Plunkett Research^®, Ltd.

In the U.S., the retail grocery store and supermarket industry, with 40,000 stores, totaled about $497 billion in revenues during 2010, according to U.S. Department of the Census figures.  However, food products in America and elsewhere are sold at a wide variety of stores other than supermarkets.  To get the full picture in the U.S., it is important to consider the $371 billion in sales at 52,000 non-traditional stores such as wholesale clubs and dollar stores, as well as $165 billion at 117,000 convenience stores (not including convenience store gasoline sales).

The restaurant industry accounted for another $604 billion in revenues in the U.S. during 2010, for both dine-in and take-out foods, according to the National Restaurant Association, employing 12.8 million people at 960,000 locations.

The U.S. retail food industry, including restaurants, is about a $1.63 trillion industry.  Estimates of industry revenues can vary widely, due to many factors.  For example, a large portion of supermarket sales is made in non-food items such as drugs and personal care goods, and many types of non-food stores sell small amounts of specialty food products.

Food retailing is rapidly becoming more diverse and sophisticated in emerging markets.  For example, modern convenience stores are widespread in major Asian cities, such as the large number of highly popular 7-11 stores found in Thailand.  Also, discount stores that sell food products among other items are increasingly popular, evidenced by the rapid growth of Wal-Mart in Mexico and Latin America, and the fast spread of stores in China owned by Wal-Mart and its European competitors including Carrefour.

Nonetheless, outside of the major cities, much of the food retailing in emerging markets is conducted by modest local markets, often run as family operations.

Food sales by restaurants are spreading very quickly in the emerging world as well.  For example, America’s Yum! Brands, operator of KFC and Pizza Hut, is focusing its growth on China, where it already operates thousands of units in locations ranging from the giant metropolises such as Shanghai and Beijing to remote, smaller cities of growing importance.

U.S. farm sector gross receipts for crops, livestock and products were about $312.9 billion in 2010, up substantially from $282.1 billion during 2009, according to the U.S. Department of Agriculture.  America’s agricultural sector enjoyed $115.8 billion in exports during 2010, compared to $98.6 billion in 2009, while the U.S. imported only $82.0 billion in 2010, compared to $71.9 billion the previous year.

Globally, in the organized agriculture industry, 2,219 million metric tons of “cereal” grains, including wheat and rice, were projected to be produced in the 2009/2010 growing season.  This represents a slight decrease from the previous season.  This number is from the UN’s Food and Agriculture Organization, publisher of an annual “Food Outlook.”

World meat production was projected to be 286.2 million tons during calendar year 2010.  Dairy production was projected to be 710.7 million tons of milk equivalent.  Fish production was projected to be 147.0 million tons.

In a report released in early 2011, the United Nations Food and Agriculture Organization found that fish farming (aquaculture) is overtaking traditional fishing in global production.  Aquaculture grew at a 6.6% annual rate from 1970 to 2008, a period in which the global per-capita supply of farm-raised fish rose from 1.5 pounds to 17.2 pounds.  Aquaculture made up 46% of the global supply of edible fish as of 2008, with $98.4 billion in sales compared to $93.9 billion for wild-caught fish.  Salmon farming alone produces more than 2 billion pounds per year.

The global processed food and beverages industry is dominated by a handful of multinational corporations.  Among the leaders are Unilever, Cadbury Schweppes, H. J. Heinz, Kraft Foods, General Mills and Nestlé.  Unilever, for example, estimates that 150 million people per day purchase its products in 150 nations around the globe, ranging from Knorr soups to SlimFast diet meals.

The entire food industry, from growing to processing to retailing, is an extremely competitive field where profit margins are typically so low that it is often challenging to maintain profitability.  The processed food industry worldwide has been challenged by low growth rates, high energy costs and changing consumer tastes.  High feed costs have been extremely damaging to poultry and livestock firms, and fertilizer, which is typically manufactured from petrochemical sources, has seen very high costs in recent years.

Consumers in the U.S. and Europe, where the economies have been facing slow growth, have been resisting food luxuries such as lobster and prime beef, gourmet coffees and upper-end convenience foods.  More notably, consumers are shopping for bargains.  Generic store brands are growing in market share while higher-priced name brands have suffered from slower sales.  Supermarket chains such as Kroger, Safeway and HEB have been forced to modify their merchandising to meet the needs of cost conscious shoppers.

