Growth Versus Costs
In the face of rising fuel prices, many seem to believe that cutting costs is imperative and one of the best methods to stay afloat. Equally many believe that their competitors are keeping lean as well. Expansion plans are replaced by hopes of organic growths.
The age-old Chinese adage goes: Stagnation leads to regression. Depending on the context, it also translates into: One who does not advance loses grounds. Western retail giants have shown, however, that cutting costs is not the only or major game plan for everyone. Tesco, Asda and Carrefour have instead been cutting prices on the consumers’ side by offering cheaper food, in order to stay in the game and grow.
In Thailand, hypermarket giant Tesco Lotus has launched price-cutting campaigns to attract individual shoppers suffering from the higher costs of living, The Nation reports. The price cuts are part of Tesco Lotus’ ‘Roll Back’ campaign, an effort to help customers save money on essentials they buy every week.
In the UK, Tesco announced price cuts in the form of a weekend promotion designed to keep prices down for the customers. It will cut prices of 5,000 products and plans to introduce a further 3,000 cuts. Customers will benefit from a range of promotions such as buy one, get one free. Tesco has already cut more than GBP 400 million (US$791.1 million) from prices this year. Further emphasis will be placed on its cheaper, house-label goods.
And Tesco PLC is profiting from this. Its financials show that sales growth of items such as clothes, electronics and household goods had been slower than growth in food items “for the first time in a long while”. It reported a 9.4 percent rise in UK sales for the 13 weeks ended May 24 from a year earlier. Total sales jumped 14 percent, due to a 27 percent rise in international sales.
Still, others may contest: these are multinational enterprises with economies of scale to slash prices and continue investments without going out of business, even during hard times. Truth be told, there is no 101 or one-fits-all when it comes to business strategies. But while these hypermarkets’ house-label brands are becoming the fastest moving consumer goods, there are more contracts out there for manufacturers now.
As CFO Pushpamitra Das of Wadhawan Food Retail (P) Ltd said: “Retailing is a game of speed”. In India, the company’s growth plan is to end the year with 500 stores and increase by 300-400 outlets annually. Das added that retailers now have to aim to be in the top five in order to cushion themselves against an expected inflow of competitors into India in the next three to five years. If not, he warns, it would cost significantly more to keep up later. It is growth versus costs.
Manila, Philippines: A group of small-scale fishers in the Philippines has opposed a free trade deal between the EU and ASEAN. The Kilusang Mangingisda (KM), a coalition of 14 fisherfolk federations, held that under the freetrade agreement (FTA) framework of the talks, European countries would be able to gain access to and exploit the marine resources of the Philippines and all of Southeast Asia. The FTA could also worsen overfishing in the region, Bonifacio Federizo, chairman of KM, warned. The lack of a common set of regulations and policies could intensify overfishing if European fishing boats access Philippine and ASEAN marine waters. EU fishing boats could operate in its waters with no restrictions without a common fisheries policy in ASEAN, he stressed. Highly migratory species that straddle the marine waters of ASEAN countries were already vulnerable to overfishing, such as tuna, mackerel and sardines, Federizo stressed.
He also observed that the FTA would be made possible through the liberalisation of fisheries investments and the principle of parity and maximum frontloading. The liberalisation fisheries investments would lead to the removal of current restrictions on equity and the ban on foreign investments in near-shore waters under Philippine laws, which is worsened by parity and maximum frontloading. Under the ASEAN banner, Philippines is bound to give the same treatment to EU that it gives to other countries. Having allowed Japanese fisheries investments in the country’s waters under the Japan-Philippine Economic Partnership Agreement (JPEPA), the government is obligated to do the same for EU countries, Federizo said to Asia Pulse.
The FTA would also result in threatening the region’s commercial and small-scale fishers’ livelihoods. Stiff competition from the EU fishing vessels is expected once the Philippines open up its overfished and dwindling fishery stocks to the EU. Federizo also observed that the EU is using the FTA framework—the overarching guidelines in current negotiations on fishery access agreements between the EU and the African, Carribean, Pacific (ACP)—to push for liberal fishing access rights in ACP countries. The KM coalition called on the ASEAN governments to reject the framework and argued that the region’s fisheries are meant for the exclusive use and benefit of the region’s fishers. The fishery resources must be protected to ensure long-term food security in the region.
Sydney, Australia: The Dairy Farmers co-operative, valued at up to A$1 billion (US$961.5 million) is facing a potential foreign takeover as drought and rising fuel costs add to the worries of the co-operative’s 2,000 farmersshareholders, according to the Australian Financial Review. Dairy Farmers owns the Coon and Cracker Barrel cheese brands, Ski Yoghurt and Dairy Farmers white milk. The farmers expressed dislike in moving operations offshore, with the potential foreign buyout of Dairy Farmers following the path trodden by Arnott’s Biscuits, Vegemite, and Victa lawnmowers. A Japanese multi-national
corporation, Kirin Holdings, which also owns National Foods and a large stake in Lion Nathan, is one of the bidders for Dairy Farmers. National Foods already makes Pura milk, Yoplait yoghurt, and Kind Island cheeses, and was bought by Kirin from San Miguel. Another bidder is Italy’s Parmalat, involved in Victorian co-operative Murray Goulburn and own Pauls milk.
Canada’s Saputo and Singapore’s Olam are other bidders, while New Zealand’s Fonterra (who bought Nestle’s Australian yoghurt business) have already pulled out of the bidding. The Australian Competition and Consumer Commission will decide soon whether a National Foods-Warrnambool Cheese and Butter joint bid is anti-competitive. Meanwhile, it is reported that Australia’s milk production will drop five percent due to the drought, while farmgate milk prices have risen 50 percent in the past year.
Sydney, Australia: Fonterra has acquired Nestlé Australia’s yoghurt and dairy dessert business, including its Echuca factory. Financial terms were not disclosed but the companies said that the agreement becomes effective on September 1, 2008. Under the agreement, Fonterra will also acquire the long-term rights to manufacture, market and sell Nestlé’s yoghurt and dairy dessert brands in Australia under license, alongside its own existing brands.
The Ski brand, which is currently under license to Dairy Farmers, reverts to Nestlé in 2012, and will then be licensed to Fonterra. This acquisition represented a significant step for Fonterra in achieving its growth strategy in Australia, said John Doumani, managing director,
Fonterra Australia New Zealand.
“We currently do not have a national presence in Australia’s yoghurt and dairy dessert sector. By acquiring Nestlé’s yoghurt and dairy dessert business, it provides us with a national position and complements our existing portfolio where we hold leading national positions in cheese and spreads through our Mainland, Bega and Western Star brands.
“This agreement builds on Fonterra’s long and successful global partnership with Nestlé and makes good business sense for both parties,” said Doumani. Graham Campbell, managing director at Nestlé Australia, said having a significant ongoing Nestlé brand presence in the yoghurt and dairy dessert cabinets of Australian supermarkets is a key element of its strategy. “We have a successful track-record of marketing through arrangements of this kind, both in Australia and overseas,” Campbell said. “We believe that this new operation creates a soundly-based commercial entity that is well placed to be one of the leaders in the yoghurt and dairy dessert sector, and we are delighted that the vast majority of employees will be moving across to Fonterra.”
A similar arrangement was completed in 2005 when Nestlé moved out of the collection of milk from farmers and the manufacture of powdered milk in Australia, selling to Fonterra its Dennington factory in Victoria. However, Nestlé continues to market milk powders manufactured by Fonterra, to both local and export markets.
Sydney, Australia: Heinz Australia will launch at least a hundred new products from the Cottee’s line, boosting its marketing budget in the next 12 months, according to Foodweek. Heinz acquired the licensing rights to Cottee’s jam, topping and jelly brand from Cadbury Schweppes less than a year ago. The US$55.3 million deal included ownership of the Monbulk, Ice Magic and Choc Whiz Brands.
A new range of Cottee’s products will arrive on the shelves in the next few months, Heinz’s managing director, Peter Widdows, told the Australian Financial Review that the Cottee’s brand accounted for about eight percent of the group’s Australian revenue. He also said that although they have put a “reasonable amount of marketing support behind Cottee,” the major support had yet to arrive. The total Heinz marketing budget would rise 35 percent in the next year.
The company had spent about $23 million (US$22.08 million) on consumer marketing campaigns in 2007-08. However, the total marketing budget, including retail promotions, was much higher, underlying an intensive marketing campaign. The new products and bigger marketing budget were part of a global strategy announced by Heinz last month. The Australian business had lifted sales by 16 percent and its operating profit more than 30 percent in 2007-08. It now accounted for about seven percent of Heinz’s worldwide revenue.
“For the last five years we’ve had exceptional profit results and revenue growth. We’re about 50 percent bigger than we were five years ago now at the top line,” Widdow told AFR. The company’s targeted sales growth is in line with global expectation and an organic growth of eight percent has been achieved. The firm’s success is attributed to innovation, Widdow said. Fourteen percent of the total revenue each year is derived from new products. Marketing budgets would also rise for various Heinz-branded products such as baked beans and tomato sauce.
Wellington, New Zealand: As a result of the international food shortages, countries are ready to enter free-trade agreements (FTA) with New Zealand, said Prime Minister Helen Clark, according to a report by 3media Group Ltd. The dairy industry will be among those that stand to benefit most, gaining access to countries such as Japan and Korea, she told an agribusiness conference in Wellington in late May. New Zealand’s strategic approach to push for trade is nearing fruition as a network of FTAs throughout East Asia is now within the
government’s grasp. Clark said, “The biggest gains undoubtedly will flow to our economy’s most important sector - the pastoral and food industries.”
New Zealand has signed an agreement with China, in the process of one with the Association of South East Asian Nations (ASEAN), and may enter into negotiations with Korea. In light of these developments, Japan would not want to be left behind, Clark predicted. India and the Gulf states of the Middle East are also working on agreements with New Zealand. New Zealand’s network of FTAs extend to Thailand and Singapore, and is part of a four-way deal with Chile and Brunei. Under the fourway deal, the US is involved in the next stage to liberalise financial services and investment arrangements.
Because the Doha round of talks has stalled for six and a half years, Clark emphasized the importance of direct negotiations for market access with other countries, while also working hard at the Doha round. She identified long-term factors that had resulted in inflated international prices for dairy products and lambs such as the rise in global population, along with a growing middle-class in the “mega emerging economies” such as China and India.
