Farmer wants a value creator

Farmer wants a Value Creator

HBI550: TRENDS IN INTERNATIONAL BUSINESSHBM250: TRENDS IN MARKETING

Dermott DowlingTuesday 23 July 2013

Source: Brian Robins (June 29, 2013) http://www.theage.com.au/business/genetically-modified-crops-crucial-graincorp-chief-20130628-2p2rg.html viewed on 21/7/2013

With estimates that the global population will expand by 2.7 billion by 2050, …, pressure is mounting for farmers to lift yields by 50 per cent to keep abreast of growth in global demand.''Therefore yields have to double to around three tonnes a hectare, yet they've been flattening. 'This increase would have to occur against the backdrop of climate change and declining soil quality, ''which will make it more difficult to achieve this''.Alison Watkins, GrainCorp Chief Executive, June 2013)

Introduction

Director @CreatovateInnovation & International Business Consultancy

FMCG Background Asia Focus

Lion (National Foods)Foster’sFonterra

16 years Food & Beverage 12 years focus on Asia

Pacific

The Global Hunger Challenge

• The Green Revolution in 1960s lifted global food production by 150% over 50 years

• We need another Revolution, to feed 9.5 billion by 2050, increasing food production 75%.

• ANZ Bank estimated an additional $710b in Australian agri-exports to 2050 on Asia-led growth.

(Cornell, 2013)

(Anthony Pratt, Global Food Forum, Melbourne, 18-April-2013)

Australia’s Food Opportunity

9b by 2050

Global Irony - An Obesity Epidemic

Figure 1. Global Prevalence Rates of Undernourishment and Obesity

Source: FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012).

• Conservative projections predict: 2.2 billion adults might be overweight and 1.1 billion obese by 2030 (Kelly, et al, 2005)

Obesity is not only a 1st world problem• Half of the world's overweight people live in nine

countries, including

1. United States

2. Germany,

3. China,

4. India,

5. Russia,

6. Brazil,

7. Mexico,

8. Indonesia,

9. Turkey. • Regions with the highest obesity prevalence --

exceeding 25% of the adult population -- include North Africa and the Middle East, Central and South America, and southern sub-Saharan Africa.

Source: T. Kelly, W. Yang, C. Chen, et al., (2008).

Figure 2. Projected Obesity in Selected AreasSource: FAO (March, 2013)

Soft Commodities

• International food prices only 9% below the all-time high recorded in August 2012

• Several uncertainties on both supply and demand sides still threaten international markets. (World Bank, Food Price Watch, March 2013)

• Cause growing middle class in China, Asia, Latin America, India and eastern Europe

Increasing & Increased Volatility

Higher Income diets are more resource intensive

• Taste for protein and sugar

• As average earnings grow diets change and it puts pressure on soft commodities which will increase in price (Chunn, 2012, AFR)

Source: ANZ Bank (2012) ANZ Focus: Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand, P.2

Summary causes & shifts & trends

Population growth From 7b to 9.5b by 2050

Climate Change Growth in GDP in developing

world changing diet (more protein)

Limited food productivity growth

Fixed/reducing land supply Water shortages

Feeding 9b @2050

Top 10 Global F&B CompaniesRank Company Est. 2012 US$b

RevenueCountry of Origin

1 Nestle 1866 $98 Switzerland

2 Archer Daniels Midland Company

1923 $91 USA

3 Unilever 1930 $67(€51b) UK/Holland

4 PepsiCo 1965 $66 USA

5 Kraft 1903 $54 USA

6 Coca-Cola 1886 $48 USA

7 ABInBev 1852 AB1366 InBev

$40 USA

8 JBS 1953 $37 Brazil

9 Tyson 1935 $32 USA

10 Mars 1911 $30 USA

Sources: Company websites & http://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-and-beverage-companies/20120416.htm retrieved on 23/9/12

Australian Top 10 Grocery Brands

Top 10 Brands Owner Origin of Owners

1. Cadbury Kraft Inc.. USA

2. Coca-Cola The Coca-Cola Company

USA

3. Bega Bega Cheese Ltd Australia

4. Smith’s PepsiCo USA

5. Kleenex Cottonelle Kimberley Clark USA

6. Birds Eye Simplot USA

7. Mainland Fonterra NZ

8. Berri Lion (Kirin) Japan

9. Sorbent SCA / PEP 50/50 JV SCA Sweden

10. Colgate Colgate-Palmolive USA

And where their parents come from…

Sources: Nielsen top 100 brands report 2010 viewed on AFN website 6.5.13, Company Websites, Google

