Transcript Slide 1

Change Imperative within the Food & Drink
Industry.
FDII Annual Conference
April 27th, 2006
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©2006 Deloitte. All rights reserved
Deloitte Overview
Deloitte
Audit
Tax
Consulting
Corporate
Finance
Deloitte has been advising clients since 1845
12 consecutive years of revenue growth
Irish Offices in Dublin, Cork, Limerick and Belfast
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©2006 Deloitte. All rights reserved
Clients in the Food and Beverage Industry
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©2006 Deloitte. All rights reserved
Deloitte - “Famous for Food”
Check out Deloitte.com for our latest publications
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©2006 Deloitte. All rights reserved
What‘s Happening?
Trends and Events affecting the Food and Drink Industry
International Market
Domestic Market
• Health & Food Safety
• Shift in Cost Base & focus on
cost
• Changing Lifestyles and Retail
Behaviour
• Food Deflation, Discounting and
the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
Change
Imperative
• Re-structuring of the Grocery
Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
Source: Deloitte Analysis
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©2006 Deloitte. All rights reserved
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©2006 Deloitte. All rights reserved
Food Safety through the years
• 2006 – Avian Flu?
• 2004: “Sudan 1” red dye
– Illegal dye, classified as carcinogenic.
– Found in various UK food products, e.g. pesto, chilli products, curry sauce.
• 1997: E.Coli food poisoning
– Outbreak in Britain.
– 20 deaths in Scotland.
• 1992: Listeria in French cheese and pork
• 1989: Salmonella in British eggs
– 23 people died.
– £25 million government rescue package.
• 1985: Antifreeze in Austrian and Italian wines
– At least 21 people died.
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Concerns Over Food Safety
• A Deloitte survey of executives in the food industry showed that product traceability is
a key concern for all respondents (100%). 57% believe that food safety will only
increase in importance.
• Related concerns about ethical employment in the supply chain and environmental
impact simply add to growing challenges faced by the industry.
• Governments responding with increased legislation and the EU directive 178 that
came into effect in 2005 - Article 18 of this directive addresses traceability specifically.
• Almost half of respondents to the survey feel that poor collaboration in the supply
chain is a real barrier to food safety. The perception is that the greatest risks are “up
the supply chain”.
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Traceability from “Field to Fork”
Harvest
Initial
Processing
Process Steps
•In-process
• ID &
measure
handling
• Stock &
monitoring
• Pest &
Treatment
history
• Growthstage
monitoring
•Piece ID
and
optimum
usage
scenarios
•Storage
monitoring
(temp &
humidity)
Laboratory /
QA
•Physical,
chemical,
and
biological
testing
•Hazard
analysis
•Storage of
lab data
with crossreference to
inventory
Manufacturing /
Transformation
•Planning & Control
of production
•Resource allocation
•Tracking of material
movement,
splitting,
combining,
consumption, &
production
•Plant diagnostics
and online HACCP &
SPC/SQC
Logistics
Retail / Risk
Management
•Tracking of
product
movement
•Consumer
package
tracking
•Automatic
generation
of labels &
shipping
documentation
•Consumer
habit and
demand
tracking
•Genealogy
back to
production
and origin
history of all
ingredients
Enabling Technologies
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International Trends – Changing Lifestyles and Retail Behaviour
• Convenience Shopping
– “Food on the Go”
– Prepared Foods / Meal Solutions
– Eating Out
• Retailer Brands
• Innovation
• Successful Collaboration & Account Management
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International Trends – Stalled Food Prices
Food & Non Alcoholic Beverage Price Index (2005 = 100)
102
101
100
99
98
EU15 All Goods
DE Food
97
UK Food
IE Food
96
95
94
93
2002
2003
2004
2005
2006
Source: Eurostat
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Stalled Pricing - Retail Reaction
1. “Food
Deflation”
6. Focus on
Brand Leaders &
Own Label
5. Category
Range Review
4. Pressure on
Space for Food
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Distribution for Mid Range Products
Under Threat
2. Retailer
Margins Reduce
3. Non Food
grows
within the mix
©2006 Deloitte. All rights reserved
International Trends: Concentration of Retailers
Top 10 Retailers
2001
Top 10 Retailers
2005
2000/01
Sales $m
1
Walmart (US)
191,329
2
Carrefour (Fr)
59,703
3
Kroger (US)
49,000
4
Home Depot (US)
45,738
5
Metro (Germany)
42,439
6
Ahold (NL)
41,539
7
Kmart (US)
37,028
8
Albertson’s (US)
36,762
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Sears (US)
36,548
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Target (US)
36,362
2004/05
Sales $m
No.
