The world's top 100 food & beverage companies - 2015: Change is the new normal
Global volatility in both socioeconomic and political terms, shifting demographics and an explosion in e-commerce created an increasingly challenging backdrop to activities during the past year.
Operating in today’s uber-global, volatile world is challenging existing corporate structures and forcing the food and beverage industry’s leading players to become ever more adaptable, responsive, proactive and innovative. Competition remains tight as growth in the developing world continues, although at a slower pace than in the initial boom years. Developed nations grapple with ongoing costs and legacy infrastructure pressures.
“The business environment was again marked by great uncertainty in 2014,” Nestlé’s leadership team said in a presentation to shareholders. “Disruptive socioeconomic and political change continued to affect growth in many parts of the world. In the emerging markets, economic volatility worsened as growth rates slowed and currencies weakened. In the developed markets, deflationary pressures and soft consumer demand resulted in a continued challenging trading environment.”
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During 2014, Nestlé, which again remained firmly in its top spot in the food and beverage industry, integrated its Maghreb, Middle East, North East Africa region, Turkey and Israel into Zone Europe to form Zone EMENA (Europe, Middle East and North Africa).
“This,” Nestlé says, “balances the different consumer dynamics and opportunities in these geographies. Additionally, it allows a sharper focus in zone Asia, Oceania and Africa— the fast-growing parts of the world where three-quarters of the global population live—enabling us to dedicate more attention to countries and regions that are highly complex but have huge potential.”
The Coca-Cola Company, which slipped from third to fifth place in 2014, also began reshaping its organization early last year, only to “accelerate the pace and broaden the scope” of this change during the ensuing months.
“Globally, families and individuals spent less on consumer goods in 2014, slowing growth in nonalcoholic beverages, which had an impact on our performance,” says Muhtar Kent, CEO of The Coca-Cola Company. “We knew we needed to move faster and execute faster, and we believed we could improve.”
During 2014, the company streamlined and simplified its operating model, reducing the size of its group-level organizations around the world, standardizing its operating approach and key processes across business units and, most notably, forming a single business unit in Western Europe, where it previously had three. The company also put greater emphasis on revenue and profit growth by segmenting activities in each of its core markets.
“In emerging markets, we’re striving to grow mostly via greater volume to drive awareness and build our brands. In developing markets, we know ideal growth takes a balance of volume and pricing, while in developed markets, we see price/mix as our most powerful growth lever,” Kent explains. “Overall, these steps will allow us to speed decision-making and enhance our local market focus, both of which will help unlock growth. We’ll also have a more nimble organization, one better equipped to outpace the change in our industry.”
“We will pursue greater synergies among our businesses by promoting flexible collaboration and cooperation, unconstrained by our current group companies or existing organizational boundaries,” says Tsutomu Kamijo, president of Sapporo Group.
At the beginning of this year, the Sapporo Group formulated a completely new management plan in response to the “progression of business operations during 2014 and the current business environment.”
“We recently announced the Sapporo Group’s New Management Framework, which sets its sights on 2016, our 140th anniversary,” says Tsutomu Kamijo, president of Sapporo Group, who explains that in the past, plans were grounded on the conditions current at the time they were conceived. “In contrast, the New Management Framework envisions the company in the year 2016 and outlines the policies to make the changes required to achieve that vision. We will pursue greater synergies among our businesses by promoting flexible collaboration and cooperation, unconstrained by our current group companies or existing organizational boundaries.”
As part of the plan, Sapporo will look for further market penetration of its brand in premium beer markets such as North America and Southeast Asia. It has already earmarked the US beverage manufacturer Country Pure Foods, which it will acquire with Toyota Tsusho America Inc. through the two companies’ US fruit beverage manufacturing joint venture organization, Silver Springs Citrus Inc.
Fellow leading Japanese player, Nissin Foods Holdings, has adopted a strategy of acquisition and innovation to become more competetive. For example, last year, it acquired a 49 percent stake in Indonesia’s PT Nissinmas to strengthen its position in instant noodle products, such as Cup Noodles and Top Ramen Baru. Facing limited growth in the domestic market, Japanese food companies are keen to expand in Indonesia as it has the world’s fourth-biggest population and is Southeast Asia’s biggest economy, according to Nissin Foods.
In 2014, the company also inaugurated a new research and development center in Tokyo. “We named it ‘the WAVE’ to express our desire to spread a new wave of innovation worldwide by pioneering leading-edge food technologies,” says Koki Ando, CEO of Nissin Foods Holdings. The WAVE houses two research facilities, one of which is the Nissin Global Innovation Center, which provides technical support for innovation.
