriculture, we would now like to extend our cooperation to them.”
Ultimately, the ‘Growing Grolsch’ project, which focuses on sustainable agriculture, offers major advantages for the company and the growers in terms of improved management, better quality and ensuring the availability of brewing barley in the future. SABMiller has already established its own Sustainability Assessment Matrix (SAM), which is a tool designed to allow its businesses to measure performance and progress against its 10 Sustainable Development priorities.
“Despite the difficult prevailing economic conditions, we will not compromise our commitment to sustainable development. It is a core part of our business,” says Graham Mackay, chief executive. “It underpins our ability to grow and our licence to operate. We understand that our long-term profitability depends on being part of successful economies where jobs are created, incomes grow and quality of life improves.”
This view prevails throughout the global Top 100 companies despite the recession – ultimately if they do not invest in sustainability, there will be no business to develop in the future.
Gareth Ackerman of Pick n Pay Holdings and CIES Summit Committee chairman at the World Food Business Summit in New York in June echoed these thoughts when he commented on corporate social responsibility dropping from its top slot in the CIES Top of Mind survey in June.
“While the fall of corporate social responsibility may initially look troubling, I personally don’t feel there is cause for concern,” he said. “Between January 2008 – when leaders gave it top priority – and now, retailers and manufacturers alike have completely rebuilt their business models to incorporate environmental and social sustainability into the DNA of their companies. Going forward, all business decisions must pass through the sustainability filter or be rejected.”
Claire Rowan is editor of Food and Beverage International magazine.
The good news is that some weather forecasters are now predicting that the summer could yet yield hotter temperatures and a less wet July and August than last year. While this news may provide a welcome ray of light amid the gloom, concerns continue to mount over waning consumer demand for packaged water in established markets, particularly North America and western Europe.
Yet, our cover story in this issue’s magazine (which hopefully many of you will already have in your hands, and in case you don’t, subscribe here) reveals why a global downturn doesn’t necessarily sound the death knell for the category. We look at why many bottled water companies are surprisingly upbeat about the future.
We also study the Chinese bottled water market and reveal why the majority of bottled water is viewed by the Chinese as a necessary tap water replacement, and how China’s growing middle class is a key target for investors such as China Water & Drinks. According to the latest World Bank forecast, China is still on course for economic growth of 6.5% in 2009.
Our new products section and Aqua Plus supplement should also reassure industry ‘outsiders’ that the bottled water industry is alive and kicking, with innovations, campaigns and technologies that can bring brands to life.
Don’t forget, the entry deadline for the 2009 Beverage Innovation Awards is looming large on the horizon (30 June is the closing date). Entries are coming in thick and fast from bottled water companies in various categories, including ‘Best New Water’ and ‘Best New Flavoured Water’. To enter the awards, click here.
© FoodBev Media Ltd 2020
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