In the U.S., the supermarket industry is under attack by discounter Wal-Mart in particular, as well as by Costco and Target.  Vast changes are sweeping through the supermarket sector as a result, as major firms such as Safeway and Kroger have cut prices and lowered operating costs dramatically, while Albertson’s sold itself to private investors.  In the fiscal year ending January 31, 2010, grocery, candy and tobacco sales amounted to 51% of Wal-Mart’s $405 billion in total revenues. Wal-Mart has by far the leading market share of American supermarket sales.

The latest figures show that U.S. private-label food and consumer product sales are about $86 billion in U.S. grocery stores yearly, plus an additional estimated $15 to $20 billion in non-traditional food stores, according to the Private Label Manufacturers Association.  The association states that nearly one out of every four items sold in American supermarkets, chain drugstores and mass merchandise stores are private label store brands.

In the U.S., at the end of the Civil War in 1865, farmers made up about 55% of the workforce.  By 1900, 38% of working Americans still toiled on 5.7 million farms—growing enough food to feed the nation’s population of 76 million.  Today, only about 2.5% of the U.S. workforce is employed on farms.  The total number of American farms is down to a little over 2 million, but that dwindling count of farms and farmers meets the domestic needs of a national population of 310 million—more than four times the population of 1900.

Since the early 1900s, the amount of manpower required to grow food has plummeted.  The relative cost of an American family’s food has likewise dropped impressively.  According to the Federal Reserve Bank of Dallas, in 1901 46.4% of a typical American household’s income went to food.  By 1995, that ratio had dropped to 14.0%.  Here’s another way to look at it:  In 1919, at the end of World War I, a basket of staple food items (one pound each of coffee, bacon, bread, beans, onions, lettuce and ground beef, plus generous amounts of sugar, tomatoes and other items) cost what an average American would earn in 10 hours of work.  By 1995, that cost had dropped to less than two hours.  The drop has been caused by increases in total personal income, as well as improvements in food technologies.  Outside the U.S., other industrialized nations made outstanding strides in food cost, availability and quality through most of the 20^th Century.  Many developing nations have seen vast improvements as well.  (Ironically, while we all need food to live, and we tend to derive tremendous enjoyment from good food, we nonetheless do a poor job of compensating most people who work in the food industry.  From fry cooks to chicken pluckers, many people who work in the food sector receive very low wages.)  However, food prices have been growing dramatically in the early years of the 21^st Century, thanks to a large extent to increased demand for food products worldwide and challenges faced by growers at varying times due to drought or floods.

Meanwhile, throughout much of the world, technology and globalization have revolutionized the way that we grow food, as well as the way that we transport, process, package, purchase and cook it.  Waste and spoilage are reduced (but still a problem) thanks to innovations like flash freezing, interstate highways and refrigerated trucks.  Furthermore, it’s an everyday occurrence for consumers in the U.S., Asia or Europe to pick up strawberries from New Zealand or mangos from Mexico in the fresh produce section of the local supermarket.  Globalization has led to the rise of massive multinational food processing companies like Nestlé and Kraft, which often sell their foods under local names in local languages, after producing them in regional factories worldwide.

The types of technologies affecting the food industry have evolved over time.  From mechanized tractors and implements to diesel trucks to flash freezing, food technology has moved on to become high-tech.  Today, computerization also has made marked changes in the food industry:  Electronic data interchange ensures that inventories and shipments are well managed so your local grocer doesn’t run out of the products that are selling quickly.  Point-of-sale systems at the cash register capture minute-by-minute sales data.  Biotechnology is making sweeping changes at the ground level—in seed stocks and agricultural animal health.  In fact, gradual genetic improvement of grain seeds like rice and wheat, combined with better fertilizers and other technologies, created a “green revolution,” enabling nations like China and India to go from agonizingly underfed populations to a large degree of food self-sufficiency.  Now, genetically modified seeds are gaining ground with the promise of crops that not only resist insects and have extremely high yields per acre, but also produce high levels of desirable nutrients and vitamins.

Growing health concerns are significantly impacting all sectors of the food industry, as obesity levels continue to rise to alarming proportions in the U.S., Mexico, Asia and elsewhere.  Various branches of the U.S. government, including the Food and Drug Administration (FDA), along with a host of consumer groups, are squaring off with food producers over nutrition and the responsibilities and ethical issues inherent in the production and marketing of food.  Childhood obesity is a particular target.  In the U.S., where soaring health care costs are a prime concern, $147 billion in yearly medical costs were linked to obesity in 2008.  In the massive health care act passed in 2010, the U.S. federal government set up a requirement that all restaurant chains with 20 or more restaurants post calorie counts for menu and buffet items.