“Until now, it was necessary to confirm and establish production conditions for trial products through line tests on actual production lines,” says Ando. “The installation of a full-specification, continuous, multi-product, configurable production line within the research center will enable us to study full-scale production conditions in advance and shorten the time for product launch.
“Winning the race for new products and markets is fierce in the instant noodle industry, and shortening development times is important for successfully competing in the market,” adds Ando. “Our new research center will now assume a central role in an effort to develop completely new products that fuse Nissin’s various food processing technologies.”
Nissin’s second research facility, the Nissin Global Food Safety Institute, will be responsible for ensuring food safety.
In the meat world, acquisition and divestiture punctuated activities at the top. For instance, JBS, at number three, pounced at the opportunity to purchase the British poultry producer Moy Park from fellow Brazilian meat giant Marfrig just a few months ago. The acquisition gives JBS access to markets in Britain, Scandinavia and other parts of Europe, where consumption of processed food is rising. Although most of Moy Park’s sales come from fresh produce, processed meat accounts for 40 percent of its sales.
For Marfrig, which has recently relaunched itself as Marfrig Global Foods, the sale allows it to focus more intensely on pursuing growth opportunities by expanding its Keystone foodservice business in both Asia and the US; increasing beef exports from Brazil, especially to Asia and the US; and strengthening its capital structure and increasing its cash flow. These moves meet the requirements of the company’s strategic plan, Focus to Win, which concentrates on organic growth, margin expansion and cash generation.
According to Marfrig CEO Martin Secco Arias, “The commitments we assumed under Focus to Win will continue to guide Marfrig’s day-to-day operations and allow us to focus on the importance of cost management, high productivity and operational efficiency.”
New in at number 99 this year, WhiteWave Foods, the spinoff from Dean Foods that began operation as a standalone company in 2013, has also been busy forging its growth through acquisition. Last year, via a joint venture established earlier with China Mengniu Dairy, WhiteWave entered an agreement to purchase Yashili Zhengzhou in China. In October and closer to home, WhiteWave completed its acquisition of So Delicious Dairy Free, and very recently, it seized the opportunity to extend its plant-based food and beverage offerings through the acquisition of Vega, a leader in plant-based nutrition products—primarily powdered shakes and snack bars containing nutrient-dense, superfood ingredients.
“We highlighted our first full year as a standalone company not only by achieving strong market and financial results, but also by acquiring Earthbound Farm and So Delicious. We also launched our plant-based joint venture in China,” says Gregg Engles, chairman and CEO. “WhiteWave is the fastest-growing food company in America, and our Alpro plant-based foods and beverages are experiencing enviable growth in our core Western European markets. In North America, we hold the top market share in plant-based foods and beverages [with Silk and So Delicious].”
In 2014, WhiteWave introduced Silk cashew milk and relaunched its dairy-free yogurts in the US. Plus, via its joint venture with Mengniu Dairy, it completed the construction of a production facility in Zhengzhou, launching almond and walnut beverages in China under the Silk ZhiPuMoFang brand in December.
Pursuing investment in the complex dairy sector, which is plagued by fluctuating commodity prices and the challenge of meeting Asia’s insatiable demand for its products, Fonterra recently inaugurated its first production site in Europe. The site at Heerenveen in the Netherlands is now one of Fonterra’s three key global production “pools” alongside plants in New Zealand and Australia.
“The commissioning of this new plant further strengthens our ability to deliver high-quality, advanced dairy nutrition that meets the needs of our priority markets and global customers,” says Theo Spierings, Fonterra’s chief executive. Last year, Spierings oversaw the formation of the global partnership between Fonterra and Beingmate that is strategically designed to help meet China’s growing demand for infant formula (from foreign suppliers in particular).
“In 2014, we focused on building volumes and value in our key markets, especially Asia and Latin America,” Spierings continues. “In Asia, we saw 12 percent volume growth, primarily driven by our excellent performance in China. In Latin America, our Soprole business’s focus on new product development and innovation contributed to the region’s 3 percent volume growth. But, unfortunately, our New Zealand and Australian business had a challenging year due to much higher input costs.”
Commenting on Fonterra’s revision of its forecast for last year, Chairman John Wilson says, “It reflects an uncertain outlook for the global economic environment and an expectation of continued volatility for dairy prices driven by geopolitical events and the supply/demand imbalance.”
