Food, Beverage and Grocery OVERVIEW
The global food and agricultural industry for 2017 totaled about $8.1 trillion, according to Plunkett Research estimates, or about 10% of the world's GDP.
Global food exports totaled $1.35 trillion in 2016, according to the World Trade Organization (latest data available).
While it is obvious that food is of equal importance to all people on planet Earth, the relative cost of that food is not equal.
It varies widely due to such influences as location, local food industries and the availability of proper infrastructure for food transportation and storage.
Households in well-developed nations such as the U.S.
Canada, Singapore and countries in Europe, spend a relatively modest portion of household income on food, typically 11%-15%.
In less-developed nations, such as Pakistan, Nigeria and the Philippines, food make account for more than 40% of spending, making it hard for families to invest in education or health care.
In America, the average household spent $7,203 on food during 2016, up from $7,023 the previous year.
That included $4,049 spent on food for at-home dining, and $3,154 for dining out.
The retail grocery store and supermarket industry in the U.S., with 40,498 stores, totaled about $641.1 billion in revenues during 2017, up from $627.0 billion the previous year, according to U.S.
Department of the Census figures.
However, food products and beverages in America and elsewhere are sold at a wide
The global food and agricultural industry for 2017 totaled about $8.1 trillion, according to Plunkett Research estimates, or about 10% of the world’s GDP. Global food exports totaled $1.35 trillion in 2016, according to the World Trade Organization (latest data available). While it is obvious that food is of equal importance to all people on planet Earth, the relative cost of that food is not equal. It varies widely due to such influences as location, local food industries and the availability of proper infrastructure for food transportation and storage.
Households in well-developed nations such as the U.S. Canada, Singapore and countries in Europe, spend a relatively modest portion of household income on food, typically 11%-15%. In less-developed nations, such as Pakistan, Nigeria and the Philippines, food make account for more than 40% of spending, making it hard for families to invest in education or health care.
In America, the average household spent $7,203 on food during 2016, up from $7,023 the previous year. That included $4,049 spent on food for at-home dining, and $3,154 for dining out.
The retail grocery store and supermarket industry in the U.S., with 40,498 stores, totaled about $641.1 billion in revenues during 2017, up from $627.0 billion the previous year, according to U.S. Department of the Census figures. However, food products and beverages in America and elsewhere are sold at a wide variety of stores other than supermarkets. To get the full U.S. picture, it is important to consider food and beverage sales at 62,634 non-traditional food-sellers such as wholesale clubs and dollar stores, estimated at $478.2 billion by Plunkett Research as well as $193.4 billion in revenues at 161,052 convenience stores (not including convenience store gasoline sales).
The restaurant and bar industry accounted for another $678.6 billion in revenues in the U.S. during 2017, (up from $660.1 billion the previous year) according to the Bureau of the Census. The National Restaurant Association estimated that, for 2017, its industry would employ 14.7 million people at more than 1 million locations.
Estimates of total food 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. Also, the National Restaurant Association’s estimates of total annual revenues ($799 billion projected for 2017, up from $782.7 billion in 2016) are always higher than figures gathered by researchers at the Census, and both groups may miss revenues generated by caterers and other non-traditional prepared food sellers. On a broad basis, $1.90 trillion to $2.10 trillion is a reasonable estimate for total U.S. retail food and beverage industry revenues for 2017, with growth of about 3% expected for 2018, unless an economic downturn hits.
Outside the U.S., 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 the continuing fast spread of stores in China owned by Wal-Mart and its competitors. Nonetheless, outside of the major cities, much of the food retailing in emerging markets is conducted by very 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, grew very quickly in China, where it operates thousands of units in locations ranging from the giant metropolises such as Shanghai and Beijing to remote, smaller cities of growing importance. (Yum! has spun-off its China restaurants into a separate company.) Yum! Brands is a true leader in this regard, and it is already expanding in Africa, which is the next frontier in the emerging world. Yum! Brands’ success has spawned a great number of domestic competitors within China.
U.S. farm sector gross receipts for crops, livestock and other products were projected to be $363.1 billion in 2018, according to the U.S. Department of Agriculture.
America’s agricultural sector enjoyed $138.4 billion in exports in 2017, up from $134.7 billion in 2016 and $133.1 billion in 2015. U.S. agricultural imports in 2017 were $121.0 billion, up from 2016’s $114.4 billion and 2015’s $113.8 billion.
Aquaculture (fish farming) produced an estimated 168 million tons of fish globally in 2014, up from 66.1 million tons in 2010, according to the UN Food and Agriculture Organizations (FAO). By 2030, aquaculture is projected to provide two-thirds of total fish for human consumption. Fish farming is extremely active in the U.S. as well as in nations such as the Philippines, China, Norway and Vietnam. Tilapia, salmon and shrimp are among the leading products.
