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The State of the Food Industry Today, Business and Industry Trends Analysis

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 2 billion people per day purchase its products, ranging from Knorr soups to SlimFast diet meals, in 190 nations around the globe.
According to U.S. Department of Agriculture (USDA) estimates, U.S. food production of all types, from animal processing to packaged foods manufacturing, will total about $586.2 billion in 2023, employing 1.73 million people.  This includes foods manufactured for export but does not include tobacco products.
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 emerged 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.
In the U.S., Mexico and elsewhere, the supermarket industry is under attack by discounter Walmart in particular.  In America, Costco and Target are also strong competitors in retail groceries.  (Walmart 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.  Walmart 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. 

Internet Research Tip: Agriculture Outlook

     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 1.6% of the U.S. workforce is employed on farms.  The total number of American farms is down to a little less than 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 much more than $200 billion today.  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.
Internet Research Tips:
Here are some useful web sites you won’t want to miss.  Also, see our “Contacts” chapter for hundreds of resources hand-selected by our editors.  (Plunkett Research Online subscribers should use the “Organizations and Associations” tool.)
The Food Institute
Tools available at this web site include food industry news, international news, food regulation and food market reports.
Economic Research Service of the USDA
The ERS is the main source of economic information and research from the U.S. Department of Agriculture.  Its web site provides a wealth of information on topics from nutrition to food consumption to biotechnology and agriculture.
Academy of Nutrition and Dietetics
This organization's web site offers consumers a respected source for nutrition information and healthy eating tips.
National Restaurant Association
On this web site, you can learn everything you ever wanted to know about the restaurant business, from industry research to how to open a restaurant.
International Food Information Council’s Food Insight
This web site communicates a wealth of science-based information on food safety and nutrition and provides extensive research tools.

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