Food processing is one of the largest manufacturing sectors in the US; the domestic market for processed and packaged foods reached $429 billion (retail prices) in 2006. It is set to continue growing steadily as demand for processed food remains high. The maturity of the market is encouraging manufacturers to sell directly to restaurants, as well as conventional retail outlets.
The largest sector of the industry is dairy foods, which accounts for 22.8% of revenues, representing $98 billion. A further 12.9% is generated by bakery and cereals, and 11.5% is from chilled foods. Other major sectors include meat, fish and poultry, frozen foods and confectionery.
Cash-rich, time-poor consumers are driving demand for processed convenience foods in the US, where a vast amount of the expenditure on food goes on meals prepared away from home. The progress towards healthier eating, such as reduced consumption of trans-fat, as it is now specified separately in ingredient lists, has encouraged the use of genetically modified supplements. GM crops also increase productivity per hectare and so reduce the cost of raw materials for processed foods.
Leading companies include Unilever, Archer Daniels Midland Company, Kraft Foods, Tyson Foods, and Bunge. Companies have introduced healthier products in response to consumer demand and obesity concerns. Health concern groups and companies have formed alliances to give grants to childrens groups for programs to improve health and nutrition, a move that should enhance public perceptions of the companies. Cost efficiencies have been generated through consolidation, while some larger companies have divested operations to ensure focus on core products.
Consumer Lifestyle - Increasingly time-poor, cash-rich consumers are demanding convenient processed foods with extended shelf lives. In return, consumers are willing to pay a premium, which is driving growth in the market.
Government Legislation - Government regulations have been introduced requiring clear labeling of trans-fats content in packaged foods. The Food and Drug Administration claim this additional label will reduce the risk of cardiovascular disease, and it is estimated that over a billion dollars a year will be saved in medical costs and lost productivity. Companies will incur additional costs in order to achieve compliance; however, it is
Biotechnology - The US is the largest grower of genetically modified (GM) crops. They enable high yields, reducing the price of the agricultural products. Consumers generally accept these foods, however, a slowdown in GM food sales may be attributed to long-term health and environmental concerns.
Increasing Costs - High oil prices have inflated costs for raw materials, packaging and transportation, whilst detracting from consumer spending. Due to the high levels of competition in food retailing, it is difficult for processors to pass these costs on, which has resulted in severe pressure on profit margins.
Healthy Products - Companies are developing new products and brands to attract custom from more health-conscious consumers. Consumers are increasingly realizing that fad diets such as low-carbohydrate are not realistic long-term solutions to their health problems, and are concentrating on their overall well-being. Many players have also sought to exploit the growing niche market for organic food, in order to drive revenue growth.
Reduction of Brand Portfolio - The divestment of non-core operations allows for focus on the core products of a brands portfolio. Several major players have sold off production lines to concentrate on the products and brands that offer long-term growth opportunities.
Consolidation - Food processors are using the acquisition of well-known brands to create inorganic revenue growth. These consolidation moves are also driven by the need to create cost efficiencies, including enhanced purchasing power, capitalize on emerging markets, and defend top lines against fluctuating demand with a diverse range of products.
The processed food market consists of the total revenues generated through the sales of bakery and cereals, canned foods, chilled foods, confectionery, dairy food, dried food, frozen food, ice cream, meat, fish and poultry, oils and fats, pasta and noodles, ready meals, sauces, dressings and condiments, savory snacks, soup and spreads. The market is valued at retail selling price (RSP).