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The world’s leading food and beverage manufacturers are continuing their recessionary tactics and cost-saving exercises along with an increasing drive for international expansion in a bid to capitalize on opportunities for growth in emerging markets, where some have weathered the economic storm better than developed nations.
Macro economic drivers are reshaping the face of the industry like never before, with many of the big players now deriving over half of their income from outside their core home markets. In addition, the Top 100 list welcomes some new kids on the block from Brazil, China and Japan, which now hold leading positions.
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“2010 was the last year that the developed world accounted for a higher proportion of our sales than new economies,” says Franck Riboud, CEO of Danone, which entered into a joint venture at the end of last year with Russian dairy Unimilk to create Danone-Unimilk-the number one player in the Russian dairy products market. “In 2010, these economies contributed 39 percent and will automatically pass the 50 percent mark in 2011. In the near term, Russia will move ahead of France and Spain — where we have our roots — and an emerging economy will thus become our largest market.”
Danone, which has slipped from its number 12 slot in the listing to 13th place this year, is like all the major players. It is looking to invest in markets with “high growth potential and rapid returns.”
China is forecast to become the largest grocery market in the world, overtaking the US in 2012, largely due to the impact of the prolonged US recession and quick recovery in China, according to the latest figures from the Institute of Grocery Distribution (IGD). Russia is following suit with its grocery market predicted to double over the next four years, taking it from the seventh to fourth position globally. India will reach third place in 2015. Brazil current ranks fifth and has overtaken France for the first time this year.
“It is not surprising that the BRIC [Brazil, Russia, India, China] countries are forecast to be in the top five global grocery markets. The effect of the global recession on developed markets has accelerated their relative growth, and the pace at which their economies are developing is phenomenal,” says Joanne Denney-Finch, chief executive of IGD. “Many manufacturers have already built a strong presence in these countries, but for those that haven’t, it is vital that they incorporate the BRIC markets into their strategic planning in order to sustain business growth.”
At the top of the list, Nestlé has just partnered with Chinese confectionery company Hsu Fu Chi, which produces sugar confectionery, cereal-based snacks, packaged cakes and the traditional Chinese snack sachima, to reinforce its presence in China. PepsiCo has joined its Mexican bottling forces with the Mexican beverage company GEUPEC (Agrupo Embotelladoras Unidas SAB de CV) and the Venezuelan food and beverage giant Empresas Polar to form a nationwide beverage company in Mexico. In addition, Kraft Foods has just completed a $200 million investment in expanding its manufacturing facilities in Brazil.
“Brazil is one of 10 priority developing markets where we’re making big bets,” says Sanjay Khosla, president, Kraft Foods developing markets. “Today, we’re among the fastest growing consumer goods companies in markets like Brazil, India and China. We’re excited to build on what’s working by making our biggest investment in Brazil in more than 10 years.”
The company continues to optimize its purchase of Cadbury that it says will bring $750 million in cost synergies, and states that nearly 60 percent of its revenues are now generated outside of the US. (For information about Kraft’s creation of two independent companies, please see page 14.)
Yet, in those emerging nations, lead players are themselves tapping into external market opportunities and flouting their economic strength across the globe.
Brazilian meat businesses are making significant inroads in the ranking with entrants such as Marfrig joining the list. Fellow Brazilian meat protein company JBS now occupies a compelling sixth place just behind The Coca-Cola Company. Brf Brasil Foods, which was formed by the merger in 2009 between Perdigao and Sadia, sits at number 46.
New in at number 29, Marfrig Group was propelled to the top by acquiring companies such as Keystone Foods in the US and Cargill’s animal proteins business Seara Alimentos in Brazil. Its gross revenue of R$17 billion represents a dramatic growth of 65.5 percent since 2009, buoyed by its acquisitions, the strengthening of the Brazilian currency and the increasing demand-over-supply of meat products.
Marfrig announced earlier this year that it has now entered into two joint ventures in China through its Keystone Foods subsidiary. Representing an investment in the region of $252 million over 10 years, the joint venture with COFCO provides logistics and distribution services, while the Keystone-Chinwhiz Poultry vertical integration joint venture will give Marfrig the capacity to process 200,000 birds per day and supply 50 percent of the raw material for Keystone’s processing unit in the region.
“Marfrig has unquestionably become one of the largest and most diversified global food companies,” says Marcus Antonio Molina dos Santos, Marfrig’s chairman, who states the company made more than 40 acquisitions in the past four years.
JBS has shot to the number 6 slot from 19th position last year. Its international expansion began in 2005 with the acquisition of Swift in Argentina; in 2007 JBS acquired Swift assets in US and Australia, which extended its presence into both the beef and pork sectors. It went on to purchase Smithfield’s beef business, Pilgrim’s Pride to enter the chicken market and Bertin to open up activity in dairy, pet food and biodiesel. JBS now claims to be the world’s largest beef exporter and sells its products in more than 100 countries. JBS says that by diversifying its product offerings, it has added protection against risks in terms of geographic operation and supply of raw materials as well as sector performance and demand.