The increased desirability of an FTA with New Zealand, for Japan and Korea, was due to several circumstances including disruptions in the price and supply of food which have resulted in riots. Clark also referred to scares about food quality as consumers worry about the impact of animal diseases on people, and also contamination in food processing. Climate change had also affected food supply—prolonged drought in Australia had removed significant volumes of production off the world market, and events such as the cyclone and flooding in Burma severely reduced the country’s ability to produce food.
“New Zealand fits the bill,” Clark stated. Both Japan and Korea need a reliable supply of good-quality food. Japan is New Zealand’s third biggest market and Korea the sixth biggest. Clark suggested there may be a clear coincidence of interests as New Zealand’s export interests are aligned with their import interests. Visits to both countries with business delegations, including strong representation in agribusiness early in May revealed “a far greater readiness” at the “highest levels in Japan and Korea” to discuss New Zealand’s trade access, Clark added.
A joint study on the potential of an FTA for Japan and New Zealand has begun. According to senior Japanese commentators, Japan’s agreement also indicated that it will carry through to the negotiation of an FTA. Meanwhile, New Zealand and Korea have agreed to preparatory talks about negotiations in the second half of this year, with a study completed 18 months ago.
The New Zealand government believes that negotiations with Korea would move quickly once they begin. Clark attributed this to her belief that both countries constitute “two of the most complementary economies in the Asia Pacific, and we have compatible negotiating approaches.”
While Clark saw a tremendous potential for New Zealand’s agribusiness in the international marketplace, she warned against complacency. Profits for agribusinesses need to increasingly come from downstream processing, investment in agribusiness offshore, export of agritechnology and services, and ensuring sustainable practice through the value chain.
Wellington, New Zealand: Prices from major liquor companies will rise by more than five percent as beer, spirits and ready-to-drink beverages become more expensive. DB Breweries, producer of Tui, Double Brown and Heineken, will raise prices by an average of 5.5 percent for pack beer and 5.3 percent for tap beer.
Lion Nathan, producer of Speights, Lion Read and Steinlager beer, will also increase prices by an average of 5.5 percent. Spirits and ready-todrink beverages will see an increase of around 5.3 percent. Wine drinkers face smaller increases.
Lion Nathan will increase the price of wine by less than four percent while DB Breweries does not sell wine. Liquor companies have blamed commodity prices for the price hikes, citing a price increase of 50 percent in the past year.
Wellington, New Zealand: New Zealand’s largest grocery supplier, Foodstuffs, has said that a government inquiry into food pricing competition would be a waste of resources, according to New Zealand Herald. The Australian Competition and Consumer Commission (ACCC) have been monitoring grocery price competition as households worldwide grapple with increasing food costs, said Commerce Minister Lianne Dalziel. New Zealand would await the report before considering the benefits of a similar inquiry.
A pricing code of conduct was suggested in Parliament to ensure fair competition and reasonable prices between New World and Pak’n Save, two firms dominating the New Zealand grocery market. Foodstuffs is a supplier to both New World and Pak’n Save. Its Wellington managing director Tony McNeil said that an inquiry would not reveal anything new. The inquiry would be a waste of time and money in an extremely competitive market, he stated. The firm’s profit margins had not changed despite rising prices, he added. “There’s no difference to what we were doing 10 years ago; what’s happened is that prices have gone up.” The company’s cost would increase by $3.5 million (US$2.7 million) this year, he said.
According to McNeil, however, each Pak’n Save store set its own prices and New World supermarkets are also individually owned and operated.
New Zealand: New Zealand’s largest listed retailers have begun to be affected by a decrease in consumer spending, according to the Otago Daily Times. A drop in discretionary spending by households hurting from rising prices in fuel, energy, and food has caused The Warehouse Group to cut its profit forecast for the year ending July 27 by about 10 percent to between NZ$84 million (US$63.5 million) and NZ$88 million. The previous profit range was NZ$94 million to NZ$98 million.
The key contributing factor to the profit revision was attributed to a marked downturn in consumer spending since the latter part of May, managing director Ian Morrice said in a statement to the New Zealand Stock Exchange. This “significantly reduced” the company’s sales and margin expectations for the remainder of the year. May sales were 4.8 percent ahead of last year on a same-store basis and reflected an expected improvement in financial performance following a difficult third quarter. Consumers had responded well during the period to a strong seasonal offer in both apparel and home products. However, retail spending and consumer confidence dropped drastically after increasing inflationary pressures on fuel and the cost of living. As a result, the company’s June and July sales were now forecast to fall well below previous expectations, he added.
Similarly, the Briscoe Group reduced its interim net profit forecast and warned that difficult trading conditions would continue. Its profits were downgraded to between NZ$2 million and NZ$3 million but ABN Amro Craigs has given a harsher reading of the company’s financial situation. ABN’s ebitda (earnings before interest, tax, depreciation and amortisation) were cut to NZ$16.3 million for the entire 2009 year, a more than 50 percent decrease from the 2008 result of NZ$39.8 million. 2010 forecasts only improved slightly to NZ$18.9 million. ABN broker has explained that because most retailers’ costs were fixed, negative comparable store sales and contractions in gross profit margin due to increased markdowns, had a disproportional impact on operating earnings.
Ho Chi Minh City, Vietnam: Vietnam, the world’s second-biggest exporter of rice, has allowed the increase of rice exports this year as the production is forecast to be able to meet both domestic demand and export. The country’s rice production this year will have a bumper crop with some 37 million tonnes, one million tonnes more than last year, according to the government. With the ample supply, there will be surplus rice to export more than 4.5 million tonnes of the staple. Prime Minister Nguyen Tan Dung said that prices were high enough for farmers to make a profit and increase supply at the same time. The report by Thai News Service added that the export target was cut to four million tonnes from 4.5 million tonnes in March.
The Prime Minister has lifted the cap on rice export volume and asked relevant agencies to help businesses boost the purchase of rice and achieve the highest efficiency in rice export. Previously, the government had banned rice exporters from signing new contracts until end of June to ensure national food security.
This year, Vietnam’s rice exports have surpassed the US$1 billion mark, with 2.7 million tonnes worth US$1.15 billion exported. Export volume has increased by 22 percent and export value doubled, compared to the same period last year. The Philippines has replaced Indonesia to become Vietnam’s top rice buyer, accounting for 46 percent of export volume. This is followed by Cuba with 10 percent. Indonesia dropped to the fifth spot and accounted for two percent of the export volume. Earlier this year, Vietnam had plans to export 800,000 tonnes of rice in the first quarter, 1.5 million tonnes in the second quarter, 1.4 million tonnes in the third quarter and 800,000 tonnes in the last quarter. Rice production could reach 37.58 million tonnes by 2010, 38.75 million tonnes by 2015 and 39.63 million tonnes by 2020, according to the ministry. Rice for export should be stabilised at 6.3-8.3 million tonnes in the period from 2010-2020.
However, Vietnam’s pepper export this year will fall short of the target of 80,000 tonnes. Only 35,000 tonnes have been shipped so far due to lowerthan-expected output. Because the peak of the harvest season for pepper has passed, it would be difficult to reach the export target this year, said Do Ha Nam, chairman of the Vietnam Pepper Association. The country earned US$140 million from exporting some 35,000 tonnes in the first five months of the year. Pepper export is expected to be slow in the later months of the year. Pepper harvest is also expected to worsen, which prompted many farmers to retain their output to wait for future prices to increase. Last year, Vietnam produced 100,000 tonnes of pepper and exported 82,000 tonnes of processed pepper, earning $300 million. Export earnings will remain positive this year due to good prices on the world market. At the moment, the price of pepper is some US$2.87 a kg, and the export price is about US$3,000 a tonne. Vietnam accounts for roughly 30 percent of the world’s pepper production and 50 percent of commercial output. It has some 50,000 ha under pepper cultivation with a yearly average output of some 100,000 tonnes.
Seoul, South Korea: South Korea has resumed quarantine inspections of US beef after an eight-month ban on US beef imports was lifted, according to Yonhap. This follows an April 18 trade protocol with the US, which allows the imports of beef from cattle no older than 30 months. The protocol also permits the import of backbones, ribs, and intestines.
The inspections are being conducted after five meat importers requested examination of their packages. “Inspectors went to nine warehouses where US beef is in frozen storage and picked sample packages for examination,” the National Veterinary Research and Quarantine Service (NVRQS) stated. Up to three percent of all US packages can be checked by Seoul, as opposed to one percent of those from Australia and New Zealand.
The lifting of the ban means that the 5,300 tonnes of US beef, held in cold storage since October, will be inspected and released into the market. Seoul halted all quarantine inspections in early October after repeatedly finding banned backbones in its imports. According to an NVRQS official, “The examinations will be focused on determining if the contents of the boxes match the export labels and on making sure that the frozen beef has not spoiled during storage, which will require visual checks and temperature readings.”
Seoul can send back or destroy any shipments that have labelling discrepancies. Meanwhile, new shipments of beef that meet the protocol’s guidelines may not reach South Korea for at least a month. The Ministry for Food, Agriculture, Forestry and Fisheries says it will be another two weeks before importers establish an age-verification programme for meat designated for South Korea. The ministry further adds that it takes 15 days for the meat shipments to reach South Korea from the US by boat. Therefore, new imports can only be expected by the end of July or early August.
Mumbai, India: India’s retailers are unlikely to see much of a slowdown in their growth plans as most existing players have tied up finances for the next six to nine months, Reuters reported. Deep pockets have also kept growth strong. Large Indian firms include Reliance Industries Ltd , RPG Enterprises, Bharti Enterprises and the Aditya Birla group, which have entered the country’s estimated US$350 billion retail market. These have also been joined by foreign competitors, including Germany’s Metro and South Africa’s Shoprite Holdings. Bharti Enterprises has announced its intentions to increase its retail presence with US partner Wal-Mart Stores Inc. The Indian retail market is expected to nearly double by 2015.
