2020 Vision

8 Global Trends That Will Dominate Food and Beverage Manufacturing in

the Next 8 Years


Tetra Pak works closely with food and beverage manufacturers around the world. Its our business
to help our customers make smart choices that grow market share and maximise profits. In 2011,
we commissioned an in-depth report comprising qualitative data and 50 interviews with
manufacturers and other beverage industry stakeholders. Our objective was to fully explore and
identify the key trends that are reshaping the industry, and help companieslarge and small, local
and multinationalunderstand the market pressures that will affect their business in the years to
come.

This document represents our top line findings: eight trends that will dominate the industry from
now until 2020 and beyond.

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Contents

Introduction...1
1. Plant efficiency is critical to long-term survival. .................. 3
2. Consumers demand more diverse products. ....................... 3
3. Food safety takes centre stage. ............................................ 4
4. Developing markets hold the key to success. ...................... 4
5. Sustainability becomes a core business practice. ............... 5
6. Retail brands gain market share. .......................................... 5
7. Company size matters as consolidation speeds up. ........ 6
8. The value chain gets a makeover. ......................................... 6
The next 8 years ...................................................................... 7



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Introduction

Food and beverage manufacturers have witnessed tremendous growth and change in the last
decade. Global players consolidated, the developing world emerged as a viable market, new
technologies afforded greater product diversity, and stringent regulations challenged manufacturers
to prioritise consumers and environmental health. In addition, manufacturers must manage high,
volatile costs, a tough economic climate, and increasing competition from powerful retail brands.

The industry is set to evolve even more rapidly over the next decade. How are todays smart
players planning to protect their business and expand their market share?

As the world's leading food processing and packaging solutions company, Tetra Pak works closely
with food and beverage manufacturers around the world. Its our business to help our customers
make smart choices that grow market share and maximise profits. In 2011, we commissioned an
in-depth report comprising qualitative data and 50 interviews with manufacturers and other
beverage industry stakeholders. Our objective was to fully explore and identify the key trends that
are reshaping the industry, and help companieslarge and small, local and multinational
understand the market pressures that will affect their business in the years to come.

This document represents our top line findings: eight trends that will dominate the industry from
now until 2020 and beyond.


1. Plant efficiency is critical to long-term survival.

Economic stagnationcoupled with increased costs of raw materials, utilities and labourare
putting pressure on manufacturers margins, especially in the developed world. To combat rising
costs in the coming years and meet the fast-evolving needs of the market, three strategies are key:

Rationalisation and focus on scale efficiencies, with smaller plants closing in favour of new,
large plants, and a reduction in the number of SKUs to cut the long tail and optimise plant
utilisation.

Environmental actions help minimise energy, water consumption, and food waste, with the added
benefit of helping manufacturers meet environmental requirements and the expectations of
consumer and institutional stakeholders.

New technologies enhance product utility and attractiveness in addition to optimising labour and
plant efficiency. Examples include direct injection-moulded closures/tops, caps made from green
plastics, innovative package shapes, and IT solutions that enhance production output and quality.

2. Consumers demand more diverse products.

Product differentiation has become a key competitive strategy worldwide. In the developed world,
an ageing population and general health-consciousness is driving the development of healthy and
functional foods and beverages. By 2020, countries worldwide will see an increase in the number
of people who are in their 40s and older. To meet the needs of these consumers, manufacturers
will offer health-oriented and functional foods and beverages.


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In the developing world, a growing market and a burgeoning middle class is creating demand for a
wider range of product and product variations, including size variations and more exotic and
premium choices.

3. Food safety takes centre stage.

Throughout the world, but especially in Western Europe, North America, and Asia Pacific, food
safety is increasingly important. There are three drivers responsible for this trend:

1. The growth of a discerning middle class in developing markets
2. An increasingly ageing and health-conscious population worldwide
3. Scarce food resources protected by higher agricultural and food production standards

Consumers and legislators alike are demanding greater transparency and compliance when it
comes to the food safety. They want to know where the ingredients come from, how they were
grown, and how they were processed. Manufacturers are responding by raising their quality
standards, tightening internal quality control, ensuring raw material quality, and using fewer
additives in their products. Manufacturers may develop a set of in-house quality standards, adhere
to third-party standards (ISO, HACCP, SGF), or use a combination of internal and external
controls.

In the coming years, global consolidation will continue to drive up safety standards worldwide, as
will growing consumer interest in these issues and the increased use of new ingredients in food
products. Increasing access to the Internet will also allow consumers to discover and act upon food
safety issues more rapidly.

4. Developing markets hold the key to success.

As growth begins to slow in the developed world, manufacturers are looking towards new markets
to achieve overall long-term growth. While the US market is saturated, Mexico and Brazil continue
to mature, the consumer population in Russia and China are growing rapidly, and India and
Indonesia are also emerging as potent markets.

The combination of a burgeoning population and the rapid rise of a strong middle class offer
tremendous potential. Todays mass media is accelerating the trend by promoting Western
consumption habits and creating awareness of global brands. The cost of market expansion is
offset by the potential to find new economies of scale in production, logistics, and marketing
operations.

