United States Of America Food & Beverage Market Study June .

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United States of AmericaFood & BeverageMarket StudyJune 2013

1. IntroductionThis research was carried out by Global Strategy, Inc. (www.consultgsi.com), a U.S. business development and marketresearch consulting firm on behalf of OSEC Business Network, from March to May 2013.Research ObjectiveThe main objective of the study is to provide Swiss food & beverage exporters a solid understanding of historical, current andfuture trends of the U.S. food & beverage market, focusing on the following topics:Regulatory environment Key segments Forecasts and growth drivers Market and consumer trends Distribution Recommendations on successful market entry Trade events, publications and associationsGeographyUnited States of AmericaPeriod of analysis2009 – 2012Target categories Specialty and gourmet stores Organic and natural foods Functional foods Processed foods Dairy Beverages Private label Foodservice2

Food Industry Overview40,229 grocery stores 634.2 billion in revenues55,683 Non‐traditional food‐sellers 450 billionWholesale clubs154,373 convenience stores 165.6 billion3

United States Food & Beverage Market The U.S. Food & Beverage industry is both largeand extremely complex, consisting of multi‐tiered supply chains. It is subject to extreme competition and a heavyregulatory burden. The industry is fragmented, with productiondivided among all types of companies.4

2. The United States MarketPrimary Demand Drivers Demographics(particularly trends in population, age, householdsize, and disposable income) Consumer trendsProfitability Drivers Good product mix Efficient operations Superior service Effective marketing5

Product CategoriesPackaged Food SalesSales: 331.9 BillionBakery21%Others33%Dairy16%Sweet &Savory10%Confectionary10%Frozen10%6

Product CategoriesFresh Food SalesSales: 12 BillionOthers30%Meat28%Sweet &Savory9%Confectionary9%Dairy15%Frozen9%7

Product CategoriesOrganic Food SalesSales: 29.2 BillionBread and Grains11%Meat, Fish &Poultry2%Fruit andVegetables38%Beverages13%Dairy15%Prepared Foods21%8

Distribution ChannelsGrocery Retail SalesSales: 571 BillionFarmers, 1.0%Others, 7.5%Home Delivery,3.5%C Stores, 2.8%MassMerchandise,1.7%Specialty, 1.5%Supermarket &Grocery, 65.0%WholesaleClubs, 17.0%9

Distribution ChannelsFoodservice SalesSales: 497 BillionTotal restaurant and drinking placesFull-service restaurantsLimited-service eating placesDrinking places 600.0 539.8 516.8 496.6 500.0 476.7 435.8 426.8 449.2 435.3 407.2 400.0 300.0 200.0 200.9 186.4 211.4 194.8 19.9 20.6 212.1 203.2 210.4 204.3 217.4 210.5 234.7 244.1 220.0 229.9 21.9 22.6 253.9 239.6 266.6 249.2 100.0 20.5 20.6 21.3 23.3 24.0 0.020062007200820092010201120122013201410

Distribution ChannelsPrimary Demand Drivers Demographics(particularly trends in population, age, householdsize, and disposable income) Consumer trendsProfitability Drivers Good product mix Efficient operations Superior service Effective marketing11

Distribution ChannelsMarket PotentialCAGR to nedFoods3.6%2468101212

Import TrendsTop food and beverage imports to the United States include beverages, with 17percent share, fish (12 percent), fruit (10 percent), coffee, tea and spices (8percent) and vegetables (7 percent).% s7%Coffee, Tea, Spices8%13

Import TrendsCanada was the United States’ largest import source, with 18 percent share,followed by EU (17 percent), Mexico (15 percent), China (5 percent), Brazil (4percent) and Thailand (4 percent).% ShareCanada18%Rest of World37%EU17%Brazil4%Thailand4%China5%Mexico15%14

Import TrendsU.S. imports of agricultural products from Switzerland totaled 807 million in2012. Leading categories include: snack foods, including chocolate ( 98 million),roasted and instant coffee, ( 86 million), cheese ( 63 million), and essential oils( 15 million).% ShareSnack Foods12%Coffee11%Cheese8%Others67%Essential Oils2%15

3. Food Industry OverviewAll things considered, 1.75 to 1.85trillion is a reasonable projection fortotal U.S. retail food and beverageindustry revenues for 2013.16

3. Food Industry Overview The entire food industry, from growing toprocessing to retailing, is an extremelycompetitive field where profit margins aretypically so low that it is often challenging tomaintain profitability. Consumers are shopping for bargains. Genericstore brands are growing in market share whilehigher‐priced name brands have suffered fromslower sales.17

