Food distributors told to innovate to exploit $1.4bn future market

By Fiona Barry

- Last updated on GMT

The economic growth rate of BRIC countries such as Russia is faster than that of developed countries.
The economic growth rate of BRIC countries such as Russia is faster than that of developed countries.

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Inventive responses to a future population explosion will be vital for successful food distributors, according to Frost & Sullivan.

Emerging economies are expanding at a faster rate than the rest of the world combined, increasing their market share of food and beverage distribution services, said the market research.

Although the world economic growth rate has slowed from 5% in 2008 to 3.5% in 2012, emerging countries’ economies are growing at a much faster rate. The global food and beverage market was predicted by Frost & Sullivan to grow from $865.2m to $1.4bn by 2019.

This growth bodes well for the worldwide food and beverage distribution market, as globalisation has opened opportunities for food and beverage distributors across the world.

However, food manufacturers must be imaginative in their logistics operations to stay on top, said Frost & Sullivan’s analyst.

Outsourcing trend

Christopher Shanahan, global food and agriculture program manager with Frost & Sullivan, told of a growing trend for food manufacturers to outsource logistical and distribution activity to local third-party logistics companies (3PLs).

This provides them a highly efficient logistics partner and allows them to focus resources on core food and beverage activities​,” said Shanahan.

For instance, in July 2012, PepsiCo outsourced its Polish warehousing and distribution to the logistics company Kuehne + Nagel.

The bad news: squeezed profit margins

The rising demand is combined with pressures on the food and beverage industry from increasing costs, which will squeeze profit margins over the next decade, said the research.

Global food and beverage prices will rise by 2-4% per year until 2020, according to Frost & Sullivan's Commodity Food and Beverage Price Index Forecast, which is made up of 30 different commodities from petroleum and fertilizer prices to grains, fruits, meats, oilseeds, and sugars.

There has been a significant structural shift in price growth in the last 10 years that is expected to continue​,” said Shanahan.

The rise was attributed by Frost & Sullivan to hikes in the cost of raw materials, labor, and transport, due to rising oil prices.

Due to the current weak economic outlook, it is not possible to pass on the increased costs to consumers​,” said Shanahan. “Manufacturers are worried if the costs are increased this might reduce the consumption of food and beverages​.”

With an increasing middle class in emerging countries, and global food demand predicted to double by 2025, Frost & Sullivan’s analyst concluded that “food distribution service companies have a critical role to play in helping food suppliers deliver on these needs​”.

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