Consider these facts:

The Middle East and Asia Pacific are forecast to have the highest GDP growth of any
region in the world: 4.9% compared to North America at 1.2%
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In India, the number of households with an income of USD$25,000 will increase from

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Euromonitor, Passport

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13.5% to 53.2%
2
In China, the number of households with an income of more than USD$25,000 per annum
will increase from 11.5% to 42.8%

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Global manufacturers are capitalising on new market potential using several strategies, including
leveraging local marketing tools (such as local social media networks or local sports teams or
events), partnering with or acquiring local manufacturers, and adapting existing products to meet
local market needs.

In the coming years, manufacturers can expect to see their competitors focus on increasing their
market shares in the growing markets, with the dominance of global players increasing as they
acquire local companies in these areas.

5. Sustainability becomes a core business practice.

Waste reduction, the efficient use of resources, and social responsibility will play a growing role in
manufacturing operations for the foreseeable future. In the developed world, this trend can be
attributed to legislative requirements, the growing cost and scarcity of resources, pressure and
demands from environmentally conscious consumers, and operational efficiencies (and
corresponding cost savings) made possible by new technologies.

Globalisation and industry consolidation will accelerate the deployment of green strategies in
developing countries, as global companies establish a growing presence in these markets and
bring developed-world sustainability standards with them.

Scarcity of resources will drive companies to use renewable packaging materials and strive for
greater optimisation of the entire production process.

6. Retail brands gain market share.

Retailers in the developed world have been strengthening their own in-house brands and
developing of premium product lines. This has created a crowded marketplace in which
manufacturers must adapt to ensure a healthy market share. Although retail brands are not
currently popular in developing markets, this will change rapidly as a growing urban population
increases retail development and globalisation drives growth and diversity in overseas markets.

Manufacturers are using several strategies to protect their market share in the face of the growing
prominence of retail brands:

Strengthen the brand image. Some manufacturers are choosing to invest in building
stronger, more differentiated brands. By launching new, improved, and seasonal offerings,
they can stand out against conventional in-house retail brands.

Move into premium categories. Because retailers tend to focus on economy brands,
manufacturers are shifting their focus to premium products containing unusual, higher-

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Euromonitor
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Euromonitor

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quality, functional, or organic ingredients.

Increase co-packing activities. New packaging technologies make it easier, faster, and
more affordable for manufacturers to switch to private label manufacturing or manufacture
them in conjunction with their own branded products.

Find alternative sales channels. Some manufacturers are bringing products to
consumers in ways that retailers cant match, such as vending machines and consumer
foodservice channels.

As private-label products start appearing in developing markets, and as retailers in developed
markets develop private-label premium products in response to growing consumer demand,
manufacturers will need to have strategies in place for maintaining profitability and market share.

7. Company size matters as consolidation speeds up.

In the coming years, company size will matter. In the developed and developing markets alike,
manufacturers are consolidating or acquiring key members in the value chain so that they can
enter new markets, increase negotiation power, widen portfolios, increase production volumes, and
secure more stable raw material supplies.

Acquisition and consolidation strategies allow manufacturers to:
Limit competition and ensure market share
Diversify and protect raw material supplies
Benefit from economies of scale and promote growth and innovation
Provide enhanced customer service nationally
Achieve greater flexibility in catering to multiple distribution channels

In the past two years alone, the manufacturing landscape has undergone a massive global
consolidation, led by industry giant such as PepsiCo and Coca Cola. The strong trend in
acquisitions is expected to continue, especially in the developing regions, with smaller
manufacturers cooperating with global players and retailers, or falling back on niche segments.

8. The value chain gets a makeover.

With limited economic growth in developed countries and the need to ensure sales growth and
product diversification in developing markets, manufacturers are looking for new ways to increase
profit margins and differentiate their products. They are securing access to premium, exclusive, or
exotic ingredients, which may require controlling the supply chain more closely. They are also
investing in new communication technologies essential to tightening the supply chain and
managing key elements (inventory and shipping, for example).

Examples of value chain restructuring include:

Establishing partnerships or even acquiring local growers to ensure stable raw material
supply and promote products of local origin
Acquiring distribution and bottling companies so that they can more closely control the
supply chain or reduce associated costs.

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Securing bilateral supply agreements with the international growers in order to ensure
supply diversity and to minimise possible risks of the supply shocks
Coordinating more closely with retailers to address changing consumer preferences and
remain competitive
Modernising and streamlining the supply chain by adopting new strategies and
technologies

The trend to control and restructure the value chain is expected to continue in the future, as
manufacturers continue to consolidate, protect against scarcity, and explore new ways to increase
profit margins.

The next 8 years

As complex market influences continue to evolve, the years between now and 2020 unfold in
unexpected ways. The future is never crystal clear, but quality research and intelligent analysis can
light the path forward to continued success.

With 60 years of expertise in packaging and marketing foods and beverages worldwide, Tetra Pak
has a breadth and depth of knowledge about the food and beverage marketplace that no other
company can match. Now, more than ever, our market intelligence, compelling branding, fresh
ideas, and innovative technologies can make all the difference in helping companies reach
ambitious goals.

These research results are just the beginning.

These research results are just the beginning. Contact us for more information on how Tetra Pak
can help your business grow.