Tackling the dairy market volatility, Danone plans to sell its Dumex infant milk powder business in China to Yashili International Holdings, giving Danone the cash it needs to increase its stake in Mengniu Dairy. The move also will allow Danone to exit China’s infant formula sector following a decline in demand for Chinese-made products, due to continuing food scandals such as the June 2015 recall of infant formula powders contaminated with dangerously high levels of nitrate.
Falling consumer confidence in the Chinese market has led to increased investment overseas, particularly in New Zealand, where infant formula products are seen as being of higher quality. The preference for foreign products has led to a changing dynamic for China’s “digi-savvy” consumers. According to the Institute of Grocery Distribution (IGD), China’s online grocery market is the largest in the world and is set to be five times its current value by 2020.
“Foreign brands are popular with Chinese shoppers who are wary of the safety scares surrounding locally sourced food and drink. Consequently, companies such as Alibaba and Amazon have recently introduced sites dedicated solely to imported goods,” says Joanna Denney-Finch, IGD chief executive. “Many Chinese people also prefer shopping using their smartphones, so retailers are offering mobile-only promotions, which are updated regularly to encourage shoppers to keep visiting their websites for the latest deals.”
Putting the company’s information technology and e-commerce organizations under the sight of a vice chairman will accelerate new solutions and further strengthen PepsiCo’s digital technology capabilities, according to PepsiCo. Indra Nooyi, PepsiCo CEO, is shown above.
This shift to digital is altering the entire operation landscape for food and beverage manufacturers. For example, in its bid to keep up with the changing face of e-commerce, Pepsico has named its executive vice president and chief financial officer, Hugh Johnston, as vice chairman. In this new role, he will oversee the company’s global e-commerce organization, plus its global business and information solutions function.
According to PepsiCo, the move allows the company to respond to global trends such as the rise of digitally connected consumers and the emergence of e-commerce as a new distribution channel. “Putting the company’s information technology and e-commerce organizations under the oversight of a vice chairman will accelerate new solutions and further strengthen PepsiCo’s digital technology capabilities,” the company states.
Mondelēz International is tapping into digital trends and has renewed its global strategic partnership with Facebook to deliver creative video content and drive impulse snack purchasing online. Nestlé is increasing its presence in Silicon Valley, forging partnerships with startups and leading technology companies to build on its digital innovation and relationships with consumers by providing them with innovative online experiences and services. But, such activity is just the tip of the iceberg in this changing digital world.
“It took radio 38 years to attract 50 million listeners, but Facebook attracted 6 million users in its first year, and that number multiplied 100 times over the next five years. China’s mobile text- and voice-messaging service WeChat has 300 million users, more than the entire adult population of the US,” says the McKinsey Global Institute in its new book, “No Ordinary Disruption: The Four Global Forces Breaking All the Trends.” Accelerated adoption invites accelerated innovation. But, despite how fast innovation has multiplied and spread in recent years, it is poised to change and grow at an exponential speed.
According to the McKinsey Global Institute, “Twenty years ago, less than 3 percent of the world’s population had a mobile phone; now two-thirds of the world’s population has one, and one-third of all humans are able to communicate on the Internet. Entrepreneurs and startups now frequently enjoy advantages over large, established businesses. The furious pace of technological adoption and innovation is shortening the lifecycle of companies and forcing executives to make decisions and commit resources much more quickly.”
The institute’s book makes for stimulating, if not alarming, reading, and it is clear only the flexible and fit companies will prevail in such a changing environment. But, that will require adaptability and resilience.
“Although we are operating in a challenging and turbulent economic environment, we see these as fascinating times, full of opportunities,” says Nestlé.
No comment on the turbulent times in the industry and activities at the top would be complete this year without mentioning the landslide deal completed in July between Kraft Foods and Heinz. The two iconic names merged to create the Kraft Heinz Company, which, under the leadership of new CEO Bernardo Hees, took the 13th position among the global top 100.
“I am honored and humbled to be the CEO of the Kraft Heinz Company. Kraft and Heinz are both world-class organizations with storied pasts and together an even brighter future,” says Hees. He adds that the company’s immediate focus is on integrating the two businesses and establishing a new organizational structure, while delivering on its financial objectives for 2015.
The developments of 2014 may just be the beginning. Global mergers, acquisitions and restructuring are likely to continue for the foreseeable future as the operating landscape for food and beverage manufacturers remains in flux.