Dairy powerhouses
Further demonstrating the influence of emerging economies on the global food and beverage industry coupled with a rocketing growth in dairy activities is the arrival of two more Top 100 newcomers: the Chinese dairies Mengniu and Yili, which entered the Top 100 ranking at number 72 and 88 respectively.
“Dairy is in a real sweet spot, with huge and growing opportunities across Asia, the Middle East and Latin America, a result of a global population growth and trends toward foods with health and nutrition benefits.”
“In 2010, China’s rapid and sustained economic growth created favorable conditions for the steady growth of its dairy industry,” says Yang Wenjun, CEO of Mengniu, which has focused on high-end dairy products with launches such as Milk Deluxe Chunxian (a milk product fortified with phytosterol esters and fiber) and the addition of DHA algae to its Future Star Milk. “During the year, Mengniu imposed stringent cost control measures, carried out structural reform and identified new opportunities for business. We successfully acquired Shijazhuang Junlebao Dairy Co., the largest yogurt manufacturer in northern China, and this competitor then became our partner to create synergies in terms of milk sources, markets and channels. Aiming for inclusion among the world’s Top 10 dairy companies and internationalization, the group has formulated a clear business strategy to nurture core competencies.”
Fellow Chinese dairy Yili Group shares Mengniu’s goal of entering the world’s Top 10 dairy companies-a goal that was boosted by its activities at the Olympic Games in 2008 and World Expo in 2010 in China. Yili has also turned its focus increasingly to added-value products. Fortified dairy products now account for 40 percent of its total sales.
“Dairy is in a real sweet spot, with huge and growing opportunities across Asia, the Middle East and Latin America, a result of a global population growth and trends toward foods with health and nutrition benefits,” says Sir Henry van der Heyden, chairman of Fonterra, the New Zealand dairy company that is soon to welcome new CEO Theo Spierings, who led the Dutch farmer dairy cooperative Royal Friesland Foods in its merger with Campina in 2008. Spierings takes over from Andrew Ferrier who has led Fonterra for the past eight years. Fonterra is up to position 21 from 25 in this year’s ranking.
As part of its strategy for growth, Fonterra is actively tapping into international potential with investments in Asia and the Middle East, Latin America and its home markets of Australia and New Zealand.
“China is a market that has become increasingly important to Fonterra, and in 2010, it represented our largest single market for ingredients sales,” says Ferrier, who highlighted the reintroduction of the company’s Anlene brand (that supports bone health) in China during the year.
Another new dairy entrant at number 52 this year is DMK-the result of a merger between Germany’s two largest milk processing cooperatives, Humana Milchunion and Nordmilch, creating Germany’s largest dairy company. Designed to “secure a leading position as consolidation continues in the European dairy industry,” DMK aims to expand its raw materials base by alliances with strong partners, mergers and acquisitions.
“We could envisage processing a milk volume in double-digit billions of kilos within the next two or three years,” says Josef Schwaiger, CEO of DMK. He stresses that as demand for dairy products is stagnating in Germany and the rest of Europe while the supply of milk is growing, DMK’s clear focus will be on expanding its business in non-EU countries. It intends to set up a branch office in China by the end of the year.
“A lot of countries will not be in a position to cover domestic demand from their own milk production in the medium term,” says Schwaiger. “In the interests of our milk producers, we don’t want to leave these markets to our competitors.”
Challenges and opportunities
The increasing globalization of all players, coupled with the backdrop of raw material price volatility, an uncertain economic future and growing environmental concern, is bringing new pressures, challenges and opportunities for all players.
“It would be no exaggeration to say that this has been a decade of turmoil for Japan’s economy and society. In addition to our long recession, the pace of economic globalization is accelerating. Industries are forced to compete fiercely, not just with developed countries but with emerging economies as well,” says Nobutada Saji, chairman of the board of Suntory Holdings, which is up from 18 to 16 in the ranking this year. “Japan, and indeed the world, is entering a time of great change, in which conventional values no longer hold.”
According to Saji, the activities of the individual companies will continue to be rooted in Suntory Group’s corporate philosophy, “In Harmony with People and Nature,” which pursues a sustainable coexistence between the global environment and human society.
Changing global balance
“This new balance [toward emerging markets] changes the shape of the Danone group and brings new challenges, in particular in the field of human resources- starting with recruitment, training and the deployment of Danone’s fundamental principles among more than 100,000 staff members,” says Riboud. “Until recently, we assumed the richest countries would be the main source of innovation. As I see it, it’s the countries with strong growth that should inspire us especially as we have to deal with an economic downturn, resource shortages and a squeeze on consumer purchasing power.