Operating
Countries
1
Walmart (US)
285,222
10
2
Carrefour (Fr)
89,568
35
3
Home Depot (US)
73,094
5
4
Metro (AG)
69,781
29
5
Tesco (UK)
62,505
13
6
Kroger (US)
56,434
1
7
Costco (US)
47,146
8
8
Target Corp. (US)
45,682
1
9
Ahold (NL)
44,793
8
10
Aldi (Germany)
42,906*
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America
Europe
Asia
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Source: Deloitte
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International Trends: Manufacturer Consolidation
300
Bestfoods / Unilever $25B
Nabisco / Altria $19B
Quaker Oats / Pepsi $14B
Diageo / General Mills $10B
2000
2001
Miller / SAB $5.5B
S&N / Spirit Group $4.2B
Interbrew / Ambev $11.9B
250
200
150
100
50
0
Agricultural Production
2002
Food Processing
• Gillete / Procter & Gamble $57B
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Food Retailers
2003
2004
Food Wholesalers & Distributors
• Pernod Ricard / Allied Domecq $13B
Source: The Food Institute Report
©2006 Deloitte. All rights reserved
International Trends: Imperatives for FDII Members
• “Best in Class” Supply Chain Integrity
• Continued Focus on Innovation
• Brilliant Customer Relationships
– Account Management
– International / Global Partner?
• Be Prepared for the Opportunities & Threats from Consolidation
– Local, Mid - Range Brands are available!!
– Loss of Agency Rights
– Competition for Shelf Space
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©2006 Deloitte. All rights reserved
What‘s Happening?
Trends and Events affecting the Food and Drink Industry
International Market
Domestic Market
• Health & Food Safety
• Shift in Cost Base & focus
on cost
• Changing Lifestyles and Retail
Behaviour
• Food Deflation, Discounting and
the response of the Grocers
• Consolidation & Globalisation
• WTO & Free Trade
Change
Imperative
• Re-structuring of the Grocery
Sector & Supply Chain
• Removal of Groceries Order
• European Sourcing
Source: Deloitte Analysis
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16-Jul-15
©2006 Deloitte. All rights reserved
Re-Structuring of Irish Grocery Supply Chain
• Market Concentration
– Multiples
– Symbols
• Centralised Distribution
• Implications for Wholesale and Cash and Carry
– And for Servicing of Independent Retail and HORECA channels
• All Island Dimension
• Difference from UK:– Importance and Sophistication of Convenience Format
– Planning Guidelines, with respect to Store Size and Location
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Groceries Order
Long terms effect on commercial & pricing approaches
Current
Future
• Significant Portion of Discounting
Off Invoice (Marketing Agreements)
• Greater Portion of Discount On
Invoice or Volume related Rebate
• Ability to establish “Floor”
• Share of Pool will Migrate towards
Larger Accounts
• Relationship Dependent
• Arrangements had developed over
time
• More Specific “Contracting” for
Trade and promotion monies
• Occasional Wars on Brand Leaders
• No / Low Level of Visibility
• Greater internal focus on deals, and
greater central control over pricing
decisions
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European Sourcing
• Outsourcing & Offshoring are here – it’s a case of Economics
• Branded Goods at risk from Imports – Particularly Alcohol.
• Non Branded Commodities provided through “Outsource” or “Generic” format.
• European Sourcing will grow because the market is demanding it.
• Rising Energy Costs
• Food Safety Concerns
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Domestic Trends: Imperatives for FDII Members
• Cost Leadership is a MUST
• Restructure your Operating Model to reflect the changed environment
– Supply Chain
– Sales & Customer Service
• Sophisticated Pricing Approach
• Embrace European Sourcing Opportunities and Threats
– Be proactive!!
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Summary
Strong Imperative for Change within the Food and Drink Industry
DO’S
DON’TS
• MAINTAIN QUALITY & INTEGRITY
• IGNORE THE ECONOMICS
• HAVE A STRATEGY FOR GROWTH
• LOOK FOR SILVER BULLET:
PERFORMANCE REQUIRES
EXCELLENCE
• INNOVATE TO MEET CONSUMER
NEEDS (or niche)
• BUILD CUSTOMER MANAGEMENT
CAPABILITY
Continued
Success
• STRATEGY TO STAND STILL –
OFFENSE NOT DEFENSE
• UNDERESTIMATE YOUR ABILITY
• RE-STRUCTURE OPERATING MODEL
Source: ....
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©2006 Deloitte. All rights reserved