The global processed food and beverages industry is dominated by a handful of multinational corporations. Among the leaders are Unilever, Cadbury Schweppes, Kraft Heinz, Mendelez International (formerly part of Kraft Foods, Inc.), General Mills and Nestlé. Unilever, for example, estimates that 150 million people per day purchase its products, ranging from Knorr soups to SlimFast diet meals, in 150 nations around the globe.
According to Plunkett Research estimates, U.S. food production of all types, from animal processing to packaged foods manufacturing (but not including the agricultural sector), totaled about $800 billion in 2017, employing 1.6 million. This includes foods manufactured for export, but does not include tobacco products. Nearly 800 million additional people are employed in wholesale food distribution, plus more than 3 million employed in food and beverage stores.
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. As up and coming generations such as Generation Y (Millennials) become more important parts of the consumer base, consumers overall are having a very profound effect on the food products industry, driving change, making new demands and creating new opportunities for those companies that are nimble enough to take advantage of them. Consumers are worried about nutrition, the source of ingredients, the effects of chemical ingredients on their bodies, and in particular, the safety or health values of the food they give to their children. In nations and regions containing middle to upper income consumers, this is nothing less than a food industry revolution in the making.
Many new companies have arisen to take advantage of these trends, and they have often seen tremendous growth. Amy’s Kitchen, for example, a relatively new company, focused on more natural packaged meals has enjoyed soaring revenues and popularity for its vegetarian, gluten-free and non-GMO foods. Chobani, a pioneer in the Greek yogurt business, has likewise seen exceptional growth.
In North America, Asia, Europe and elsewhere, producers and retailers of foods (including restaurants) are faced with the challenge of positioning their brands to represent consistent quality and food 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. Changing tastes have been extremely hard on old-line food companies, ranging from McDonald’s, on the restaurant side, to Coca Cola on the beverages side and Kellogg, General Mills and Kraft Heinz on the packaged foods side (where profit margins have generally been very low).
The biggest recent news in cross-border investment in food companies is coming from Brazil. 3G Capital Partners LP, an aggressive, Brazil-based private equity company, has been buying up major North American food companies. In 2013, it acquired H.J. Heinz Co., with the assistance of funding from Berkshire Hathaway. It also acquired Burger King Worldwide and Tim Hortons, Inc., the well-known Canada-based doughnut chain. More recently, in early 2015, it announced that its H. J. Heinz unit acquired Kraft Foods Group, maker of cheeses and packaged foods. The merged companies, known as Kraft Heinz, own some of the world’s best known food brands and enjoy massive combined revenues.
Another firm very active in expanding through acquisitions is JAB Holding Company. JAB owns many of the world’s leading coffee and beverage brands, having recently acquired Keurig Green Mountain as well as Peet’s Coffee & Tea. In 2018, it announced the planned acquisition of soft drink maker Dr Pepper Snapple. JAB is also a global leader in consumer goods and cosmetics.
In the U.S. and Europe, where economies have been enduring slow growth over several years, consumers are shopping for bargains. Generic store brands are growing in market share while higher-priced name brands have suffered from slow sales. Supermarket chains such as Kroger, Safeway and HEB have been forced to modify their merchandising to meet the needs of cost-conscious shoppers.
Overall, private-label sales (in supermarkets, drug stores and mass merchandisers) declined to $118.1 billion in the U.S. in 2016 over the previous year, according to the Private Label Manufacturers Association. Supermarkets’ private label sales account for about 18.4% of all supermarket revenues. (This is the latest data available.)
In the U.S., Mexico and elsewhere, the supermarket industry is under attack by discounter Wal-Mart in particular. In America, Costco and Target are also strong competitors in retail groceries. (Wal-Mart gets substantially more than one-half of its U.S. revenues from grocery sales.) Vast changes have swept 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. Wal-Mart has by far the leading market share of American supermarket sales. Meanwhile, America’s leading drugstore chains, CVS and Walgreens, have been dramatically expanding their food and beverage departments.
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 that is 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 past 100 years. 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.)
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, good 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 Unilever, 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 significantly over time. From mechanized tractors, agricultural technology has moved on to become high-tech. Today, computerization has made marked changes in food distribution: 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.
Health concerns are significantly impacting all sectors of the food industry, as obesity levels have risen 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, a number that is likely more than $200 billion today. 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.
Meanwhile, the soda industry is going through immense changes due to consumer trends. At one time, soda manufacturers and marketers assumed that there was limitless worldwide growth to be enjoyed in soda sales. However, the real growth in beverages lately has been in bottled waters and energy drinks, while soda sales have been very disappointing. Bottled waters and energy drinks, such as Red Bull, have replaced sports drinks in some consumer’s budgets.
As a result, recent years have seen dramatic regrouping at PepsiCo and Coca Cola. This includes the fact that the firms announced their intent to acquire the massive companies that did much of their bottling under license agreements. These soft drink giants have attempted to cut costs, streamline operations and distribute new products.
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% from 2010 to 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. Another potential problem is that higher temperatures may lead to increased drought in many agricultural areas. Yet 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 an increased lifespan of destructive Japanese beetles and a reduced mineral content in soybeans.