“To me, it is about putting all our decisions and actions through a global filter. For instance, how would a decision made for our business in the US impact our business in India? What can we learn from our experiences in Mexico that might apply to China? It’s about critical thinking and cross-cultural understanding.”
“The strength of emerging-economy businesses is that they have faced that sort of thing for a long time and have come up with simple, economical and very inventive solutions,” adds Riboud. “Building a micro-dairy product plant in Bangladesh with the sort of budget you’d have for a house in France forced us to adopt radically new solutions, some of which can be applied perfectly in our big, traditional plants without compromising quality.”
Muhtar Kent, CEO of The Coca-Cola Company, which has 80 percent of its business coming from outside the US, stresses that it is important for leaders of today’s global companies to be well versed in international affairs, and to have had a breadth of experience living and working in markets around the world.
“To me, it is about putting all our decisions and actions through a global filter. For instance, how would a decision made for our business in the US impact our business in India? What can we learn from our experiences in Mexico that might apply to China? It’s about critical thinking and cross-cultural understanding.”
With these changes taking place in the world, Indra K Nooyi, PepsiCo’s CEO, believes an increasingly global context, talent management and development should be the number one priority for all CEOs. “If you look at the world between 2007 and now, versus the world that existed in the first part of the decade, the changes are profound,” says Nooyi. “And, if you read anything about the world over the next 10 to 15 years, I think the changes are going to be even more disruptive, and they’re going to challenge the best and the brightest.
“In the West, there is going to be a talent shortage,” continues Nooyi. “In technical areas globally, a tremendous talent shortage is looming, so we have really to think about what that means for companies and how you think about staffing R&D departments in particular.”
PepsiCo has actively established extensive succession planning and employee engagement and recruitment policies to retain and foster its workforce and take the company and its employees into the future. Engagement of both employees and consumers underpins PepsiCo’s activities, as it does those of other leading players. This engagement on a global scale and the agility to respond to the prevailing macro trends will determine the Top 100 rankings in the years to come.
PepsiCo
Indra K Nooyi, CEO of PepsiCo, believes that in an increasingly global climate, talent management and development should be the number one priority for all CEOs. “If you look at the world between 2007 and now, versus the world that existed in the first part of the decade, the changes are profound,” says Nooyi. “I think the changes are going to be even more disruptive, and they’re going to challenge the best and the brightest.” Talent management might well determine companies’ success or failure, she says.
Mengniu
As a newcomer to the Top 100 list, Mengniu demonstrates the influence of emerging economies on the global food and beverage industry coupled with a rocketing growth in dairy activities. According to Mengniu CEO Yang Wenjun, “In 2010, China’s rapid and sustained economic growth created favorable conditions for the steady growth of its dairy industry.” The company has focused on high-end dairy products with launches such as Milk Deluxe Chunxian (a milk product fortified with phytosterol esters and fiber) and the addition of DHA algae to its Future Star Milk.
Marfrig
New in at number 29 on the Top 100 list, Marfrig Group was propelled to the top by acquiring Keystone Foods and Cargill’s animal proteins business, Seara Alimentos in Brazil. Its gross revenue of R$17 billion represents a dramatic growth of 65.5 percent since 2009, buoyed by its acquisitions, the strengthening of the Brazilian currency and the increasing demand-over-supply of meat products. “Marfrig has unquestionably become one of the largest and most diversified global food companies,” says Marcus Antonio Molina dos Santos, chairman of Marfrig.
Coca-Cola
Muhtar Kent, CEO of The Coca-Cola Company, thinks it is important for leaders of global companies to be well versed in international affairs, and to have had a breadth of experience living and working in markets around the world. “To me, it is about putting all our decisions and actions through a global filter. For instance, how would a decision made for our business in the US impact our business in India? How would this innovation in Poland transfer to market in North America? It’s about critical thinking and cross-cultural understanding.”
Danone
“2010 was the last year the developed world accounted for a higher proportion of our sales than new economies,” says Franck Riboud, CEO of Danone, which entered into a joint venture at the end of last year with the Russian dairy Unimilk to create Danone-Unimilk-the number one player in the Russian dairy products market. “In the near term, Russia will move ahead of France and Spain-where we have our roots-and an emerging economy will thus become our largest market.”
DMK
In at number 52 this year, DMK is the result of the merger between Germany’s two largest milk processing cooperatives, Humana Milchunion and Nordmilch, creating Germany’s largest dairy company. Designed to “secure a leading position as consolidation continues in the European dairy industry,” DMK aims to expand its raw materials base by alliances with strong partners, mergers and acquisitions. “A lot of countries will not be in a position to cover domestic demand from their own milk production in the medium term,” says Josef Schwaiger, CEO of DMK. “In the interests of our milk producers, we don’t want to leave these markets to our competitors.”
