Featuring Walter Rach, Managing Director, Food & Beverage
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Economists are quick to note that 2009 was one of the worst on record. However, studies reveal a sense of optimism amongst senior executives for 2010 and 2011. In particular, those in the food and beverage industry are optimistic they will see improved revenue, profitability, and a better job outlook this year. According to a recent survey conducted by KPMG, 60 percent of respondents indicated they thought the food and beverage industry would fully recover ahead of the rest of the U.S. economy. Of the new growth opportunities sprouting this year, food and beverage is a top contender in a hot category. This three-part trend article is an in-depth foray into the food and beverage industry, and includes the predictions of three opinion leaders about growth in 2010. Within the industry there are three specific areas that experts and practitioners alike consider shoo-ins for expansion: private label, functional foods, and food safety. This installment will discuss private label, Part Two will focus on functional foods and food safety, and Part Three will conclude with overall 2010 expectations.
THE RISE OF PRIVATE LABEL
Understandably, private label products are gaining share amongst price conscious consumers. With Americans hard hit in 2009 by job losses, vanishing retirement savings, and continued troubling economic headlines, they are more price sensitive than ever before.
Walter Rach, Managing Director of the Food and Beverage Search Practice for Cook Associates, provided insight into the growing acceptance of private label products from consumers, "Consumers are becoming increasingly receptive to private label food and beverage products because they see the quality difference between private label and branded products narrowing."
The upside of this trend is an opportunity for food and beverage executives to deliver a better value to a broader segment of customers. With private label products becoming more accepted by consumers, they are expected to grow in terms of sales and profitability. Some experts predict that growth in private labels is not only a 2010 trend, but could instead become a major industry shift for the future.
The impact of private labels is being felt far and wide according to a new study, "Private Label 2009: Understanding and Mitigating Private Label Threat," from Information Resources Inc. (IRI). The group reports that during the first half of 2009, private label unit share increased in five of six departments, led by perishables and followed by healthcare and frozen foods. Private label dollar share has increased in 13 of 15 sales categories, with natural cheese, butter and canned vegetables leading the way and refrigerated fresh eggs, milk and frozen seafood trailing in the categories.
With data like this, it is understandable that Sean McGirr, retired CEO of Cliffstar Corporation, has a particularly sunny outlook on private label saying, "It is a lasting growth opportunity because retailers consider it a key element of their overall business strategy. It allows the retailer to strengthen the branding of their store image creating a distinct point of difference between themselves and their competitors."
McGirr, who is now a Senior Partner of Boomerang Brands, also pointed out, "The consumer is facing difficult economic times and is looking for ways to lower costs, without sacrificing the variety and quality they have come to expect. The new consumer habit of trading down in certain areas of their life will outlast the current economic downturn as people experience the value of frugality versus conspicuous consumption."
Private label's strongest growth performance tends to be within commodity-driven categories without a dominant national brand and with relatively low innovation. This trend is a boon for private label suppliers - from commodity providers to marketing partners - as they combine increased capabilities in product and packaging development with the ability to maintain quality standards, equal to or higher than, their national brand competitors.
A separate PLMA study conducted by GFK/Roper for Super Market News supports the assertions of both Rach and McGirr that consumers have recognized the significant improvements in private label offerings. According to the study, more than 80 percent of consumers strongly or somewhat agree that private label products are equal to national brands. The same survey found that 66 percent of consumers are frequent private label purchasers.
McGirr believes this trend will wax rather than wane as the economy rebounds, "This development has created an environment where market share gains made during this recession will likely be maintained. This is different from the recession of the 1980's when private labels gained market share, but lost it when the economic environment improved because offerings were of low quality and sold in unimaginative packaging."
Rach also noted the importance of private label opportunities for retail grocers. They are using this trend as an opportunity to promote their own brands and labels as strong alternatives to company brands. He touted the downturn as an once-in-a-lifetime opportunity for private label food and beverage manufacturers to develop strong and lasting partnerships with retailers on private label programs.
By all accounts, the private label market share is predicted to continue to grow because of its importance to both the retailer and consumer. An added benefit for retailers is strengthening valuable customer loyalty, and perhaps stealing market share from better known national brands. However, it is worthwhile to note that some experts believe branded manufacturers still have key advantages, particularly in the strong emotional connections between their brands and loyal customers. One shining example is the personal care products category, where brands like Dove have successfully differentiated themselves in the minds of shoppers.
PART TWO: FUNCTIONAL FOODS & FOOD SAFETY
This three-part series examines opportunities in the food and beverage industry in 2010 and 2011. The first installment has highlighted many important aspects of the private label industry. Perhaps the most significant finding is that, in general, the majority of consumers feel private label products are nearly equal to national brands. Likewise, nearly two-thirds of consumers are frequent private label purchasers. These trends present a real opportunity for private label products to gain share of wallet, and mind, of shoppers. In the coming weeks, look forward to the second installment of this in-depth trend series. Part Two of the article will present noteworthy trends in functional foods and food safety for 2010 and 2011.
Walter Rach directs the Food & Beverage sector within the Executive Search division of Cook Associates, Inc. Since joining the firm in 1983, he has specialized in driving search strategy programs and complete search project management and execution for Food Processing clients. Walter has built a strong following in the Food Industry and has successfully conducted search assignments for senior level executives for Fortune 500 companies as well as publicly and privately held firms of small to medium size.
As a Managing Director, Walter conducts executive search assignments at the CEO, COO and divisional President level, as well as functional heads of Sales, Marketing, Operations, Supply Chain, Finance, Technical Services and Human Resources for the all Food & Beverage industry segments.
A native of Chicago, he received his MBA from the University of Wisconsin - Madison and his BS, Business Administration from the University of Illinois - Champaign/Urbana.