Recession is top of mind in global food industry

Recession has taken over from corporate responsibility as the number one priority for the food industry in 2009, according to a new survey from the global food business network, CIES.

Its survey, based on a sample of nearly 600 retail and manufacturing decision makers in food and consumer goods industries in 54 countries, found the economy and consumer demand, ranked fourth in importance in 2008, has taken pole position this year.

For the second year running, food safety is the number two concern. “The return on investment on food safety is only apparent if there is an issue, yet the risk of ignoring it can be massively damaging to a brand. And therefore food safety is one of the top-of-mind concerns in the boardroom,” says Alan McClay, ceo, CIES.

The number three concern this year is corporate responsibility. Though it has slipped in the rankings, the survey suggests sustainability plans will survive in a downturn.

While businesses in all sectors across the globe are up against financial challenges as a result of the credit crunch, retail and fmcg companies face additional challenges, said CIES.

The downward pressure on price associated with a recession coincides with upward pressure on the cost of raw materials in food and significant changes in consumer spending patterns, particularly away from non-food and (to some degree), away from national brands.

CIES urged retailers to re-evaluate their assortments and the size and scale of their store networks and said it was seeing its retail members taking steps to limit cost risk in ‘over-retailed markets’, via store closures and efficiencies or downsizing in operational logistics and back-office functions.

They are also taking steps to address margin imbalance by increasing their private label activities, it said. However, this presents a knock-on risk for brand manufacturers and this group is now exploring the choice between brand owner with outsourced production or food manufacturer without a brand portfolio, allowing for entry into private label manufacture.

The economic news is not all bad, however.

In the UK, the big four supermarket groups made bullish announcements of job creation during 2009, said CIES. Wal-Mart owned Asda, for instance, has announced it would be creating 7,000 jobs this year.

Among other key business priorities, the ‘competitive landscape’ climbed up five places in the rankings to fourth place in this year’s survey. According to CIES, the jump reflects two trends: increased price competition among grocers and the share gains achieved by discount retailers such as Aldi and Lidl.

The ‘retail/brand offer’ jumped up three places in importance to number five. Along with price, format and assortment innovation is crucial, said CIES. Brand manufacturers are challenged to stay compelling to consumers seeking cheaper alternatives via store-brands.

Consumer marketing moved up to eighth, indicating the industry is placing greater emphasis on two-way communication with its consumers: a healthy response to the fall in consumer confidence that has accompanied the financial crisis, according to the CIES.