“Retailing is a game of speed,” said Pushpamitra Das, Chief Financial Officer of Wadhawan Food Retail (P) Ltd. Retailers now have to aim to be in the top five in order to cushion themselves against an expected inflow of competitors into India in the next three to five years. If not, he warns, the investments required later will be significantly higher. It’s growth versus cost. The company, of which 20 percent is held by Dewan Finance Corp, has major growth plans in place. It will end the year with 500 stores and will increase 300-400 annually at an investment figure of 3-5 billion rupees (US$694 million-US$1.16 billion). Despite inflationary pressures, Indian companies such as Spencer’s Retail Ltd, of the RPG Group, have stated that they “are not facing any changes” in their “expansion plans.” Inflation increased to 11.42 percent in June, the highest in more than 13 years. Fund raising will also be more expensive after India’s central bank increased its key lending rate and cash reserve requirements for banks.
Meanwhile, consumer spending in organised retail has started showing signs of down-trading in commodities. But this trend is not evident in other segments despite the double-digit inflation scenario, company officials and analysts reported. Spencer’s stores reported growing revenues of 15 percent every month. It is expected that larger financial commitments like home loans and autos, would be postponed first. Personal goods expenditure is still 3-6 months away, noted an analyst at Angel Broking. Generally, retailers have noted inelastic demand for food products. Otherwise, it could be supplemented with food promotions to draw customers and help sell other products better. However, consumers have started to downtrade in edible oils, specifically from sunflower to soya oil.
Pantaloon Retail, which runs the Food Bazaar hypermarket chain, posted a net profit of 321 million rupees (US$7.48 million) on net sales of 13.5 billion rupees (US$314.8 million) in the quarter to March 2008. Shares in the retailer were down almost 46 percent in the first half of the calendar year. Inflation has been noted only in food and grocery, Wadhawan Food’s Das said. The penetration of organised retail at one percent, was very low.
Bangkok, Thailand: Hypermarket giants Tesco Lotus and Carrefour have launched price-cutting campaigns to attract individual shoppers suffering from the higher cost of living, The Nation reports. The price cuts are part of Tesco Lotus’ “Roll Back” campaign, an effort to help customers save money on products they really need and buy every week. Tesco Lotus said it would cut the prices of 500 products an average of 7.5 per cent - equal to the current rate of inflation. Products were chosen based on their high basket penetration and include both brand and in-house products ranging from rice to fresh food items, detergent, diapers, milk and toothpaste. Tesco has conducted such campaigns for six years and during the period, an estimated Bt1.5 billion (US$448 million) was saved by shoppers, with more than BHT 600 million (US$17.8 million) “saved” in the past two years.
Carrefour also announced a joint promotion with consumer-product giant Unilever, which is called the “Smiley 4” advertising campaign. From June 27 until July 24, every Bt379 (US$379) spent on specific Unilever products at Carrefour branches will allow customers to select a free product that includes detergent, fabric softener, shampoo, shower cream and skin lotion and cream. The campaign is expected to boost Carrefour’s sales by a significant margin. More than 500 items under 18 leading brands are involved in the price cuts, said a Carrefour spokesperson. A lucky draw campaign will also be conducted. Prizes include a Mazda car and one year’s worth of free petrol.
Jakarta, Indonesia: Production costs will be controlled in the wake of rising fuel prices but production will be maintained at last year’s level, officials of the world’s largest instant noodle maker, PT Indofood Sukses Makmur Tbk said. Indonesians numbered among the world’s biggest consumers of instant noodles, consuming an average of 60 packs per person a year. Prices were raised in April 2008 but production will be equivalent to last year’s noodle production of around 13 billion packs, said Franciscus Welirang, the firm’s vice president director, to Reuters.
Indofood has a market capitalisation of US$2.5 billion and is controlled by Indonesia’s Salim family through Hong Kong listed First Pacific Ltd. It also controls two of the world’s largest flour millers through its unit, Bogasari Flour Mills.
Production costs will be maintained through reducing imports and substituting imported products, such as wheat, with domestic products. Fuel alternatives such as coal will be used instead of a sole dependence on diesel. Oil prices remained steadily on the increase as tumbling global stock markets triggered a wider commodities rally.
Indonesia has raised fuel prices by an average of around 29 percent due to ballooning subsidies following high global oil prices, which partly triggered annual inflation to hit a 20-month high in May. Prices of raw food, which include rice, rose 18 percent in May from the year-ago period in Indonesia. This compared to a 16 percent annual increase in the previous month.
About 92 billion packs of instant noodles were consumed in the world in 2006 including about 47 billion in China, 14 billion in Indonesia, 14 billion in the United States, and 5.4 billion in Japan, according to industry figures. Indofood is expected to post a net profit of 1.3 trillion rupiah (US$141.2 million) this year, up from 980.4 billion in 2007, analysts polled by Reuters Estimates said.
Beijing, China: China has enough grain stockpiles to meet domestic demands completely, according to SinoCast China Business Daily News. A total of 320 million tonnes of grains were stocked in 2007 by 180,000 companies, in comparison to 540,000 companies with 205 million tonnes of grain stockpiles in 1999, said Qie Jianwei, deputy head of the State Administration of Grains. Grains supplies in the nation’s 13 major production areas have outperformed demands. Grain self-sufficient ratio in seven major sales areas has also fallen further. However, vegetable oil supply is experiencing a shortage in the nation, with 60 percent dependency ratio on foreign trade.
China’s current grain storage system is established via a market-oriented system and progress in the construction of grain storage infrastructure. This increased the nation’s ability to guarantee food safety. China will also strengthen macroeconomic control of grains under grain safety pressure.
Beijing, China: In a further development of Danone’s lawsuit against Wahaha, a Chinese court has ordered a director appointed by France’s Groupe Danone SA (BN.FR) at its beverage joint venture with Chinese partner Hangzhou Wahaha Group Co to halt his duties at the venture. The director, Qin Peng, has also been ordered to pay the Shenyang Wahaha Beverage Company Ltd in northeast China a total of RMB 400,000 (US$58,000) to cover the joint venture’s losses, according to the judgment by the Shenyang Municipal Intermediate People’s Court, Dow Jones reported. Whilst being a director of the Shenyang Wahaha, Qin also served as a director and chairman at other companies competing with the venture, according to the judgment.
Qin’s concurrent titles included chairman of Robust (Guangdong) Drinking Water Company Ltd and director of Bright Dairy & Food Co, the judgment said.
“Sales, product price and market share of the third party (Shenyang Wahaha) all dropped. This is a result of competition from companies including Robust,” the judgment said. The defendant was ordered by the court to compensate the third part’s losses as a result of Qin violating China’s company law. According to Chinese law, Qin could appeal to a higher court in 30 days if he disagrees with this judgment for first instance.
The French dairy and baby food company Danone had waged a public battle with Wahaha for several months. Its founder Zong Qinghou was accussed of developing a separate business in direct competition with the Wahaha-Danone business. The dispute centres around the joint venture’s ownership of the Wahaha trademark and Danone’s allegations that Zong was illegally selling products identical to those sold by the companies’ joint ventures.
Hubei, China: Wuhan City’s crawfish breeding area in the low-output paddy rice fields and water surface almost tripled to 10,266.67 ha in the first six months of 2008 over the same period last year, according to information released by the Ministry of Commerce on June 26. The city’s crawfish output has now reached 1,898 tonnes so far this year, up by 53 percent over the same period in 2007, Xinhua reported. Given that the crawfish peak production season runs from June to November, Wuhan’s crawfish breeding area is expected to hit 11,333.33 ha by the end of 2008, with its output to break through the 24,000 tonnes mark and to rank first among other special products.
Henan, China: Zhengzhou City’s bulk soybean oil sales price surged by 60 percent year-on-year to RMB 14.4 per kg (US$2.10/kg), according to information released by the Henan Provincial Department of Commerce. The high price was attributed to the constantly increasing soybean import price. Based on statistics from Zhengzhou Customs, Henan Province’s soybean import volume and value hiked in the first five months of 2008 by 57.5 percent and 2.9 times year-onyear respectively to 321,000 tonnes and US$190 million, with the average soybean import price surging by 83.3 percent to US$603.2 per tonne.
Shanghai, China: Kirin Food-Tech Co will launch a sales company in Shanghai to sell its lineup of seasonings and food additives to food makers, according to Nikkei Report. Some US$600,000 will be spent on the distributor, which will open for business with four employees. Products in the lineup include gelling agent Curdlan and Ribotide, which enhances the “umami” flavor found in shiitake mushrooms, dried bonito flakes and other foods containing glutamate. The products will be procured from a Kirin Food-Tech factory in Indonesia that went online in March.
Shenzhen, China: Foreign-branded wine imports are on the rise in cities in the Pearl River Delta, according to the SinoCast China Business Daily News. Statistics by Guangdong Customs indicated that the import volume of wines reached 13.78 million litres in 2007, an increase of 110 percent. The import value amounted to US$80.80 million. In 10 years, imported wines have achieved a high penetration into the market.
Industry experts have indicated that foreign brands are attracted to Pearl River Delta’s predominant geological location and its strong purchasing power. Pearl River Delta’s proximity to Hong Kong means that it is located near the distribution centre of imported wines. Hong Kong’s cultural knowledge of wine has also spread to Chinese mainland cities, triggering an increased demand. Drinking wine has become fashionable in Guangdong cities like Shenzhen, Guangzhou, Dongguan and Zhuhai.
Guangdong’s huge population of 100 million has enabled it to become the biggest wine market in China, attracting several specialized wine importers such as Aussino and Jointek and a large number of resellers and distributors. The number of importers and distributors are also on the increase as companies from other industries enter the imported wine industry. As the largest alcohol market in China, the citizens of Guangdong spend more than RMB10 billion (US$1.45 billion) annually in liquors, wines, and beers. Guangdong has become the most important strategic market for domestic and foreign wine makers due to the willingness of consumers to try new things. Foreign brands such as Chivas, Jack Daniels, Napoleon, Remy Martin have been well received in the Pearl River Delta area.
Hong Kong: The Hong Kong Special Administrative Region government gazetted the Food Business (Amendment) Regulation 2008 which requires no live poultry be kept at retail outlets overnight to protect public health and further reduce the risk posed by avian flu, Xinhua reported.
Under the new legislation, those permitted by the Director of Food and Environmental Hygiene of Hong Kong to sell live poultry by retail, including public market stalls and fresh provision shops selling live poultry, must slaughter any live poultry remaining in their stalls or shops by 8pm every day. From 8pm to 5am the next day, live poultry will not be allowed at such premises. Offenders risk having their permission revoked and will be subjected to a a maximum penalty of HK$50,000 (US$6,410) and six months of imprisonment.