3. Food Industry Overview Growing health concerns are significantlyimpacting all sectors of the food industry, asobesity levels continue to rise to alarmingproportions in the U.S. American food processors are dramaticallyaltering their strategies to serve consumerswho are concerned about better nutrition andfewer sugars and fats in their foods.18

3. Food Industry Overview In North America (as well as Asia, Europe andelsewhere), producers and retailers of foods(including restaurants) are now faced withthe challenge of positioning their brands torepresent consistent quality and foodsafety. Companies that rise to this challengewill have significant competitive advantage.19

4. Regulatory Environment Two regulatory bodies oversee food andbeverage safety in the United States. Eightypercent of the food supply is governed by theFood & Drug Administration (FDA) whichsafeguards against food adulteration and foodlabeling. The United States Department of Agriculture(USDA) accounts for the other twenty percentand oversees meat (beef, lamb, pork),poultry, eggs, and products made from them.20

4. Regulatory Environment FDA food label regulations includerequirements concerning mandatorydeclarations of most information containedon food labels, such as the statement ofidentity, net quantity, ingredients, NutritionFacts, allergen risks, and food label claims. Nutrition Facts declarations must conform tovery specific requirements related toformatting, nutrient names and amounts, andPercent Daily Value calculations.21

4. Regulatory Environment Foreign food manufacturers and foreignbeverage manufacturers that are subject toFDA Food Facility Registration requirementsmust also appoint a U.S. Agent for FDApurposes. The FDA U.S. Agent acts as FDA’sprimary point of contact for the foreign foodor beverage manufacturer.22

5. Food Industry4. Regulatory EnvironmentSALES AND SALES GROWTHThe 212,000 traditional food stores in the U.S. sold 571 billion of retail foodand nonfood products in 2011. Grocery stores, including supermarkets,accounted for the largest share of food store sales (91.0 percent), followed byconvenience stores without gasoline (5.5 percent). Specialized food stores,including meat and seafood markets, produce markets, retail bakeries, andcandy and nut stores, accounted for the remaining 3.4 percent of the total.23

5. Food Industry4. Regulatory EnvironmentINDUSTRY STRUCTURESales by the 20 largest food retailers totaled 418.0 billion in 2011. The longterm trend shows an increasing concentration of sales among the largestgrocery retailers.24

5. Food Industry4. Regulatory EnvironmentTRENDS AND DEVELOPMENTSNontraditional stores' share of food‐at‐home sales increased from 13.7percent in 2000 to 21.5 percent in 2011 (traditional food stores and non‐storefood sales—such as mail order, home delivery, and direct sales by farms,processors, and wholesalers—account for the remaining shares).25

5. Food Industry4. Regulatory EnvironmentTHE INTERNET AND CONSUMER EMPOWERMENT: SOCIAL MEDIA The emergence of user‐generated content (UGC) via social media channelsfrom the Web 2.0 era has had a dramatic impact on the currentcommercial environment. Businesses can no longer simply publish contentthey wish potential customers to see; the social media landscape hasinstigated a power shift from the business towards the consumer.26

5. Food Industry4. Regulatory EnvironmentConsumer Trends: Online Grocery ShoppingAs the popularity of online shopping grows, consumers arebeginning to explore new digital shopping categories,including groceries.A variety of reasons were cited as plusses to shopping thevirtual supermarket aisles, including the following: Saves time Less likely to impulse buy because you're not tempted by theitems in the store Saves money sometimes because there are better prices Makes it easier to plan menus because you can add items toyour virtual "cart" throughout the week Can help you eat healthier because you're not tempted tobuy junk food27

6. Specialty and Gourmet Stores4. Regulatory EnvironmentOVERVIEW With grocery stores and supermarkets accounting for 91% of the 571billion food retail market in the United States, there is little room for otherfood retailers to get a foot in the door. Specialty food stores cannot competewith large supermarkets on price, but they can capture a share of food retailbased on quality, expertise and uniqueness. Because of the specialized nature of goods sold in this industry, the majorityof sales come with a high level of added value. Industry margins aretraditionally high per unit sold, relative to the thin earnings of theirsupermarket counterparts. In 2013, this sector is projected to have revenueof about 8.1 Billion.28

7. Organic and Natural Food4. Regulatory Environment The US organic food market has experienced strong growth in recentyears. Over the forecast period ending 2016, the market is predicted tocontinue to experience strong growth. The US organic food market had total revenues of 29.2 billion in 2011,representing a compound annual growth rate (CAGR) of 9.4% between2007 and 2011.29

