1. GLOBALISATION
OF FRESH PRODUCE MARKETS
_____________________________________________________
CHANCE· NECESSITY· RISK
MIKE KNOWLES EUROFRUIT MAGAZINE
5. GLOBALISATION
• 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…
7. 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
8. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
How intense is competition in the European market?
FIVE FORCES WHICH CAN DETERMINE ITS COMPETITIVE INTENSITY…
BARGAINING BARGAINING THREAT OF THREAT OF AMOUNT OF
POWER OF POWER OF NEW MARKET SUBSTITUTE COMPETITION
INPUT PROVIDERS CUSTOMERS ENTRANTS PRODUCTS IN THE MARKET
€
Source: Five Forces Model – Michael Porter, Harvard Business School
9. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
How intense is competition in the European market?
OTHER FORCES WHICH EXERT AN INFLUENCE…
FINANCIAL
NGOs GOVERNMENTS CONSUMERS
INSTITUTIONS
Source: Andrew Grove, Intel; Martyn Richard Jones, Groupe Bull
10. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
BARGAINING Input provider switching cost relative to your switching cost
POWER OF
INPUT PROVIDERS Degree of differentiation of inputs
Presence of substitute inputs
Input provider concentration to your concentration ratio
Employee solidarity (labour unions)
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
ATTRACTIVE
UNATTRACTIVE
11. TECHNOLOGY
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 THE
SUPPLY CHAIN CAN PUT THE SUPPLIER AT A DISADVANTAGE...
12. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
INFLUENCE OF Lines of credit restricted, unlikely to be fully restored
FINANCIAL
INSTITUTIONS Tax-payers bailing out failed banks
ATTRACTIVE
UNATTRACTIVE
13. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
BARGAINING Buyer concentration to your concentration ratio
POWER OF
CUSTOMER 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
ATTRACTIVE
UNATTRACTIVE
15. RETAILERS
TOUGH ON SUPPLIERS, BUT INCREASINGLY SEEING VALUE OF FRESH PRODUCE
MOVES TOWARDS Rewe Group (Germany) – Best Alliance contract farming projects
SECURING SUPPLY
Tesco (UK) – establishing direct sourcing initiative
Asda (UK) – now owns International Produce
Conad (Italy) – sourcing agreements with dedicated suppliers
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
16. 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
17. TESCO’S DIRECT SOURCING STRATEGY
NINE TECHNICAL HUBS WORLDWIDE
Western Eastern
North America Europe Europe
Asia-Pacific
North Africa / Mid East
Central America
South America Africa Oceania
18. 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
19. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
THREAT OF The existence of barriers to entry (patents, rights, etc)
NEW MARKET
ENTRANTS 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
ATTRACTIVE
UNATTRACTIVE
20. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
THREAT OF Buyer propensity to substitute
SUBSTITUTE
PRODUCTS Relative price performance of substitutes
Buyer switching costs
Perceived level of product differentiation
ATTRACTIVE
UNATTRACTIVE
21. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
AMOUNT OF Quality and number of competitors
COMPETITION
IN THE MARKET Sustainable competitive advantage through improvisation
ATTRACTIVE
UNATTRACTIVE
23. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
Environmental – eg Greenpeace, WWF, Rainforest Alliance
INFLUENCE OF
NGOs Social – eg Oxfam, Fairtrade
Food safety – eg Greenpeace, Friends of the Earth
ATTRACTIVE
UNATTRACTIVE
24. WATER USAGE (LITRES)
190
200
170
150
70
100
50
50
25 one glass apple juice
one glass orange juice
13 one apple
one orange
0 one potato
one tomato
Source: FAO
26. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
INFLUENCE OF EU funding for Producer Organisations
GOVERNMENTS Individual EU members slow to act on healthy eating schemes
Generally not as powerful as the retailers
ATTRACTIVE
UNATTRACTIVE
27. GOVERNMENTS
EU MARKETING STANDARDS – 1 JULY 2009
NO MORE SPECIFIC SPECIFIC MARKETING
MARKETING STANDARDS STANDARDS REMAIN
apricots garlic apples
artichokes hazelnuts in shell citrus
asparagus headed cabbage kiwifruit
aubergines leeks lettuce
avocados melons peaches
beans mushrooms nectarines
Brussels sprouts onions pears
carrots peas strawberries
cauliflowers plums sweet peppers
cherries ribbed celery table grapes
