FOOD & BEVERAGE INDUSTRY OVERVIEW (DEFINITION & SCOPE)

The United States is the worlds largest national economy, with a per capita GDP of $53,143 in 2013. The country has a population of
318.6 million, with over 20 percent of the population living in the top eight urban centers.

The Food and Beverage industry is both large and extremely complex, consisting of multi-tiered supply chains as well as companies. It
is also subjected to extreme competition and a heavy regulatory burden. Keeping track of industry and consumer trends is critical. A
well-informed management team is the first line of defense in such an environment. The industry is fragmented, with production
divided among all types of companies.

The Food & Beverage Industry is forecasted to increase by a CAGR of 3 percent during three years to 2016, due to the growing
U.S. population and increasing income. Food consumption in the U.S. is expected to reach $968 billion by 2016.

Canned food value sales are forecast to grow by a CAGR of 3.6% to 2016, driven by increasing consumer demands for convenience.
There is high demand for frozen food products, particularly from supermarkets and restaurant chains. The frozen food market is
forecast to grow at an annual average rate of 1.5%, reaching $96.4 billion in 2016
The organic food market is forecast to grow by a 9.7% CAGR between 2012
and 2016. The market is forecast to reach $46.5 billion by 2016.
The growth of dairy market is forecast to slow, with a CAGR of 3.6% between
2012 and 2016. The dynamic yogurt sector in the United States is expected to
continue to grow , due to the on-going trend towards healthier options.
The grocery retail market is expected to grow by a CAGR of 3.5 percent in 2016.
The food service sales are expected to grow by a 3.2 percent CAGR to 2015,
reaching $562.5 billion. The highest growth is forecast in foodservice
establishments in travel locations, i.e., motorway service, or, rail stations.


Source- http://www.s-ge.com/en/filefieldprivate/files/58880/field_blog_public_files/19609

885.85
912.43
939.8
968
840
860
880
900
920
940
960
980
2013 2014 2015 2016
Value in billions
MARKET OVERVIEW BY SEGMENT

22.50%
22.60%
17.40%
13.60%
12.60%
11.30%
Dairy Products
Prepared Food
Fruits & Vegetables
Beverages
Bread & Grains
Meat, Poultry & Fish
FOOD AND BEVERAGE MARKET SEGMENTATION BEVERAGE MARKET SEGMENTATION
16.30%
16.60%
12.70%
12.90%
10.60%
8.50%
1.20%
0.20%
21%
Carbonated Soft Drinks
Coffee
Milk
Tea
Bottled Water
Fruit Beverages
Sports Beverages
Energy Drinks
All Others
Food and Beverage Industry is majorly segmented into dairy products, prepared foods, fruits & vegetables,
beverages, bread & grains, and meat, poultry & fish with 22.5%, 22.6%, 17.4%, 13.6%, 12.6%, and111.3%
respectively.

Moreover, beverage industry is majorly segmented into carbonated soft drinks, coffee, milk, tea, bottled
water and fruit beverages with 16.3%, 16.6%, 12.7%, 12.9%, 10.6% and 8.5% respectively. Other segments
of beverage industry are sports beverages, energy drinks, etc.
MARKET STRUCTURE & COMPETITIVE LANDSCAPE




TIER 1
TIER 2
TIER 3
U.S. LIQUID REFRESHMENT BEVERAGE MARKET SHARE
U.S. Savory Snacks % Retail Sales in Measured Channels
36.60%
11%
6.09%
5.60%
3.60%
3.50%
3.30%
30.40%
Pepsico
Nestle
Kelogg
Mondelez
Kraft
Synder's Lance
Conagra
Others
24.30%
21.10%
8.90%
5.20%
4.20%
4%
32.30%
Pepsico
Cocacola
DPSG
Nestle
RedBull
Monster
Other
GROWTH DRIVERS & INHIBITORS
FACTOR EXPLANATION EFFECT
US Organic Food Market to grow 14% from
2013-18