Top Tier Global Grocery Retailers

Top Retailers Country of Origin Turnover 2012 US$b

1) Wal*Mart USA $444b

2) Tesco UK $112b

3) Carrefour France $101b

4) Costco US $99b

5) Kroger US $97b

6) Metro Germany $87b

7) Lidl Germany $84b

8) Aldi Germany $73b (2011)

17) Woolworths Australia A$49b (FY 2012)

18) Wesfarmers (Coles) Australia A$34b (FY 2012)

Sources: Company Websites http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and http://www.deloitte.com/assets/Dcom-Australia/Local%20Assets/Documents/Industries/Consumer%20business/Deloitte_Global_Powers_of_Retail_2013.pdf Viewed on 6/5/2013

Global retail is not easy

• Grocery retailers– Carrefour 38– Wal-Mart 15– Tesco 13

• Grocery suppliers– Coca-Cola 200

(approx.)– Danone 120– P&G 180

Number of Countries Operating

• Source: ‘Retail Doesn’t Cross Borders, HBR, Apr 12, p.109

Anlene – Expert bone health brand

From bulk milk powder in bags to highly concentrated value added milks…

• US$300m sales, biggest brand of its kind, not only in Asia but worldwide.

• Available in 17 countries across Asia, Africa and the Middle East.

• Launched in Taiwan in 1991• Core target is women aged 40+ years• Fonterra has spent more than US$50m on

bone health research and US$15m directly on the development of Anlene

• Anlene have funded, and been involved with 18 clinical trials relating to bone health.

Sources: New Nutrition Business, 2008 & http://www.fonterra.com/global/en/our+products/our+brands/anlene viewed on 22.7.13

Foster’s Asia3 different countries3 different tales

1998 JV Greenfield Brewery, built in AurangabadSold to SABMiller for US$120m in 2006

1998 Acquisition of two breweries (Central & Southern Vietnam) from BGI for $80mSold to APB for US$105m in 2006

1993, acquired majority stakes in Shanghai, Guangdong & Tianjin breweries, Sold Guangdong and Tianjin breweries for $18m in 1999. Sold Shanghai to Suntory for $20m in 2006.Sources: Foster’s Annual Reports 99-06

Foster’s India Pvt Ltd

Challenges Successes

Early mover Excellent people Experiential marketing

F1 Cricket & BBQ Fashion

Sales & Marketing

• 1 country, 28 states• Taxes across borders• No advertising• Tap contracts (bars)• Low consumption

Foster’s Vietnam Ltd

• No. 4 or 5 on entry• Tap contracts (bars)• Low awareness• Low A&P budget

Challenges Successes

Sales & Distribution Draught beer (Angel) Local brands

Biere Larue BGI

F1 to Go Karts (localisation)

Shanghai Foster’s Brewery Ltd

• 1 country, 22 provinces• Oversupply / capacity• Price deflation/cost

inflation• Wholesalers• Local to International price

gap• Culture gap

Challenges Successes

Formula 1 Shanghai race F1 Sunday nights in

Shanghai bars/hotels Local beer (Guangming) –

2km from brewery sales drive

Indonesia• 1986 Doug Shears creates a partnership venture Indonesia• 1996 PT Berri Indosari Joint Venture est. 80(Berri)/20(Local)• 2011 Lion exits JV selling back their share to local partner

Successes Learning

Early entry – local insight

Fresh/Chilled Juice Innovative

marketing Capital injection

during Asian Financial Crisis 1997

Ambient & Chilled Juices

Foodservice & Retail

Did not adapt / innovate fast enough

Mass Volume & Value & absolute profit in drinks

Outspent by local conglomerates & MNCs

Took their eyes off opportunity during other M&As

Lack of Capital investment in local manufacturing, marketing, & sales capability

Conclusion

The future is “uncertain” and certain We all need to eat and by 2050 that’s 9.5b of us! Consolidation of manufacturers (faster) and retailers