Even local governments, such as the cities of New York and Chicago, are increasing regulations aimed at the food industry.  These include Chicago’s famous 2006 ruling outlawing of the sale of foie gras (liver from geese kept in cages and force fed to increase fat—Chicago repealed the law in 2008), and New York City’s 2007 regulations requiring that chain restaurants prominently post nutritional values of menu items.  This followed New York City’s earlier restrictions on the use of trans fats in restaurant foods.  City officials estimate that 56% of New York’s adults are either obese or overweight, a common problem throughout America.  Local public school boards around the U.S. are also enforcing better nutrition in meals and snacks served at schools.

American food processors are dramatically altering their strategies to serve consumers who are concerned about better nutrition and fewer sugars and fats in their foods.  Many chain restaurants are likewise seeing excellent sales from lower-calorie foods and full nutritional disclosure.  McDonald’s soaring success with salads is an excellent example.  Snack food makers are likewise offering more and more reduced fat items. 

Meanwhile, the soda industry is going though immense changes due to consumer trends.  At one time, the industry assumed that there was limitless worldwide growth in soda sales to be enjoyed.  However, the real growth in beverages lately has been in bottled waters and energy drinks.  As a result, 2009-10 saw dramatic regrouping at PepsiCo and Coca Cola when the firms announced their intent to acquire the massive companies that did much of their bottling under license agreements.  These soft drink giants will attempt to cut costs, streamline operations, and distribute new products as a result of these mergers

In North America, Asia, Europe and elsewhere, producers and retailers of foods (including restaurants) are now faced with the challenge of positioning their brands to represent consistent quality and safety.  Companies that rise to this challenge will have significant competitive advantage.  This food “safety” positioning will go hand-in-hand with growing demand to satisfy additional consumer concerns about environmentally sound food production methods, fair trade, fair use of labor and humane treatment of agricultural animals.  However, a focus on such concerns as fair trade can add dramatically to costs.

Today, high food prices are a stark contrast to the cheap food era of 1974 through 2005.  For decades, improving farm technologies and high-output genetically modified seeds had consistently dampened food costs.  The International Monetary Fund (IMF) calculates a food prices index that shows real food prices, adjusted for inflation, fell by nearly 75% during those 31 years.  However, low-cost food is now a thing of the past.  Numerous factors are at work in recent price increases, including higher demand for meat as well as great demand for foods in general by rapidly growing middle classes in China, India and elsewhere; intense demand for corn from the U.S. ethanol industry (an unprecedented shift of crop use from food purposes to fuel production); and higher producer expenses for fuel, petroleum-based fertilizer and freight.

Food commodity prices have been on a wild ride.  In its report, “Global Economic Prospects 2009,” the World Bank states that internationally traded food prices climbed by 138% between 2003 and mid-2008.  During 2010, wheat prices rose by 74% on the Chicago Board of Trade.  The U.N. states that January 2011 food prices were at record levels, based on records dating back to 1990.

Not to be overlooked when considering food industry trends is the potential effect of global warming on agriculture.  While the United Nations predicts that food production needs to increase by as much as 70% by 2050 due to a much larger world population and growing demand for food in nations with increasing household incomes, some scientists are predicting much lower crop yields in some areas due to higher average temperatures as global warming worsens.  On the other hand, some observers think that rising temperatures could increase the growing season and agricultural output in regions that currently have cold climates.  One potential problem is that higher temperatures may lead to increased drought in many agricultural areas.  Another potential problem is growing levels of greenhouse gases such as carbon dioxide and ozone.  While some observers believe that growing amounts of carbon dioxide in the air will increase plant growth, other scientists have a different opinion.  Steve Long, a researcher at the University of Illinois at Urbana-Champaign, has conducted open field trials of enriched carbon dioxide amounts in conjunction with the U.S. Department of Agriculture Research Service.  His trials, over a period of three years, found unexpected complications from high carbon dioxide levels, including increased lifespan of destructive Japanese beetles and reduced mineral content of soybeans.  Significant controversy over whether or not global warming is a problem, as well as the potential effects of greenhouse gases and higher average temperatures on agriculture, will ensue over the mid term.