(Source: http://www.foodnavigator-usa.com/Markets/US-
organic-food-market-to-grow-14-from-2013-18 )
The retail organic food market is an emerging
trend in the country. The new United States
Organic Food Market Forecast &
Opportunities, 2018 report adds that the
Western US is driving much of the organic food
market revenues on the back of growing
domestic production and increasing awareness.
Demand for organic products is increasing, and
about 81% of American families reported to be
purchasing organic food at least some times. In
addition, domestic organic food production has
increased about 240% between 2002 and 2011,
compared with 3% in the non-organic food
market.
GE Introduces Environmentally Friendly
FoodPro ST* Water Treatment Chemicals for
Food & Beverage Industry










(Source: http://www.genewscenter.com/Press-
Releases/GE-Introduces-Environmentally-Friendly-
FoodPro-ST-Water-Treatment-Chemicals-for-Food-and-
Beverage-I-3b58.aspx )
A new report Water for Food & Beverage:
Opportunities in Water Efficiency and Gaining
Value from Wastewater states that despite
being highly fragmented, the F&B industry is
still one of the top three industrial water
markets. The F&B industry is now an important
growth market for water technology companies
because global water demand is rising, against
fixed supply, as is the awareness of the need for
adequate wastewater treatment. Moreover,
awareness of corporate risk for F&B
companies is rising, thus paying attention to
operational and environmental issues is vital to
protect their brand reputation. To the solution
of this, water technologies can now provide
value , allowing water stewardship to go hand
in hand with profitability.
The new technology introduced by GE is up to
30% more cost efficient..
GROWTH DRIVERS & INHIBITORS

FACTOR EXPLANATION EFFECT
Restaurant Industry Enters Fifth Consecutive
Year of Sales Growth, Will Continue Strong
Job Creation Despite Challenges








(Source- http://www.restaurant.org/Pressroom/Press-
Releases/Restaurant-Industry-Enters-Fifth-Consecutive-Y
)
2014 will mark the fifth consecutive year of
restaurant industry sales growth despite a
continued challenging landscape, according to
the National Restaurant Associations 2014
Forecast. Industry sales are projected to exceed
$683 billion in 2014, up to 3.6% from 2013s
sales volume of $659 billion.
2014 will also mark the 15
th
straight year in
which restaurant industry employment growth
will outpace overall employment growth. The
industry will continue to be the nations second
largest private employer with 990,000
restaurants employing 13.5 million individuals,
or about 10% of the total U.S. workforce.
Retail sales slow, but growth outlook still
upbeat













(Source- http://www.reuters.com/article/2014/05/13/us-
usa-economy-idUSBREA4C0D820140513
http://www.deloitte.com/assets/Dcom-
Kenya/Local%20Assets/Documents/CB_Global-Powers-
of-Retailing-2014.pdf )

The U.S. economy was held up pretty well
given some of the challenges it has faced. In
2012, the economy got hit with a recession in
Europe and a slowdown in China, both of
which substantially impeded U.S. growth. In
2013, a big tax increase combined with sizable
cuts in government spending had a negative
impact on growth once again. Going forwards,
there are some positive factors, like recoveries
in Europe and Japan, stabilization of growth in
China and the likelihood that fiscal policy will
not be any tighter. Thus, all other things being
equal, growth in 2014 should be better than
2013. On the retail front, a positive economic
outlook means a good retail environment.
Notably, household formation has been slow
due to high unemployment. As the economy
recovers, this will stimulate consumer spending
on products for the home. This suggests
opportunities as well as challenges for retailers.
FINANCIAL STATUS