Retailers are also required to thoroughly cleanse and disinfect the retail premises every night and strictly adhere to existing measures such as wearing protective gear. Failure to observe these rules will result in the termination of the licence or tenancy.
The legislative amendment was based on an imperative need to enhance the ability to prevent any possible spread of avian flu in Hong Kong, therefore reducing the risks of human infection. The principal mode of transmission of the avian flu virus from poultry to human is through contact with live poultry or their faeces. Therefore, the most effective way to minimize the health risk posed by avian flu was to reduce as much as possible the contact between human and live poultry, a spokesman for the Food and Health Bureau of Hong Kong said. The new regulations take effect from July 2.
New York, US: McCormick & Co Inc has increased its net income to US$53.3 million, or 41 cents per share, after raising prices by about five percent to offset the higher commodities costs. It posted a record second quarter for end May 31, compared with US$41.4 million, or 31 cents per share, for the quarter a year ago. Excluding restructuring charges and credits, per share earnings were 39 cents, an 11 percent increase over a year earlier and in line with the expectations of analysts surveyed by Thomson.
“The sales results are evidence that our growth initiatives are resonating with customers and consumers, and our pricing actions and profit performance demonstrate that we are effectively managing through an unprecedented period of rising costs,” Alan D. Wilson, president and chief executive, said during a conference call with analysts. Revenue rose to US$764.1 million, up 11 percent from the second quarter a year ago. Sales had benefited from favourable exchange rates in other countries given that about 40 percent of McCormick’s sales are overseas. Product mix also helped. However, a slowdown in consumer spending at restaurants has cut into the company’s sales. Gross margins were also low because of commodity prices.
“As the year progresses, the trend in terms of margin should improve and head in the right direction,” said Matt Arnold, an analyst who follows the food industry for Edward Jones. McCormick raised its sales expectations for the year, from five percent to seven percent, to what it called a high single-digit. It reaffirmed earnings per share of US$1.97 to US$2.01 for the year. The company continued to see what it termed as benefits from a cost restructuring programme. A US$10 million benefit is expected this year from the final stages of the three-year restructuring. Billy Bee Honey Products, which the company bought this year, will be consolidated with a facility it has in Canada.
The organisation has also increased its advertising and marketing spending by 10 percent for the year to woo customers in an increasingly volatile economic environment. This is to offset the increase in prices. Increased revenue through volume will also allow the company to maintain prices and stay competitive. McCormick also said it was still working to close a US$605 million deal announced in November to buy Lawry’s and Adolph’s brand seasonings and marinades from Unilever PLC. The deal is still going through the regulatory process with the Federal Trade Commission. The acquisition is big enough to raise concerns over the competitiveness of the seasoning and spice industry.
Arizona, US: NutraCea, a company specialising in stabilised rice bran (SRB), nutrient research and technology, has signed a definitive agreement with China’s Bright Food Investment Group, to build a rice bran oil refinery which is expected to process an estimated 500,000 metric tonnes of raw rice bran annually. The rice bran will be processed
into rice bran oil, new patent-pending defatted rice bran and stabilised rice bran, all of which will be used in a range of food applications.
According M2 EquityBites , NutraCea will provide 80 percent of the capital and retain 72 percent of the ownership and profits of the venture. Bright Group and a strategic advisor to the venture will contribute 20 percent of the capital and receive 28 percent of the profits. The facility, expected to be completed in 2010, is claimed to be the world’s largest rice bran oil and rice bran derivative manufacturing plant, with a capacity to produce in excess of US$200 million in annual gross revenues, based on current market prices.
Mexico City, Mexico: Mexican soft drink bottler Coca-Cola Femsa SAB (KOF) had acquired a Brazilian bottler owned by Coca-Cola Co (KO) for US$364.1 million. The purchase is still subject to the approval of Brazilian antitrust authorities, Coca-Cola Femsa said in a press release. The transaction would enable Coca-Cola Femsa to expand its Brazilian presence by more than a third and substantially increase the number of clients and customers served, said Carlos Salazar, chief executive of Coca-Cola Femsa. The company, which serves 15 million people in 13 cities, posted a net revenue of about US$450.1 million last year. Its consolidated operations in Brazil will represent about 30 percent of the Coca-Cola bottling system in that country, serving more than 41 million consumers, according to Dow Jones.
Copenhagen, Denmark: Danish brewery group Carlsberg A/S has extended and expanded its cooperation agreement with the Coca-Cola Company, according to Dow Jones. In line with the new agreement, Coca-Cola will acquire Carlsberg’s Danish mineral water brands Kildevaeld and Kurvand, and the Finnish soft drink brand Hyvaa Paivaa. Coca-Cola will also sign license agreements for the mineral water Ramlosa in Denmark and the energy drink Battery in Finland. The combined sales price for the brands amounts to US$225 million for Carlsberg. Headquartered in Copenhagen, Denmark, Carlsberg is an international brewery group with production in some 50 countries and sales in some 150 countries. The company has 30,000 employees and reported revenue of KK44.75 billion (US$9.40 billion) in 2007.
London, UK: UK’s two largest supermarkets, Tesco and Asda have both announced price cuts but dismissed reports of an impending price war. The price cuts took the form of a weekend promotion designed to keep prices down for the customers, said a spokesman for Asda. It has also dropped the price of ten “top selling” groceries, including bread, butter, eggs, fruit and vegetables, to GBP 0.50 (US$0.99).
“Customers can cash in on the offer safe in the knowledge that ASDA is
footing the bill and costs will not be passed on to suppliers,” Asda said.
“This is the latest in a string of price investments reinforcing the retailer’s position as Britain’s lowest-priced supermarket,” the UK unit of Wal-Mart said to The Evening Standard.
Meanwhile, Tesco also claimed to be the UK’s best value supermarket and offered similar promotions, priding itself upon giving customers great value and helping people to make ends meet. Tesco will cut 5,000 prices and plans to introduce a further 3,000 cuts, a spokesperson said. Customers will benefit from a range of promotions such as buy one, get one free. With rising fuel prices, Tesco has also offered vouchers off pump prices at the petrol stations. The move comes amid UK consumers tightening their belts in response to the global economic downturn, credit crunch, and rising prices.
The credit crunch has triggered a radical change in the way that Middle England shops for food, with recent figures showing an unprecedented sales boom at budget supermarkets such as Aldi and Lidl. Aldi, the German-owned discount chain, has experienced a 20 percent rise in sales over the past four weeks—the fastest growth rate in Britain. The number of shoppers visiting its 400 stores has increased by a quarter in the past three months. Iceland, the frozen-food supermarket chain, has registered a 15 percent rise in sales. On the contrary, Marks & Spencer, suffered a 3.2 percent fall in takings in its food halls in the past month.
Andy Clarke, Asda’s retail director, said: “It’s going to be a tough year and the retailers that drive value the hardest will win with customers.” Tesco has already cut more than GBP400 million (US$792.85 million) from prices this year. Further emphasis will be placed on its cheaper, house-label goods. Almost one third of goods in the big four supermarkets are on special offer now, up from one fifth a year ago. One retail executive said Tesco has been “arming itself” in recent weeks by trying to cut down prices on the supply side, before a price war at the checkout. Tesco pockets nearly GBP1 in every GBP7 spent on Britain’s high streets. The recent passing of a Competition Commission inquiry into the sector also meant that more price differentials will result in a period of 9 percent food price inflation. High
cost of items such as pasta, eggs and cheese has been blamed for Britain’s inflation rate hitting its highest level for nearly 18 years.
Analysts believed that the recent series of price promotions have been little more than skirmishes because supermarkets have feared that a fullblown price cutting campaign would harm their profits. Now they have no alternative if they want to get families through their doors. Sainsbury’s started a “Feed Your Family for a Fiver” campaign in March, backed by the celebrity chef Jamie Oliver, while Morrisons cut the price of 2,000 items.
Asda has started selling a 2p sausage —16p for a packet of eight—and has slashed the price of mince from 96p to 50p. Its 50p promotion is being seen as an attempt to tackle discounters such as Aldi and Lidl head on. With retail experts convinced that more high street stores will collapse, the grocery sector is one of the few areas of the high street left unscathed by the credit crunch.
New York, US: By repackaging old brands and reintroducing them to the market, Jarden Corporation entered Fortune 500 for the first time this year. The umbrella company owns more than a hundred brands, some of which include Sunbeam, Oster, Rawlings, K2, Hoyle, Mr Coffee, Crock Pot, and First Alert. It is also the market leader in various retail categories like kitchen electronics, playing cards, tents, and grill-gas canisters.
In 2007, Jarden Corporation achieved a total of US$4.7 billion in revenue, up from US$305 million in 2001. It is the fifteenth largest US importer from China (measured by the number of shipping containers) and a top supplier to Wal-Mart. “Size,” said Richard Heckmann, who sold his company to Jarden, “is the only thing that gives you power these days. Little companies have no chance.”
Its CEO, Martin Franklin, aims to build Jarden into a consumer-products empire with a reliable reputation. Costsaving plans were executed at Jarden’s acquired companies and distribution channels were combined with existing businesses. Such savings were then reinvested into product development. A Sunbeam employee said that before Jarden, investment was directed into their brands at the life-support level. After Jarden acquired Sunbeam, Oster, and Mr. Coffee, their products were redesigned, converting their whiteplastic lineup to stainless steel. Oster’s blenders have led to the creation of Margaritaville, a line of frozen-drink blenders worth US$40 million since
2006.
In 2007, Jarden’s shares peaked at US$44 as compared to less than US$3 in 2000. Prior to that, Jarden’s 2006 Ebita—earnings before interest, taxes, depreciation, and amortization costs—grew 8.4 percent to US$271 million, a year with no big acquisitions. “They’ve proven they can do more than acquire,” said Bill Chappell, an analyst at SunTrust Robinson Humphrey. However, the staying power of a company with a mountain of brands has been questioned by critics. A group of short-sellers, including James Chanos of Kynikos Associates, believe that Jarden’s US$2.4 billion in long-term debt is too much, taking into account a credit crunch and a pullback in consumer spending. Two market analysts have also recently cited the market’s concern about the quality of Jarden’s accounting as a downside risk.
