Food And Beverage 2012 - Ingredients For Success In Volatile Markets

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Food And Beverage 2012 - Ingredients For Success In Volatile Markets

FOREWORD

Some 18 months ago we launched our report "An appetite for

change: Eat, drink and be ready" which provided a unique

insight into changing consumer needs and preferences and examined

the resulting challenges and opportunities facing the food and

beverage industry. The key themes included carbon footprint and the

environment, good nutrition and health, ethical sourcing and the

continuing focus on food safety.

None of these have gone away, yet so much has also changed in

the wider economy and within the industry. This, our latest report

describes the rapidly shifting landscape and identifies the issues

and choices facing businesses looking to successfully navigate the

downturn and emerge as future industry leaders.

The Food and Beverage team at Deloitte hope you find this report

insightful and useful and we look forward to having the opportunity

to discuss its implications for your business.

EXECUTIVE SUMMARY

2008 was a tumultuous year for businesses in the food

and beverage sector. In the first part of the year food commodity

prices soared, driving food price inflation sharply

upwards.

Demand had outstripped supply for a number of years driven by

global population growth and increasing affluence in the developing

world. The removal of price intervention in the US and EU had also

made a major contribution to declining inventories of key

commodities. 2008 saw a tipping point. The market did the rest,

fuelled by fears over security of supply and active speculation in

commodity futures.

By August 2008, food commodity prices had peaked and since then

have been falling. A strong cereals harvest in 2008 boosted grain

stocks and the global economic downturn helped soften demand for

both oil and food. These falls are now flowing through into a

dramatic reduction in food price inflation and the beginnings of

real price reductions for the consumer, with the weakness of the

pound limiting the extent of real price deflation for UK

consumers.

Just as food price inflation began to ease, the credit crunch

started to impact economies around the world with the UK in the

front-line. This has presented businesses with a new set of

challenges. Disposable incomes are being squeezed and consumer

spending is in decline. Consumer confidence is at an all time low

and even better off individuals are spending more cautiously. The

number of companies failing is mounting and unemployment is rising

rapidly.

The recession is not just impacting how much money consumers

spend but also the way in which they spend it. Footfall in discount

grocers is rising and many shoppers are trading down, for example

from more expensive convenience foods to economy products and

cheaper raw cooking ingredients.

The numbers of covers and average spend in restaurants are

falling, but at the same time, sales of some premium products in

supermarkets ar...

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