Industry cites cost reduction as key

Cost reduction is the top priority in 2009 for senior executives in the food industry while the profile of consumers is changing, according to a new report from the business advisory firm Deloitte.

The report, Food and Beverage 2012, saw 31 per cent of respondents cite cost reduction as their number-one issue this year, while a large majority believe the economy and industry will deteriorate.

Lawrence Hutter, global head of food and beverage at Deloitte, said: “The economic downturn has presented food and beverage companies with new challenges. It is impacting how much money consumers spend but also the way in which they spend it. Footfall in discount grocers is rising and many shoppers are trading down.

“That said the focus on good nutrition and health has not gone away. People are still spending money but their priorities are changing, with price and value increasingly central to the choices they make about where to shop and what to buy.”

The changing nature of consumer behaviour comes through strongly in the survey, as 25 per cent of respondents said that the profile of their target consumer was changing, while the same proportion said their customers were trading down.

Notably, 83 per cent of those surveyed expect to change the way they communicate their brand proposition to their target audience by putting greater emphasis on brand differentiation and value and by working more closely with retailers on communicating with the shopper in store.

Sharply rising food commodity prices dominated the news agenda in the first half of 2008, with 73 per cent of businesses in the survey reporting substantial input cost rises during the previous 12 months. A quarter faced increases of between 11 and 25 per cent in 2008 but just eight per cent of respondents implemented price increases to match this rise, with 56 per cent putting up their own prices by 10 per cent or less.

“With a range of input costs falling, many manufacturers are now seeing their retail customers ask for price reductions. Intense competition between UK grocers will ensure that commodity price falls are passed through to consumers," said Hutter.

“However, UK food prices will probably be prevented from falling as much as in eurozone economies because of the relative weakness of the pound and the importance of imports in the overall mix of what we consume. There will also be new opportunities for UK producers."

The price spike of 2008 is widely seen something to expect in the longer term, as commodity prices and the security of supply will remain high on the agenda for food and beverage industry executives. In the report, 38 per cent of respondents cited these two issues as the biggest facing the sector in the next five to 10 years.