A recent report on Jarden by Gradient Analytics, an independent research firm, highlighted that one-time restructuring charges could be used to obscure profit drops. The CEO has dismissed the critics’ charges as baseless. “There’s not really much I can do about that. They haven’t met me, they don’t know me,” he said. Meanwhile, the CEO also expressed confidence that consumer spending will recover soon enough to support the conglomerate.
Texas, US: Many supermarkets and restaurants have pulled raw red tomatoes off the shelves and menus entirely after three types of raw tomatoes have been linked to a nationwide outbreak of salmonella. As a result, interest in organic produce as an alternative supply has increased, according to Drug Week. Tom Morrison, CEO of Organic Alliance, Inc (OAI) said, “Restaurants are scrambling to find replace source and I believe OAI will be the one to fill their needs.”
In addition to food safety and environmental responsibility, Organic Alliance and its affiliated growers and alliance members are dedicated to yield and cost control, helping educate farmers about market availability and bulk supply purchasing. Organic foods are produced according to certain production standards, meaning they are grown without the use of conventional pesticides, artificial fertilizers, human waste, or sewage sludge. Furthermore, these foods are processed without ionizing radiation or food additives. Livestock are reared without the routine use of antibiotics and without the use of growth hormones. In most countries, organic produce must not be genetically modified.
“Our philosophy at Organic Alliance is relatively simple,” stated Tom Morrison. “We will only deliver to our customers organic foods that meet our high USDA certified standards. We help ensure this by staying very involved in our suppliers’ soil care initiatives and post-harvest crop rotation strategy.”
The organic market has been growing stronger and stronger over the last couple of years with an increased presence of organic supermarkets. The US organic food and beverage industry continued its dramatic growth reaching US$18.9 billion in consumer sales last year. Organic Alliance, Inc. has also released details on its plans to become one of the world’s leading providers of USDA certified organic crops to many of the country’s leading consumer package goods manufacturers, food processors, grocery, and retail restaurant chains.
Michigan, US: Kellogg Company has announced a new line of fibre foods that features a higher fibre intake combined with great taste, according to Drug Week. All-Bran Fiber Drink Mix and All-Bran Fiber Bars each feature a robust 10g of fibre per serving and one such serving makes up 40 percent of an adult’s daily value for fibre.
According to data from the National Health and Nutrition Examination Survey, only one-in-10 Americans get the recommended 25-30 grams of fibre each day. The Kellogg Company aims to fill this gap. “While new All-Bran Fiber Bars and Drink Mixes certainly taste great, we’re excited because they offer a substantial amount of fibre per serving—fibre that many consumers aren’t getting enough of,” says Dr.Jennifer Garrett, director of nutrition marketing with the Kellogg Company.
The convenience of the products means they are easy to fit into the daily routine, ideal for those who experience irregularity due to prescription medications or pregnancy. “Everyone should be looking for more ways to up their fiber intake,” recommends Dr. John Johanson, practicing gastroenterologist at the Beloit Clinic, in Beloit, Wisconsin.
Colorado, US: Parents magazine has named Red Robin Gourmet Burgers (Red Robin) one of the 10 Best Family Restaurant Chains in the US. The accolade was given based on Red Robin’s family-friendly atmosphere, new kids’ menu with nutritious side options, detailed yet easy-to-understand allergen guides, and kid-focused programmes. Parents surveyed more than 50 fullservice and buffet-style restaurant chains before revealing their top ten list.
“We are thrilled to be recognised as one of Parents magazine’s 10 Best Family Restaurant Chains,” said Eric Houseman, Red Robin president and COO in the Immunotherapy’s report. “This honour is a true testament to Red Robin’s unwavering commitment to providing our guests with exceptional guest service, high-quality food and a welcoming and fun, family-friendly dining experience.”
Geneva, Switzerland: The World Trade Organisation Doha Round of talks to reach a deal to liberalise global trade has took seven years but it seems the urgency to finalise the talks has finally reached a peak.
Mediators in the core agriculture and industrial goods negotiations issued new proposals last month as WTO Director-General Pascal Lamy called for ministers to reach a full deal on the Doha round in 2008, according to NZ Dairy Exporter. These proposals will trigger further negotiations, trade-offs between farming and manufacturing—the two toughest areas—and ultimately a meeting of ministers to make political decisions on the cuts in tariffs and subsidies.
This illuminated the prospects of increased cuts for various national products, such as sheep meat and diary products, and an end to other trade-distorting agricultural subsidies. As part of the deal, the US will cut its agricultural subsidies and the European Union will cut its farm tariffs to open its protected food market. Developing countries will open their markets for manufacture to richcountry corporations but will request waivers on tariff cuts to protect subsistence farmers and fledgling industries. Subsequently, wealthy nations want gains in market access elsewhere in return for the concessions they make.
The US and EU farmers had protested the revised agreements did not go far enough to open up markets in developing countries. Canada also resisted as the revised proposals issued by WTO mediators would expose its poultry and dairy markets to more imports. The country’s dairy and poultry producers and processors were determined to defend a protectionist regime that controls production and prices, and limits imports with high tariffs to stabilise local incomes. Under this system, the Canadian government regulates supply to match demand. Imports are blocked with tariffs averaging more than 200 percent while prices are set by a special farmer-dominated commission. Canadian Agriculture Minister Gerry Ritz has tried but failed to have all protected agriculture designated as “sensitive products.” Products in this category are subject to smaller cuts in tariffs than other products.
Meanwhile, both houses of the US Congress have passed a Farm Bill that increases subsidies for farmers and food stamps for the poor as food prices soar. The bill maintains the majority of American trade-distorting subsidies categorised as WTO’s “amber box” provisions, containing domestic farm subsidies that member countries have agreed to reduce but not eliminate. A disappointed Pascal Lamy said the Farm Bill sent a wrong message to the Doha round of talks. The Farm Bill has been cited by several countries as a sign that the US is putting in a lackadaisical effort to reduce subsidies and calls into question the US’s role in the negotiations. According to US government statistics, net farm income in the US will reach US$92.3 billion this year, more than 50 percent higher than two years ago. High food prices have also resulted in windfall profits, with wheat prices 87 percent above their five-year average, soybean prices up 70 percent, and corn prices up 90 percent.
President George Bush had vetoed the Farm Bill twice—which will give US farmers US$290 billion of extra support over five years—but US Congress passed it with a margin big enough to override both presidential vetoes. American analysts say Congress is unlikely to support a Doha agreement that conflicts with the bill’s programmes. According to Reuters, the US Ambassador to the WTO, Peter Allgeier, said the bill would be amended to comply with a Doha agreement that is acceptable for all countries. “The best antidote to the farm bill is a strong Doha package with significant new market access openings in areas that are of importance to us,” Allgeier told the American International Club in Geneva.
Amid fears that the new texts could decimate Europe’s agriculture industry, Irish farmers asked their government to veto the proposals. Europe farm groups believe that the new texts could cost the industry US$45 billion in lost income if carried out. The EU’s sensitivegoods list is likely to include beef, dairy, poultry, sugar, cereals and other farm
products.
In Geneva, New Zealand’s ambassador to the WTO and chairman of the agriculture negotiations, Crawford Falconer, reported “incremental” progress. Delegations were given approximately a week to achieve results. The goal is to simplify political options and remove technical differences as members prepare for the negotiations that combine agriculture with nonagricultural market access. WTO’s 152 members have agreed to complete the round by the end of 2008, before a new US administration forms.
Belize City, Belize: The government of Belize has given the green light for the importation of rice from Mexico and the US, Caribbean Net News reported. The Belize Marketing and Development Corporation (BMDC) received its first shipment of imported rice on June 10. The first shipment consisted of 44,000 pounds of rice. Belize will be importing 1.5 million pounds of rice to offset a severe shortage currently being experienced, according to the managing director of BMDC, Roque Mai.
The shortage of rice followed the massive flooding by Tropical Storm Arthur, which wiped out rice crops in the northern part of the country. Five million pounds of paddy were reported destroyed by farmers in Blue Creek, Orange Walk, who form the majority of the local suppliers of rice.
The decision to import rice was made after the BMDC consulted with the Ministries of Agriculture and Economic Development and the office of Prime Minister Dean Barrow. According to Carlos Moreno of Belize Food Supply, his organisation supplies 3,500 bags of rice weekly, about 350,000 of an estimated 1.3 million pounds of rice consumed by Belizeans monthly. Moreno adds that the shortage is due to the panic created by the shortage and expects the problem to be relieved soon. He further adds that present rice stockpiles can last for three months and new crop is already being planted.
Washington, US: Leaders in agricultural economics, the environment and the food industry have urged the US Environmental Protection Agency (EPA) to rethink its ‘food-to-fuel’ policies in light of the recent flooding in the Midwest and the rising cost of food around the world spurred by record commodity prices. At the moment, EPA is considering Texas’s governor Rick Perry’s ethanol mandate wavier request to reduce this year’s Renewable Fuel Standard (RFS) by half.
Dr Thomas Elam of FarmEcon LLC discussed the findings of a new analysis submitted to EPA. It discovered that RFS’—which mandates nine billion gallons of ethanol be blended into the nation’s fuel supply this year—“effects on food prices and security are huge.”
“In light of recent events, it is imperative that the government re-examine and reduce these mandates. We are facing tighter and tighter supplies of grain that threaten to devastate meat, dairy and poultry producers and cause food price increases for the American consumer,” said Elam to the Life Science Weekly.
Concern was also expressed about the persistence of ethanol policy in the face of environmental damage. According to Richard Wiles, executive director of the Environmental Working Group, “This year’s nine billion gallon RFS mandate will cause an estimated 100 million tonnes of soil erosion and put 300,000 tonnes of nitrogen fertiliser into Midwestern waters.” He concluded that is too high a price to pay for a biofuel policy that strains family food budgets for the poorest Americans, and is doing almost nothing to lower gas prices.
Representatives of the cattle and poultry industries echoed the urgency of granting the waiver request. The mandates, tariffs, and subsidies have hit these industries hard as the corn and soy used to feed animals comprises the bulk of their input costs. The price of corn has increased by over US$3 per bushel since the current RFS became law six months ago. Soy prices have also risen to meteoric heights.