(more challenging) Internationalisation brings opportunity but has its

challenges Must glocalise It is a significant step up from the home market Expect more competition, faster innovation and new

rules and regulations to navigate

Global Food Challenge = Australia’s International Opportunity

References1. ANZ Bank (2012) http://www.anzbusiness.com/content/dam/anz-superregional/AgricultureInsightsGreenerPastures.pdf , Issue 4, retrieved on 21

July 2013.2. Chunn, Jeremy (2012) Hard returns from soft commodities PUBLISHED: 25 SEP 2012 16:01:00 | UPDATED: 27 NOV 2012 03:56:46;

AUSTRALIAN FINANCIAL REVIEW, http://www.afr.com/p/hard_returns_from_soft_commodities_XIKM0mM6eLppdpUT79EjiK viewed on 3.5.20133. Cornell, Andrew (2013) Our next boom. Australian Financial Review Magazine, 31 May, pp: 18-21.4. FAO for prevalence of undernourishment; G. Stevens, G. Singh, G. Danaei, et al., "National, Regional and Global Trends in Adult Overweight and

Obesity Prevalences," Population Health Metrics 10 (22): 1-16 (2012).5. T. Kelly, W. Yang, C-S. Chen, K. Reynolds, and J. He, "Global Burden of Obesity in 2005 and Projections for 2030 ," International Journal of

Obesity 32: 1431-37.6. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Here’s Why and What to Do About It Harvard Business Review, April,

pp.: 104-111.7. Marcel Corstjens and Rajiv Lal (2012) Retail Doesn’t Cross Borders: Harvard Business Review, April, pp.: 104-111.8. K. Dunstan (2011) The Age “Our lost heritage is enough to drive a person to drink” http

://www.theage.com.au/opinion/society-and-culture/our-lost-heritage-is-enough-to-drive-a-person-to-drink-20110922-1kn4u.html#ixzz27GS2ENT5 viewed on 23.9.12

9. The Economist (2011) We are 7 billion http://www.economist.com/blogs/dailychart/2011/10/world-population retrieved on 23/9/1210.http://www.rediff.com/business/slide-show/slide-show-1-worlds-biggest-food-and-beverage-companies/20120416.htm retrieved on 23/9/1211.http://www.globalharvestinitiative.org/index.php/2012/06/notable-food-security-quotes-from-the-rio20-and-g20-conferences/ viewed on 1.10.1212.http://www.insideretailing.com.au/IR/IRNews/Top-25-retailers-5718.aspx and

http://www.deloitte.com/view/en_AU/au/industries/consumerbusiness/e2781160f279d210VgnVCM3000001c56f00aRCRD.htm viewed on 2.10.12 13.Nielsen top 100 brands report 2010 viewed on AFN website 26.9.12, Company Websites, Google14.Pratt, Anthony (2012) Global Food Forum, Melbourne, April

http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/story-fni2wt8c-1226623265405 viewed on 23.4.1315.Robins, Brian (2013) GrainCorp Defends GM Crops, The Age, Business Day, June 28.

Bibliography

• Company websites: Major Retailers & Consumer Packaged Goods companies as listed

• http://siteresources.worldbank.org/EXTPOVERTY/Resources/336991-1311966520397/Food-Price-Watch-March-2013.htm viewed on 23.4.13

• http://www.theaustralian.com.au/business/in-depth/australia-the-clean-green-food-bowl-of-asia/story-fni2wt8c-1226623265405 viewed on 23.4.13

• Stevens et al., "National, Regional, and Global Trends.“ http://www.pophealthmetrics.com/content/10/1/22 viewed on 29.4.2013

• http://www.fonterra.com/global/en/Our+Products/Our+Brands viewed on 22.7.2013

• https://www.new-nutrition.com/ viewed on 22.7.2013• http://

www.ausfoodnews.com.au/2012/07/23/australian-supermarket-giant-releases-full-year-results.html viewed on 23.7.2013

• http://media.corporate-ir.net/media_files/IROL/14/144042/fy12/2012_Full-Year_Results_Presentation.pdf viewed on 23.7.2013

Dermott Dowling

Director

T: +61 400 040 195

[email protected]

www.creatovate.com.au