7. Organic and Natural Food4. Regulatory EnvironmentREGULATIONS AND LABELING Organic farming is one of the fastest growing segments of U.S. agriculture.As consumer interest continues to gather momentum, many U.S.producers, manufacturers, distributors, and retailers are specializing ingrowing, processing, and marketing an ever‐widening array of organicagricultural and food products. If a product has the USDA organic seal, it is certified organic and has 95percent or more organic content. For multi‐ingredient products such asbread or soup, if the label claims that it is made with specified organicingredients, those specific ingredients have been certified organic.30

8. RegulatoryDairy4.Environment Rapidly rising demand from growing foreign economies drove up milk anddairy product exports during the past five years, benefiting the US Dairyproduct industry’s revenue. In 2012, higher consumer spending wasexpected to boost revenue 1.0% to an estimated 89.3 billion. Cheese dominates the market, with 40 percent share, followed by milk (34percent), yogurt, cream cheese and cottage cheese (12 percent), spreadablefats (8 percent), cream (5 percent) and chilled desserts (1 percent).31

8. RegulatoryDairy4.EnvironmentPRODUCTS AND MARKETS Cheese is expected to make up the second‐largestproduct segment at 38.4% of revenue in 2012. Thesegment includes cheddar, Swiss, mozzarella,Monterey jack, blue and cream cheeses. US cheese consumption is on the rise. Increasedconsumption of fast foods and ethnic foods, whichoften use large portions of cheese, greatervarieties, increasing food sophistication and moreconvenient packaging are driving cheese sales. In America, mozzarella cheese consumptionreached 11.3 pounds per capita and cheddarreached 10.4 pounds per capita in 2010. The twocheeses are the most popular single‐cheesevarieties, with cheddar cheese accounting formore than 75.0% of all American‐type cheeseproduction.32

9. Functional Food4. Regulatory EnvironmentINDUSTRY OVERVIEW The U.S. functional foods market was valued at 7.1 billion in 2009 and isprojected to grow to 8.6 billion in 2015, a 21% increase driven by theincreasing popularity of energy drinks and growing demand for fortifieddairy products such as probiotic yogurts. After beverages, cereal products were the next largest category, withwhole grain and oat content leading the way with heart health claims.Following that were soy products. Together, these 3 categories represent85% of the U.S. functional food category.33

9. Functional Food4. Regulatory EnvironmentSoft Drinks, Dairy and Energy Foods Functional foods are categorized both by food and by health benefit. Softdrinks and dairy products constitute 60 percent of the market amongfoods. The soft drink category includes enhanced water, which has grownin popularity as consumers seek alternatives to carbonated beverages. Dairy is gaining in popularity, driven in large part by innovations in yogurts. Foods claiming to boost energy levels constitute 29 percent of the marketcategorized by benefit. Products for enhanced cognitive health, such as omega‐3 fatty acids, areexpected to be an 8 billion market by 2013. Other areas of growth areexpected to be products for weight management, mood enhancement,and those that promote healthy, beautiful skin.34

10. Processed Food4. Regulatory EnvironmentIndustry CharacteristicsFood and beverage manufacturing plants transform raw agricultural materialsinto products for intermediate or final consumption by applying labor,machinery, energy, and scientific knowledge. Some products may serve asinputs for further processing (such as syrup for manufacturing soda). In 2011,these plants accounted for 14.7 percent of the value of shipments from allU.S. manufacturing plants.Components of processed food value of shipments, 201135

11. Savory Snacks4. Regulatory EnvironmentMARKET SIZE AND VALUEThe US savory snacks market has been growing at a strong rate in recentyears. Gradual deceleration is expected towards the end of the forecastperiod, with annual rate dropping below 4%.The US savory snacks market had total revenues of 26.4 billion in 2011,representing a compound annual growth rate (CAGR) of 6.3% between 2007and 2011.36

11. Savory Snacks4. Regulatory EnvironmentMARKET SHAREThe Snack Food Production industry is moderately concentrated, with the topfour players estimated to account for 61.4% of the market in 2012. Thispercentage represents an increase from 58.8% in 2007, mainly because largerplayers have engaged in acquisitions to expand their product mix and marketreach.Figure 24: U.S. Savory Snack Market Shares: % share, by value, 201237

12. Beverages4. Regulatory Environment Companies in this industry produce soft drinks, bottled water, and othernonalcoholic beverages. Major companies include Britvic (UK), Coca‐Cola(US), Cott (Canada), Dr Pepper Snapple Group (US), Nestlé (Switzerland),PepsiCo (US), and Red Bull (Austria). The US nonalcoholic beverage manufacturing industry includes about1,500 companies with combined annual revenue of about 55 billion. Lowgrowth is forecast for the next two years. Sodas account for about 60percent of the market. The market for U.S. milk and dairy products, both domestically andinternationally has been growing dramatically in recent decades. As aresult, U.S. farm milk production has grown to about 190 billion poundsper year.38