James Herring, president and CEO of Friona Industries, added, “The beef industry has been able to hold off on increasing customer prices dramatically, but the cost of feed has now tripled and consumer prices cannot stay down forever. One-third of America’s corn crop is slated to become ethanol this year, but that corn could instead be used to feed people and animals and keep grocery bills from skyrocketing.”
The potential for a scarcity of grain is becoming more pressing as Midwest flooding has affected this season’s corn and soy crops. The destruction of grain also called into question other industries that depended on the grain, for instance, the turkey industry. Already, the diversion of corn to the fuel industry has raised the prices of inputs for the turkey farmers. They argued that the EPA should accept Perry’s mandate waiver and stabilise out-of-control corn markets. Numerous parties, such as the broiler industry and the pork producers, called for EPA’s action as well. With grain as a key input in many industries, it is not surprising. “Rising corn and soybean prices have cost the broiler chicken industry approximately US$5 billion since October 2006,” said Mark Hickman, head of Peco Foods, Tuscaloosa, Alabama, and former chairman of the National Chicken Council.
The aggrieved parties recognized that current prices were a result of many external factors, including increased export demands, floods, and rising transportation costs. However, they justified that ethanol mandates—responsible for a massive and indefensible detour in the nation’s corn supply—is entirely internal and within EPA’s control. Without changes in the ethanol mandate, these effects are only likely to get worse, commented Scott Faber, vice president for federal affairs for the Grocery Manufactures’ Association.
San Francisco, US: Corn and soybean futures have risen to new all-time highs as weather forecasts showed that heavy thunderstorms are returning to the Midwest, the nation’s major corn and soybeans producing area. Corn futures for July delivery rose to a new record of US$7.673 a bushel and soybeans climbed to US$15.998 a bushel on the Chicago Board of Trade, according to Life Science Weekly. Wheat futures also advanced to US$9.40 a bushel. Corn was last seen up 0.4 percent at US$7.568 and soybeans were last up 0.6 percent at US$15.83.
Dale Mohler, senior meteorologist at AccuWeather said crops have been under water for weeks and the new storms “will exacerbate the flooding pretty quickly because the land has already been saturated”. Shawn Hackett, president of agriculture futures brokerage Hackett Financial Advisors, said if rain continues in July, corn could be pushed up to US$10 a bushel. The US Department of Agriculture is expected to release a crop acreage report on Monday assessing the impact of the Midwest flooding. Millions of crop acres could have been lost, Hackett said, and the losses could get worse as more acres are likely to be abandoned at a later stage. The USDA projected in June - before major floods occurred - that next season’s corn year-end inventories in the US will fall to 673 million bushels, the lowest in 13 years. Recent floods are likely to push the inventories lower—to a level the US hasn’t seen since the end of World War II, Hackett said.
The US is the world’s largest corn producer, accounting for nearly 40 percent of the world’s production in 2007. July sugar fell 1.9 percent to 11.46 cents a pound. July coffee gained 0.5 percent to US$1.506 a pound, and July cocoa was almost unchanged at US$3,237 per metric tonne.
Bridgetown, Barbados: The ban has been lifted on imports of certain meat products from the UK, which was placed following an outbreak of the highly infectious foot and mouth disease there, according to the Caribbean Update. The ban on UK beef and beef products since the early 1990s has also been lifted. Restrictions have been lifted on the commercial importation of all live cattle, sheep, goats, pigs, meat, and meat products, said Senior Veterinary Officer Dr Mark Trotman. Traders may apply to the Ministry of Agriculture’s Veterinary Services Dept. for import permits. “All commercial shipments of live animals and animal products must be accompanied by an Export Health Certificate issued by the UK’s Department for Environment Food and Rural Affairs,” Trotman further cautioned.
Brasilia, Brazil: Sadia SA, one of the world’s leading producers of chilled and frozen food, has acquired Excelsior Alimentos, in a BRL 6.6 million operation (US$4.09 million). This was announced in a report by the Business Information Systems. Excelsior Alimentos, manufacturer and wholesaler of sausages, other prepared meat, and chicken products, produces 16,200 tonnes of food products per year. In 2008, its turnover is expected to reach BRL 61 million. Excelsior Alimentos has 320 employees.
Palermo, Italy: Wines from the southern Italian island of Sicily were promoted during the international men’s pret-a-porter fashion event Milano Moda Uomo, according to ANSA - English Corporate News Service. The event was held in Milan from June 21 to 25, 2008. The best Sicilian brands of red and white wine as well as typical regional food specialties were presented at the cocktails before the fashion shows of prestigious fashion houses including Italian Byblos, Giuliano Fujiwara and Japanese brands Evisu and Marithe & Francois Girbaud.
A total of 60 operators from Sicily presented 200 types of wine during the international women’s pret-a-porter fashion event Milano Moda Donna, held in Milan from February 16 to 23, 2008, reported ANSA. The Milano Sicilia Happy Hour initiative was also part of the Sicilian wine promotion. Some Milan restaurants including Living, Sheraton Diana Majestic and Exploit, offered Sicilian wines and food specialties at the weekend.
The initiative was organized by the Sicily regional council of agriculture and forests in collaboration with the Italian Institute of Vine and Wine. The Sicilian companies presented their wines with Bronte pistachio salami, the red oranges of the Italian consortium Riberella, Avona almonds, Modica chocolate, Ragusa cheese and other food products.
Brussels, Belgium: Brussels bureaucrats have banned a grocer from selling kiwi fruits because they are one millimetre too small, according to The Daily Express. The grocer, Tim Down, was told that he must pay to dump the 5,000 healthy fruits. Westminster inspectors also gave Mr Down, 53, from Bristol, a written warning saying he would face a £5,000 (US$9,900) fine if he attempts to bring them away. This is one of the latest example of EU laws that banish curved cucumbers, straight bananas, skinny carrots and other vegetables that look less than perfect.
At a time of rising food prices, such an act is disgusting, condemned Conservative MEP Syed Kamall. The onus should lay with the customer to decide what is worth buying, not EU or Westminister bureaucrats, he added. Former Home Office Minister and Daily Express columnist Ann Widdecombe said: “This would never happen in France or Germany. This is over-zealous, ruleburdened Britain – we are constipated by regulation.” Mr Down, a father of three, who has been a market trader for 25 years, says his family-run firm will now lose £1,000 (US$1985.23) because of the ban. A team of Horticultural Marketing Inspectors from the Rural Payments Agency (RPA) – part of Westminster’s Department for Environment, Food and Rural Affairs (Defra) had conducted random searches of a 10kg consignment of Chilean-grown kiwi fruits, over half of which he had sold at 20p each.
Regulations state that Class II kiwis must weigh a minimum of 62g – but the two-hour inspection discovered that a number of the batch weighed 58g. The 4g shortfall is equivalent to 1mm in diameter. However, selling them—or giving them away—is an offence under section 14 of the Agriculture and Horticulture Act 1964 and carries a maximum fine of GBP 5,000 (US$9,930.79).
Barrie Stedman, head of RPA’s inspectorate, said: “Unfortunately, the kiwi consignment in question failed to meet the minimum standards, in contravention of EU rules. The inspectorate’s decision is consistent with RPA’s commitment to protect consumers.”
Cheshire, UK: Marks & Spencer has submitted an application for a giant store outlet at Cheshire Oaks, according to the Chester Chronicle. This would create 460 jobs if approved. The flagship store is 195,000sq ft, twice the size of the Asda superstore in Ellesmere Port. Besides fashion for men, women and children, home furnishings, technology products, the store will also offer M&S food and wine in a food hall, a cafe, deli and restaurant. The store will be environmentally friendly as M & S aims to create a carbon-neutral development and reduce the amount of energy used on-site by at least 50 percent.
Chris Edge, associate at HOW Planning, said: “The store represents a major investment for Marks & Spencer in Ellesmere Port and one of their biggest projects to date, second only in retail floor space to its flagship store at Marble Arch in London.”
Bucharest, Romania: Friesland Food Romania, a subsidiary of Dutch Friesland Foods group, has announced that it expects turnover to rise by 20 percent year-on-year due to an expanded product portfolio. This translates to a turnover of more than EUR 136 million (US$215.48) in 2008, according to the South East Europe News Digest.
The company added muesli yogurt, fruit yogurt and various new milk products to its portfolio in the first part of 2008. Furthermore, the company which invested around EUR 5 million in 2007, has also announced a plan late last year to invest EUR 3 million in 2008, mainly to modernise production facilities and to set up logistics centres, one of which will be located in Satu Mare, northwestern Romania.
The relocation of its plant from Carei to Satu Mare in 2007 is a part of its optimisation process. It also closed down a plant in Deta and transferred production to its plants in Cluj-Napoca and Targu Mures.
Tallinn, Estonia: Finnish foodprocessing company Atria Oyj has agreed to acquire two Estonian meat processing companies AS Woro Kommerts and AS Vastse-Kuuste Lihatoostus for an undisclosed sum, according to the Nordic Business Report.
The acquisitions, together with Atria’s existing Estonian business Valga Lihatoostus, will create the second largest player in the Estonian meat processing market, with net sales of approximately EUR 42 million (US$65.90 million). The acquisitions are expected to generate significant synergies and economies of scale and provide Atria with conditions for good growth throughout the Baltic countries.
Woro Kommerts produces smoked sausages and meat products, cooked sausages, grill sausages and frankfurters. It has a production plant in Ahja and a distribution centre in Tartu. The company is Estonia’s second largest meat processing company, with 170 employees and net sales of EUR9.9 million. Vastse-Kuuste Lihatoostus, based in Vastse-Kuuste in southern Estonia, manufactures a range of cold cuts, sausages, dried sausages and consumer-packed meat. The company has 140 employees and annual sales of EUR 8.8 million.
Atria, based in Finland, is an international food processing company that has 5,900 employees and reported a turnover of EUR 1.27 billion in 2007.
Haseluenne, Germany: The main shareholders of Berentzen-Gruppe AG are reported to be exploring the options of either a merger with a “strategic partner” or a sale of the northern German distiller that has been trying to revive slumping sales. According to Thomson Financial News, rising commodity prices and market saturation among its customers in the food retail industry have prompted the owners to question Berentzen’s independence. As a result, Hamburg-based private bank M.M.Warburg & Co has been hired to aid in finding a partner for the distiller. German daily Handelsblatt reported that the buyer will most likely be a financial investor, citing sources among Berentzen’s owners.