chicory spinach tomatoes
courgettes walnuts in shell
BUT EXEMPTIONS CAN
cucumbers watermelons
BE SOLD IF LABELLED
29. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
=
Money concerns pushing prices down but increasing competition
INFLUENCE OF
CONSUMERS Food safety and CSR concerns increasing certification costs
Health concerns favouring increased consumption
Environmental concerns favouring local produce
Consumption levels decreasing
ATTRACTIVE
UNATTRACTIVE
32. 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
33. 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
34. 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”
35. IMPACT OF DISCOUNT TREND
PRICE WARS BREAKING OUT ACROSS EUROPE
Madrid, November 2009
37. IMPACT OF DISCOUNT TREND
PRICE REMAINS MOST IMPORTANT; OFFERING VALUE IS ALL THE MORE CRUCIAL
38. IMPACT OF DISCOUNT TREND
PRICE REMAINS MOST IMPORTANT; OFFERING VALUE IS ALL THE MORE CRUCIAL
39. LOSS LEADERS
WHAT MATTERS MOST TO RETAILERS IS GETTING SHOPPERS TO COME BACK
*****************************************************
Harry Potter and the Deathly Hallows
*****************************************************
£
WHOLESALE PRICE: 9.89
Recommended retail price: 17.99
INDEPENDENT RETAILER: 10.99
ASDA: 8.87
LOSS: 1.02
*****************************************************
40. PER-CAPITA FRESH PRODUCE CONSUMPTION – EU
300
250
200
150
kg
100
50
2002 2003 2004
2005
2006 0
2007
Fruit Vegetables
Source: Freshfel Europe / Eurostat
41. HOW ATTRACTIVE IS THE EUROPEAN MARKET?
How intense is competition in the European market?
€
INPUTS CUSTOMERS NEW ENTRANTS & PRODUCTS COMPETITION NGOs GOVERNMENTS CONSUMERS BANKS
ATTRACTIVE
UNATTRACTIVE
43. DEMAND SET TO OUTSTRIP SUPPLY
2050
WORLD POPULATION
SET TO RISE BY 40%
FOOD DEMAND
2050
SET TO DOUBLE
9,100,000,000 +70-100%
2030
INCOME US$16,000+
FROM 352m IN 2000 FAO
ARABLE LAND LEFT
IN THE WORLD
2,100,000,000 12% MAINLY IN RUSSIA
Source: Bidwells Agribusiness, FAO,
44. ECONOMIC GROWTH FORECASTS 2010
MIDDLE EAST & NORTH AFRICA ASIA-PACIFIC (EXCL. JAPAN)
4.4% 5.5%
EUROPE
NORTH AMERICA
0.6%
2.4%
2.4%
LATIN AMERICA
3.1%
SUB-SAHARAN AFRICA
Source: Economist Intelligence Unit
45. 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
46. FRESH PRODUCE TRADE – EU AND CHINA
800,000
600,000
Tonnes
400,000
200,000
0
2003
2008
EU > CHINA CHINA > EU
Source: CSO / Istat
47. EMERGING MARKETS
INDIA
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
48. EMERGING MARKETS
INDONESIA
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
49. EMERGING MARKETS
PHILIPPINES
VIETNAM
MALAYSIA
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
50. 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
52. 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
53. 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
Sunway 15%
JFC 35%
20%
Sorus
Other 30%
Source: Samokhval / Sales Business Journal
54. 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
55. 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
50
37.5
% share
25
12.5
0
End 2007 End 2008 Q1 2009 Q2 2009 Future...?
Source: Uralsib
56. 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
57. EMERGING MARKETS
EGYPT
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
58. 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
59. 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
60. EMERGING MARKETS
GENERALLY POSITIVE AND IMPROVING OUTLOOK
“ 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
61. BUT DON’T FORGET… DEVELOPED ALTERNATIVES
JAPAN DUBAI
HONG KONG ABU DHABI
SINGAPORE US
SOUTH KOREA CANADA
63. CASE STUDY - CAPESPAN
FIGHTING BACK WITH A NEW STRATEGY
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
Global customers demand: • Global sourcing
• Superior supply
• Financial competitiveness
• Innovation & sophisticated systems
Source: Louis Kriel presentation – Eurofruit Congress Southern Hemisphere 2009
64. CONSOLIDATION – GOOD OR BAD?
NEW ZEALAND KIWIFRUIT
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
Source: Zespri Kiwiflier – October 2009
65. CONSOLIDATION – GOOD OR BAD?
NEW ZEALAND APPLES
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
Source: Pipfruit NZ – August 2009
69. TOP FRESH PRODUCE TRENDS FOR 2010
• 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
70. 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