1
0.31
0.16
0.45
PEPSICO
TYSON
NESTLE
MONDELEZ
DEBT EQUITY RATIO
DEBT EQUITY RATIO
14.23%
10.27%
13.71%
9.70%
PEPSICO
TYSON
NESTLE
MONDELEZ
ROI
ROI
10.15%
2.26%
10.84%
11.09%
PEPSICO
TYSON
NESTLE
MONDELEZ
NET PROFIT MARGIN
NET PROFIT MARGIN
20.45
12.94
23.47
17.66
PEPSICO
TYSON
NESTLE
MONDELEZ
PE RATIO
PE RATIO
High price earning ratio of Nestle and Pepsico shows that investors are expecting
higher earnings growth in the future as compared to Tyson Foods and Mondelez
International. This also suggests that in the coming future, Nestle and Pepsico
will retain huge support from investors as they are willing to pay 24$ and 21$ for
1$ earning in Nestle and Pepsico respectively.
On the other hand, Tyson can face serious issues in retaining investors support in
the coming future due to low earnings growth.
A high debt-equity ratio for Pepsico suggests that the company has been
aggressive in financing its growth with debt. This can result in volatile
earnings as a result of additional interest expense. On the other hand,
Nestl's low debt-equity ratio suggests that they are not aggressive in
financing their business through debts. This resulting in the distribution of
extra earnings to its shareholders, and this is clearly visible through heir
price earning ratio, where investor is ready to pay 24$ for 1$ earning,
which is highest in the industry.
Net profit margin suggests how much of each dollar earned by the company
is translated into profits. Here, Mondelez, Nestle and Pepsico are working
on high profit margins and earning 11%, 11%, 10% on each dollar they are
earning respectively. This also gives us a glimpse that all these companies
are in good financial position as they are getting higher profit margin
despite of higher earnings growth to their investors and shareholders.
On the other hand, contrary to the industry trend, Tyson is giving higher
value to its shareholders and investors and thus, working on very low profit
margins of 2.3%.
Pepsicos and Nestles high return on investment suggests their efficiencies of
their investments. This means that whatever investment they are doing in the
expansion of their business is giving high return to their business as well as to the
shareholders. This trend is clearly visible in the price earning ratio, as investors
are expecting higher earnings growth in the future.
On the other hand, Mondelezs return on investment is quite low and suggests
that despite of investors trust of higher earnings growth in the future, company is
not getting higher returns on their investment.
FUTURE OUTLOOK- ANALYSIS

The global food and
agricultural industry for 2014
will be about $7.6 trillion
market
- Plunkett Research Reports
http://www.plunkettresearch.com/food-beverage-grocery-market-
research/industry-and-business-data
REGULATIONS
On August 5, 2013, FDA (or we) published in the Federal Register a final rule that established a regulatory definition of the term gluten-
free for voluntary use in the labeling of foods (see 78 FR 47154). his final rule is intended to provide a uniform definition of the term
gluten-free so that consumers, particularly those who have celiac disease, will know what it means when they see it on the labeling of
food.

On June 10, 2014, FDA published a final rule that requires, among other things, that infant formulas satisfy the two quality factors of
normal physical growth and sufficient biological quality of the protein component of the formula. The regulations establish quality factor
requirements for eligible infant formulas

The Food and Drug Administration (FDA or we) is recommending that primary seafood processors take measures to minimize the risk of
ciguatera fish poisoning (CFP) from fish that they distribute.

Because of the potential for human health risks associated with exposure to inorganic arsenic, human exposure to inorganic arsenic should
not exceed levels achievable with the use of good manufacturing practices. The action level for inorganic arsenic in single-strength (ready to
drink) apple juice that FDA considers achievable with the use of good manufacturing practices is 10 micrograms/kilogram (g/kg) or 10
ppb. FDA considers the action level for inorganic arsenic in apple juice to be protective of public health. The action level can reduce
human exposure to inorganic arsenic that may be found in apple juice.

On October 19, 2011, the Food and Drug Administration (FDA) published a final rule in the Federal Register that amended its bottled water
standard of quality regulations by establishing an allowable level for di(2-ethylhexylphthalate) (DEHP). The final rule is effective on April
16, 2012. As a consequence, bottled water manufacturers are required to monitor their finished bottled water products for DEHP as often as
necessary, but at least once each year under the current good manufacturing practice (CGMP) regulations for bottled water.

In 2004, FDA issued its "Produce Safety from Production to Consumption: 2004 Action Plan to Minimize Foodborne Illness Associated with
Fresh Produce Consumption (Action Plan) to minimize further foodborne illness associated with the consumption of fresh produce. This
Action Plan incorporated "lessons learned" in implementing the GAPs Guide and expanded upon other existing produce safety efforts.

The Federal Government provides advice on healthful eating, including consuming a diet rich in a variety of fruits and vegetables, through
the Dietary Guidelines for Americans and the related MyPyramid food guidance system . In response, per capita consumption data show that
Americans are eating more fresh produce. This guidance is intended for all fresh-cut produce processing firms, both domestic firms and
firms importing or offering fresh-cut product for import into the U.S., to enhance the safety of fresh-cut produce by minimizing the
microbial food safety hazards.