Hendersen Global Investors has declared an interest in the proposition but it is unclear whether the buyout firm is prepared to pay the price demanded by the owners, which is a multiple of the current market value of about EUR26 million (US$40.79 million), the paper cited its sources as saying. Last year, Berentzen posted a loss of EUR11.4 million (US$18.1 million) on the back of a deficit of EUR700,000 (US$1.1 million) in 2006.
Le Ciel De Charlevoix: Artisan Cheese
Le Ciel de Charlevoix is a semi-soft, blue veined cheese made from raw Holstein cow’s milk. It is the first artisan blue veined cheese from Quebec.
Contomme: Supple Flavour
Comtomme is supple and fragrant with a tangy, nutty flavour. This brine-washed semi-firm farm cheese is made from un-pasteurised cow’s milk. Its name is a combination of the Quebec village ‘Compton’, where it is made, and ‘tomme’, a generic term for medium size round firm cheeses.
Hercule De Charlvoix: The Strongman's Cheese
This firm cheese is named after a legendary strong man from the Charlevoix region during the 18th century. The raw milk for this washed-rind, firm cheese comes from Jersey cows and is aged well over six months.
Tomme Grosse Ile: Rich Tastes
Tomme de Grosse Île is a sturdy bloomy rind cheese in the style of France’s Coulommiers, an ancient cheese thought to be the ancestor of Brie and Camembert. The texture of cold butter, this rich cheese tastes ripe, salty and savoury.
Oka: Old Favourite
From the Village of Oka, Quebec Canada, Oka Cheese is one of the oldest cheeses in the country. First manufactured in 1893, it continues to be a favourite thanks to its nutty, fruity and buttery taste.
Laughing Cow: Cheese Icon
Laughing Cow’s Cheese Dippers are a blend of mild Cheddar and imported Swiss Cheeses. Its manufacturer says that it is good on almost all foods: baguettes, crackers, apples, bagels and more.
DanaBlu: Tasty Blue
Invented in the early 20th century to imitate French Roquefort style cheese, the Danish Blue cheese has evolved to be a classic on its own. Often served crumbled on salads or a dessert cheese with fruit, Green Island from DanaBlu has a mild flavour characterised by a sharp, salty taste.
Ile Aux Grues: Chip Off The Block
This two year old cheddar is a firm cheese made from raw Cow’s milk. Named after its St Lawrence River Island home, this cheese has a grainy texture, a bold bite and light smokiness.
LSG SkyChefs: Flying Curry
Only available to airline caterers, Lsg SkyChefs first started deep-frozen food operations in Alzey, Germany. Its ‘Fish with Japanese Curry Sauce’ has a shelf life of 12 months and its deep-freeze meal technology delivers consistent quality and reduces waste.
Olympic: Nice Bang
Specially produced for foodservice establishments, MGF British Bangers and classic dinner sausages are marketed for upscale breakfast joints and pub lunches. It comes in 5-kg bulk packages of 62 sausages and are quick frozen for extra freshness.
Olvita: Berry Cold
Olvita’s Frozen Raspberries utilises Shock Freezing technology which enables fruits and vegetables to be frozen quickly and thoroughly. This technology enables Olvita to offer frozen berry products that retain 75 to 80 percent of vitamins, as well as original structure and taste. Also available: Bilberries, Blackberries, Cranberries, Strawberries, Blackcurrants and Pitted Cherries.
Dales Premium: Swimmingly Good
Harvest from pollution-free waters of the North Atlantic and Arctic Ocean, these prawns are carefully selected for taste, colour, texture and size. They are packaged in tens of 454 g cartons for shipping.
Gold Crown: Jewel Of Cambodia
Gold Crown is a prominent brand in Cambodia, where is it positioned as being value-for-money. Being affordable is no barrier to quality; Gold Crown Beer has several international accolades such as the Silver Medal in the Monde Selection and Bronze medal in the 2004 World Beer Cup and Australian International Beer Awards.
SP: Revamped For Relevance
Already popular in Papua New Guinea, SP Lager wants to ‘fortify its relevance in an increasingly modern and sophisticated society”. The beer sports an attractive green and yellow label now, on a brown bottle. The cheery new packaging is expected to connect more effectively with young adult consumers.
Export Gold: The Colour of Fun is Gold
According to the manufacturer, Export Gold is New Zealand’s ‘top-selling lager’. It is backed by an aggressive marketing strategy; positioning the beer as a must-have for parties and outdoor activities through high-profile sports and music sponsorships. The brand also has a concept bar in Auckland City.
Reeb: Shanghai’s Best
Reeb’s brand-building activities centers on the theme of 'The Reason I Love Shanghai'. Its television commercial has won the Outstanding Creativity Award at the 33rd Mobius Advertising Awards Competitions. Reeb is also the official beer of the China Science Expedition to the Antarctic.
Fly: Hearty Muesli
A healthy food supplement, Fly’s Muesli Bars are made from real fruit and premium yoghurt. Some of the range is fortified with vitamins C and E while others have added calcium to aid the proper development of teeth and bones.
Maxi Fruta: Nuts In Bar
Packaged conveniently in 40 gm foil packages, these nutty snack bars from Maxi Fruta provide a quick boost of energy for busy folk. They are available in two variants: Mixed Nuts and Mixed Nuts with Fruits.
Majesty: Dessert On-The-Go
Coated with a generous layer of pure milk chocolate, these dessert bars from Majesty make sure that busy schedules will not hamper dessert time. People with a sweet tooth have three flavours to choose from: Raisins with Peanut, Hazelnut Nougat and Coconut & Rum.
Rupa: Christmas Cheer
With Christmas nearing, these pure milk chocolates come in fun shapes associated with the season. They are packaged in hard aluminum foil to prevent dents during transport and will be ideal for the young and young-atheart.
Winemakers Stake Their Future On A New Marketing Strategy
European Wine makers have seen their sales increasing falling in the past decade and beyond.Traditionally regarded as the best wine makers in the world, the industry needs to rethink some its marketing strategies in the face of global competition.
Over the past 15 years, wine consumption in the main European wine-producing nations has dropped by 20 percent and the downward trend is continuing. Although France continues to be at the top of the sector both in terms of total production and sales, the United States has joined the winemaking world. In 2007, the U.S. became the second-largest wine consumer in the world, ahead of Italy and Spain.
For the countries of the European Union (EU), the situation is even more delicate if you take into account that the marketplace is more and more globalised, and new competitors are getting into the game. Winemakers from Latin America and South America now offer high-quality wines at low prices. They are putting pressure on the fringes of a sector dominated by some companies that cannot compete, either in terms of price or quantity, with their rivals. For that reason, the EU has plans for reforming the Common Market Organization for Wine. On April 28, the foreign ministers of the EU discussed this goal, which is designed to improve the competitiveness of European wines.
This reform is designed to deregulate the sector and eliminate the public-sector assistance currently enjoyed by European winemakers. Within a few years, a new map of the sector will be unveiled. It will include new European winemakers that can compete on an international level, and the doors of the sector in Europe will be opened to let in companies from everywhere in the world.
These are some of the observations offered during the Sixth Global Wine Forum in late April. The meeting took place in Logroño, capital of La Rioja, whose certified “wine place and origin” is the best-known Spanish label worldwide. According to Lulia Halstead, executive director of Wine Intelligence, the British consulting firm, the La Rioja brand is the eighth-most recognized “wine place and origin” in the United Kingdom, and the sixteenth-best known such designation among American wine lovers. Winemakers from France and Italy rank highest in these listings along with one from Australia. Spanish, South American and Latin American wines lag behind.
Pierre Mora, associate professor at the BMN Management School in Bordeaux, France, explains that in countries that historically consume more wine, such as France, “wine drinking is moving away from a pattern of daily consumption to one of more occasional usage. In today’s consumption pattern, quality is the priority, more than such values as tradition.” This new trend, combined with the restructuring of the sector that will take place in the EU in coming years, will oblige winemakers to revise their marketing strategies and techniques if they want to continue to be competitive and strengthen their position in other markets.
For example, Mora cites what happens when a large number of wines
are sold in one location. “The average person spends about 18 seconds before choosing a wine in a supermarket. Nevertheless, in some shopping centers you can find up to 500 different labels, and you can’t see great differences among them.” For this reason, Mora notes, “The consumer gets lost in the big hypermarkets, and distributors need to devise a marketing strategy that differentiates their product” from others and helps people decide to choose it. Underlining the importance of marketing channel efficiency, Mora notes that between 70 percent and 80 percent of total sales in the sector are made in shopping centers.
“Selling wine is very difficult,” says Mora, especially in countries such as France “where we have been killing off winemakers’ brands over the past 50 years.” According to Mora, while wine producers have focused on promoting the “wine place and origin,” they have neglected to promote wines that bear their own brand names. As a result, consumers don’t usually ask for a specific brand of wine but for the specific location where it is made.
Mora says that there are only three ways to differentiate a product: by the type of product, by its price and through communication. In his view, wines are getting better and better throughout the world, so “price is not a useful tool for differentiation,” especially because the great majority of European wines already sell for between two and three euros per bottle. It doesn’t make much sense to put more pressure on pricing. That leaves only communication as a way to differentiate a wine. However, “you need a lot of money to do this,” and most small and midsize winemakers don’t have that.
For his part, Julio Cerviño, professor of marketing and market research at the Carlos III University in Madrid, has a different view. He says that “you can build a brand without advertising.” He also opposes the idea of promoting the image of a wine’s designated place of origin especially if it is a foreign location. That’s because, when all is said and done, such an approach confuses the consumer, who is incapable of either remembering or identifying all of the existing places of origin. That leaves us, Cerviño notes, with “the importance of linking the brand of the wine with the country brand so that [country brand] serves as an umbrella” for all wines produced in that country.
Cerviño says that on wine lists of American restaurants, it’s common to have one section for California wines and another section for French wines. In some restaurants, you can also find a section that lists Italian wines and, on occasion, even Australian wines. Nevertheless, the rest of the wines on the list appear in a section called “Other Wines.” Rather than “tackle a market all by yourself, it would be easier to promote a unique image of the country’s wine sector,” says Cerviño.