12. Beverages4. Regulatory EnvironmentSoda and Bottle Water Production The US beverage manufacturing and bottling industry includes about3,000 companies. Major beverage companies include Coca‐Cola, PepsiCoand the Dr Pepper Snapple Group. The industry includes manufacturersand distributors of soft drinks and bottled water. Soft drink manufacturing is a 47 billion industry in the United Statesbased on revenue. It was forecast to generate a profit of 2 billion in 2012.The industry’s annual growth was 1.8% from 2005 to 2010, and it isexpected to maintain this growth rate between 2010 and 2015.39

12. Beverages4. Regulatory EnvironmentPRODUCT SEGMENTS AND MAJOR MARKET BRANDSProducts broadly referred to as soft drinks but can be further divided into sixmain segments based on industry revenue:40

13. Private Label4. Regulatory EnvironmentU.S. retailer food brands, i.e. private label brands, are on track to achievemarket penetration of between 25% and 30% in the next decade, up from theircurrent market share of under 20%.Retailer Brands Are Powerful Competitors Retailer brands have grown 6% over the past five years, compared with thesales of national branded packaged food manufacturers which have grownjust 2%. The increasing competitive strength of retailer brands reflects a power shiftfrom consumer packaged goods companies (CPGs) to food retailers, as wellas the growing trust and loyalty consumers have to today's innovative andhigh quality retailer brands. On grocery shelves around the U.S., from convenience stores to upscalesupermarkets, retail brands now compete successfully and often win againstnational brands, earning consumer trust in terms of pricing, quality, imageand value.41

13. Private Label4. Regulatory EnvironmentDollar Trend Sales for Supermarkets ( Billion)42

13. Private Label4. Regulatory EnvironmentBEVERAGESCurrently, some of the strongest private label beverage categories are bottled water, powdered beverage concentrates and 100percent juice. Bottled water and 100 percent juice are commodity-based categories, so the price of the product becomes moreimportant. Powdered beverage concentrates is a category that’s sold on value.According to SymphonyIRI Group, Chicago, in the 52 weeks ending July 10, 2011 in supermarkets, drug stores, massmerchandisers, club stores, gas and convenience stores, excluding Walmart, U.S. dollar sales for national branded bottled waterproducts totaled 4.9 billion, while private label bottled water dollar sales totaled nearly 1.3 billion. Using the same qualifications,national branded bottled juices totaled 3.8 billion, while private label totaled 666.6 million.In the soft drinks category, national brands have worked to build brand equity, keeping many consumers from even consideringprivate label soft drinks.With regard to carbonated soft drinks, most analysts believe that Coke and Pepsi have done a very good job over the years ofestablishing their brands and what people expect from it, and private label’s not as strong in carbonates.But that doesn’t mean private label beverages can’t adapt. Although many retailers are competing with national brands, some areoffering unique and innovative varieties. Save-A-Lot, Earth City, Mo., recently introduced a soft drink called Mountain Holler RedHowl, which is a citrus-flavored beverage with a taste of cherry.Some of the strong private label brands are the upper-tier store brands where retailers are offering a quality product for a good price,Haffner says. He notes that private label products are getting more competitive in the ready-to-drink tea segment.The RTD tea segment] has grown substantially, so it’s becoming a much larger segment that is able to attract the attention of privatelabel.For the 52 weeks ending July 10, 2011 national brands of canned and bottled tea totaled nearly 1.3 billion while private label brandsof canned and bottled tea totaled 34.5 million, according to SymphonyIRI Group, in supermarkets, drug stores, mass merchandisers,club stores, gas and convenience stores, excluding Walmart.43

14. Foodservice4. Regulatory EnvironmentThe Foodservice Industry is generally categorized based on type of eatingestablishment, such as full service restaurant, limited service restaurant, fastcasual restaurant (also referred to as quick service restaurant or QSR) and snackand beverage restaurant.2011 Market Share4%Full-service g Places44

15. Innovation4. Regulatory EnvironmentINDUSTRY INNOVATIONThere are many ways to classify the degree of newness of aproduct. One useful example uses seven categories:1. creative products2. innovative products3. new packaging of existing products4. reformulation of existing products5. new forms of existing products6. repo

The main objective of the study is to provide Swiss food & beverage exporters a solid understanding of historical, current and future trends of the U.S. food & beverage market, focusing on the following topics: Regulatory environment Key segments Forecasts and growth drivers Market and consumer trends Distribution

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