INTRODUCTION:

The food and beverage sector includes companies that are involved in the production of packaged foods, meat or agricultural products; alcoholic and non-alcoholic beverages. The food and beverages industry is all companies involved in processing raw food materials, packaging, and distributing them. This includes fresh, prepared foods as well as packaged foods, and alcoholic and nonalcoholic beverages. Any product meant for human consumption, aside from pharmaceuticals, passes through this industry.

OBJECTIVES:

Industry Composition:

Deriving from the agriculture industry in our definition, the food and beverage industry is divided into two major segments. Those two segments are production and distribution of edible goods. Production includes the processing of meats and cheeses and the creating of soft drinks, alcoholic beverages, packaged foods, and other modified foods. The production segment of this industry excludes foods that were directly produced via farming and other forms of agriculture, as those are encompassed by our definition of the agriculture industry. Distribution involves transporting the finished food product into the hands of consumers. The industry is much more focused on technology and mechanical manipulation of raw foods to create more value-added food products than the agricultural industry. Under our definition of these industries, grocery stores are excluded as they are considered a retail store by our definition. Distribution includes companies that ship food to retail outlets, restaurants, or directly to consumers

Food and beverage sector overview of 2013: Due to the recent economic meltdown, consumers are looking to save as much money as possible. One major way that consumers are doing so is by purchasing more generic foods and making their own meals, not going out to eat. However, food products and beverages in America and elsewhere are sold at a wide variety of stores other than supermarkets. 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 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, Americas Yum! Brands, operator of KFC and Pizza Hut, is focusing its growth on China, where it already operates more than 4,000 units in locations ranging from the giant metropolises such as Shanghai and Beijing to remote, smaller cities of growing importance. 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. The large amount of obes 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 Group, Mendelez International (formerly part of Kraft Foods, Inc.), General Mills and Nestl. 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) will be an $850 billion industry employing 1.565 million in 2013. 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. The processed food industry worldwide has been hindered by 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. In the U.S. and Europe, where the economies have been facing slow growth, consumers are shopping for bargains. Generic store brands are growing in market share while higherpriced 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. Meanwhile, Americas leading drugstore chains, CVS and Walgreen, are dramatically expanding their food and beverage departments. Discount chain Target has put an increased emphasis on its grocery sales as well.

Overall, private-label sales (in supermarkets, drug stores and mass merchandisers) grew 3.92% to reach $92.7 billion in the U.S. in 2011 over the previous year, according to the Private Label Manufacturers Association. 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. McDonalds 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, 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. 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 have attempted 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 food safety. Companies that rise to this challenge will have significant competitive advantage.Today, high food prices are a stark contrast to the cheap food era of 1974 through about 2000. For decades, improving farm technologies and highoutput, genetically modified seeds had consistently dampened food costs. 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. Nonetheless, food prices are likely to remain relatively high, particularly if agricultural supplies, including fuel and fertilizer, remain at high prices. Droughts also have a dramatic impact on global food prices. 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 UrbanaChampaign, has conducted open field trials of enriched carbon dioxide amounts in conjunction with the U.S. Department of Agriculture Research Service Rising costs of factors of production are a major factor to this industry as well. Since commodity prices went up in the past year, food companies have had to increase prices of the final product as well. With the economic collapse, this affected them two-fold, as consumers were less likely to want or even have the money to pay the higher prices.

The industry also has to deal with their reputation, as there have been incidents of unsafe food being released in the past. These outbreaks have to major potential consequences: loss of consumer confidence and increased regulation. Already, research has shown that consumers do not trust their food suppliers as much as they used to and nearly half of them have switched brands in the past year, either to save money or because they believe the new food will be safer. Government control of the food process has increased with the passage of new laws as well. In addition, corporate and brand reputations are expected to become increasingly important, as consumers are trying to stretch their dollar further and competition is increasing. With the increase in competition, the only way companies can separate themselves from others is by brand recognition. Consumers are now very concerned with the reputation of a company, or their brand image, with respect to the safety and quality of product. Very high raw material price volatility has been a factor of uncertainty affecting inputs for several years. The resulting lack of visibility is exacerbated by exchange rate fluctuations with raw material prices denominated in dollars or pounds sterling. While price declines have largely benefited the industries in 2009 the trend has tended to reverse since autumn with upturns in the prices for wheat, soybeans, and corn and spectacular growth of the prices of sugar, tea, coffee, orange juice, and cocoa (attributable to poor weather fears of supply shortages, strong demand, and the growing proportion of arable land devoted to raw materials intended to substitute for fossil fuels). Sector industries, particularly confectionery, are ultimately expected to hedge their supply needs on a yearly basis to limit the impact of such price increases on their margins. This will constitute an additional factor of risk for smaller companies lacking the financial management tools to protect themselves against such risks. Health risks constitute another element of uncertainty with some industry segments particularly exposed, especially poultry and pork-based dishes. Climate change and water scarcity will have a big impact on the food and beverage industry in Asia, due mainly to the changes in growing conditions for key agricultural inputs. climate change and water scarcity can have the following impacts on the sector:

Raise agricultural commodity prices and increase price volatility by decreasing yields.

Increase processing costs through operational disruptions and treatment costs. Create food safety challenges and conflicts with local communities over resource use

Analysis:
Growth Drivers of F&B companies Growth drivers of the F&B industry in developed countries are different from those in the developing countries. While growing population, favorable demographics and rising income levels are expected to be key drivers in developing countries, rising health consciousness and increasing need for convenience foods are expected to drive growth in developed countries. Emerging economies are expected to offer maximum opportunity for growth in the F&B industry, mainly led by rising population and income levels. In developed countries, consumer preferences are expected to shift toward high quality, nutritional products and pre-packed and home-cooked food. At the same time,unlike developing nations, population growth in developed countries is expected to remain almost stagnant. Hence,F&B players will focus more on product differentiation to increase market share. In addition, the scarcity of fossil fuels worldwide is spurring the use of biofuels such as ethanol. This trend will give an impetus to food players involved in the production of corn or similar agricultural raw materials that are used for the production of biofuels. Trends in Food Retail large companies with abundant cash reserves in the current fiscal year were able to continue expanding as well as acquire middle market companies that were struggling to raise funds for expansion.The food retail business is largely driven by consumer preferences. Affected by the global slowdown, consumers have become price conscious and prefer convenience foods. Sales of frozen foods thus jumped after the financial crisis as these foods are cheaper and can be made at home made easily.Customers are now purchasing less expensive, often lower margin products, leading to a dilution in distributors earnings. In addition, rising food and oil prices(leading to increased cost of transportation) are also eating into margins of distributors. The retail business is a mature industry in developed countries with the presence of many large retail chains.With the influx of large international players in the retail industry of developing countries, smaller and fragmented domestic players are likely to expand as well as consolidate to stave off international competition and capture the rapidly growing domestic market. Government Role in the Industry Driven by the recent rise in food prices and food scarcity faced by various countries, food security has begun to gain importance, with various governments taking an active role in agricultural development. In line with this, the G8 countries pledged to spend $20 billion USD for agricultural development over the next two years. TRENDS: These trends gave an impetus to frozen foods as wel as niche areas such as organic foods and diet foods.3types Trends in Heath Food

 Diet Food: opportunities in the health and wellness sector in developed countries In line with rising health awareness, most major food companies such as Nestl and Unilever are revamping their product offerings to also concentrate on nutritional. items Stevia: increasing acceptance as it is a natural (herbal) sweetener and has a low-calorie count.Currently, China is the largest producer of stevia globally,while Japan and Korea are the largest consumers of stevia. Coconut Water: of the $19 billion USD6 global market for sports recovery drinks driven by its natural hydrating qualities, great taste and nutritional benefits. Trends in Low Cost Food Frozen Food: as they minimize wastage and reduce trips to the supermarket. Frozen foods are also easy to make.Going forward, consumer demand for convenience foodand increasing health consciousness are expected tocontinue driving growth in this sector. Key players in this sector include Japan-based Nichirei Corporation and Belgium-based PinguinLutosa. Trends in Premium Food Premium Chocolate: The premium chocolate segment recorded an 18 percent rise in sales last year despite the economic recession. A wider range of premium chocolates, health benefits.However, led by the rising urban population in Russia and China, these countries are emerging as the new market for premium chocolates.Most global chocolate makers such as Hersheys, Mars, Cadbury, French retailer Champion and Booja Booja have presence in this sector