Once you’ve passed that stage, the next step, says Cerviño, is “to think about brand names that can travel around the world.” In addition to making it easier to pronounce those names in various languages, you also have to pay attention to the semantic connotations that a word can have in different parts of the world. For example, he cites canola oil marketed under the brand ‘Capullo.’ “While it can be sold in some Latin America countries,” this oil would have a tough reception in Spain because of its negative meaning; the word ‘capullo’ is used as an insult in Spain.
You also have to think about the logo. When a Spanish [apple] cider called El Gaitero (literally, the ‘bagpiper’) entered Japan, the company found that its logo was identified with a samurai and not with a bagpiper. Ultimately, it had to replace the logo with an apple. Cerviño notes that “you must not confuse advertising with communication.” A company can promote its brand without spending a lot of money. Although a traditional media campaign may be beyond the budget of a small company, it can always create a corporate web site (for about US$12,502 ); promote itself in fairs by setting up small stands; and maintain good relationships with newspaper reporters, hotel managers, sommeliers and experts within the sector.
Another alternative is to take more aggressive and innovative measures, even if “they are also riskier,” notes Cerviño. He cites the example of Mad Housewife, a California wine. This wine used an image of a ‘crazy housewife’ on the label of its bottle, and the photo changes as a function of the type of grape and the wine they market. In its promotions, this winemaker deploys a life-size picture of a housewife at one of its lively sales stands, which are in some of the most heavily trafficked locations in shopping centers. Most experts at the latest World Wine Forum agreed that it would not be possible for European winemakers to copy this approach because Europeans expect wine promotions to be “serious and traditional.” However, the case of Mad Housewife demonstrates how a wine can become very popular even if you invest a modest amount on promotions.
Another example is to sell wines by the can, like Coca-Cola does. This formula is enjoying great success in Asian countries, such as Japan and China. But “it would be unthinkable in countries like Spain,” where this kind of marketing would be considered almost sacrilegious, notes Cerviño. However, he asks, “Why should a company that wants to enter Asia not go and market its products in cans if that is what buyers want?”
Halstead argues that the new media, including popular blogs, can also be used to get across these new marketing formulas. Yet the most traditional communications channel continues to be the most effective one for promoting wine – word of mouth. In that sense, Halstead says, some wineries are making very innovative product presentations “in which the wine doesn’t play the starring role but is an accompaniment at a time of relaxation.”
When it is time to devise such initiatives, Halstead advises companies to think seriously about which segments of the public they want to reach. It is also important to understand the characteristics of wine consumers in each country. Generally speaking, while young people are becoming a focus of the promotional efforts of some winemakers, buyers less than 30 years old represent only 14 percent of the wine market in terms of sales, compared with people who are older than 45, who represent 41 percent of the market. This doesn’t mean that you need to forget about young people. After all, “they will be the most important group of buyers within a few years, because wine consumption generally goes up as people get older.”
According to Halstead, the best way to classify consumers is by their habits, not by their age. The first group are what Halstead calls ‘adventurous connoisseurs,’ those people who regularly consume wine for pleasure. They not only have some knowledge of wine, they also spend more money on high quality wines -- around 66 euros a month. In terms of age, these people are between the two peaks – both between 25 and 35 years old, and older than 60. In the United Kingdom, this group represents barely 19 percent of all regular wine drinkers (who amount to 27 million people) but it accounts for 35 percent of total annual sales of wine – worth about 11.5 billion (US$17.97 billion).
The largest segment of wine consumers are the ‘mainstream at-homers.’ They account for 38 percent of all [British] wine drinkers, and spend an average of about 36 euros (US$52.25) a month on wine. This group has no interest in the niceties of winemaking. Their purchasing decisions are motivated only by price and promotions. Their age usually varies between 35 and 50, and they are usually male heads of the family who consume wine at home but not when they go out to a restaurant. This is the most numerous group and it contributes Photo Luis Rock the largest volume of revenues – 38 percent of total annual sales of wine.
According to Halstead, the remaining three segments collectively contribute barely 26 percent of total sales in the UK wine market: ‘weekly treaters,’ who prefer to drink beer but view wine drinking as something special; ‘social bargain hunters,’ who seek out the cheapest brands; and ‘frugal conservatives,’ who reserve their consumption only for special occasions. Halstead notes that while these models are based on the British market, they can be adapted to any country merely by making slight modifications. In the United States, for example, there is a segment of people between 25 and 40 years of age who consume wine as a “demonstration of their social status when they deal with others. These are the ‘generation treaters.’ While they consume little wine (in terms of volume), the wine they do buy is very expensive and they spend a total of more than $100 a month,” notes Halstead.
First published April 30, 2008. Reproduced with permission from Knowledge@Wharton (http://knowledge.wharton.upenn.edu). © 2008 The Trustees of the University of Pennsylvania. All rights reserved.
Good Food Conquers All
In 2001, Chef Romain Fornell became the youngest to receive a Michelin star, at the age of 29. Going further, he went on to be the only chef to be conferred the accolade in two territories, France and Spain. Seven years have passed since and Fornell remains Chef-owner at Caelis, creating his own blend of classic cuisine with a twist. Ong Hong Tat speaks to the chef, uncovering the business mind behind the talent.
Being the youngest chef ever to receive a Michelin star, and in two countries within Europe, one would imagine chef Romain Fornell to wax lyrical, in encyclopaedic length, on the secrets to success. Instead, he said simply: “If it doesn’t work, it’s no good. Likewise, if it’s good it’ll work.”
To the chef, a restaurant business is straightforward: “A lot of people make excuses for themselves when things go wrong. For me, I don’t find excuses. If things work, it means it’s good. If it doesn’t, I admit it and I change.”
What works, and what’s good, for Fornell and his restaurant Caelis is his culinary style that is largely French, with Catalonian influences. The chef creates ‘new’ dishes updated to the times, something that he terms ‘modern classics’. Depending on the produce, menus at Caelis change frequently. Sometimes it lasts for only a week before the chef decides to do another. “It is a combination of knowing what is best, what is on sale, and using your repertoire to fashion a well balanced menu,” Fornell explained.
Caelis is situated in Hotel Palace Barcelona – one of the most emblematic ones in Spain. Good location is probably an important factor in what works too. But while this encourages traffic, it brings added expectations as well. On top of that, the Michelin star confers a notion of guaranteed quality to his food and his restaurant. And people are responding. Fornell said, “Yes, the Michelin star brings more people to Caelis and to my food. Hearsay and opinions are powerful drivers of any business. And it is perhaps more so for the foodservice industry.”
But the chef is mindful. Having been awarded one star does not mean that he can rest on his laurels. To Fornell, at the end of the day, everything boils down to good food: “The star is like a giant signboard; more people will come for your food. But if your food does not win them over, then you would have defeated the purpose of the awards.”
Taking care of ingredients, Fornell buys them fresh from the local market daily. These daily supply runs last for an hour or so till around 10am each morning. Although tiring, it is a task that the chef enjoys. What he is unable to obtain from these cottage-markets, Fornell relies on his stable of about 60 suppliers in France and Spain. In this manner, Fornell assures his customers that an experience in Caelis is the best, from sourcing for food to working on the menu; the chef has his hands in everything all the way.
The menu changes, seasons change as well. But some things remain. To this end, the chef says that there are no comprises when it comes to the choice of ingredients. “I don’t try to find the best prices; I try to find the best ingredients for my cuisine. When you use seasonal products like I do, price fluctuations are dependent on harvest volumes. Sometimes they are just costlier but it doesn’t affect my buying decision.”
Indeed, the chef is unwavering. This attitude extends beyond sourcing for ingredients. Fornell is similarly concerned about the level of customer satisfaction. At Caelis, Fornell seems to say: good food is a given; ambience is the icing that makes an ordinary meal extraordinary. Dining in today’s hectic lifestyle is more than a meal. Often, people look for more than just good food. “Food has to be tasty, if it is, it will sell itself. Ambience is something that needs to be created as everyone’s aesthetic taste varies in some way,” Fornell enthused.
In many ways for Fornell, it is ‘good food conquers all’. Never mind rising costs for both the industry and consumer. “It is inevitable that we have to deal with rising food prices, it affects everyone in the industry. It all boils down to how much quality matter to people. If they care about eating premium quality, they will be willing to pay the price,” Fornell said.
Fornell was recently in Singapore’s Hilton hotel as guest chef in its Harbour Grill & Oyster Bar, cooking up a special selection for a week. Going out of his own kitchen is almost akin to thinking out of the box.
Fornell said, “It is good to go out, change your mind a bit. Life is about meeting people, you never know who you might encounter and what perspectives they bring. Apart from that, it is a way to keep in touch with the foodservice industry. If not, cooking will become a tougher challenge to a chef that cocoons himself. It is important to know people in our trade.”
Speaking about perspectives, Fornell learnt from his trips in Asia, the view of food from a camera lens. He said, “Particularly, I noticed that chefs in Asia like to take pictures of their food in the kitchen, every step of the way from cooking to plating.” He later brought it back to Caelis and was happy to find that it was easier to appraise the daily spread and train his staff to the exacting standards he desired.
The chef travels lean, bringing only two of his staff and some special ingredients that the host kitchen is unable to provide. In this manner, customers are assured of authentic ‘Fornell’, at reasonable costs.
The chef clearly enjoys such journeys. He said, “It’s good, I get to see different cultures and cooking styles. Breaking the monotony of staying in one place all the time, it brings me inspiration to create better flavours. It also brings about more awareness of my restaurant in Barcelona: Caelis.”
From his travels, the chef says the F&B industry is becoming increasingly connected and competition is keen. “When I go to other countries as guest chef, the staff are really focused and eager to learn. This makes the experience enjoyable for me.”
Thai Consumption Patterns
Food and beverage accounts for almost a third of an average Thai household’s expenditure. Where are Thais spending their food dollar and what are suitable food segments to import to the kingdom?
By Ong Hong Tat.
An average Thai household spends THB 4,472(US$136.22) of its monthly expenditure of THB 14,311 on food and beverage. This means a Thai household spends 31.25 percent of its total expenditure on feeding itself. Of this food/drink bill, the largest chunk goes to spending for home-cooked foods. The Thais eat most of their meals at home. They spend THB 2,447 of their total expenditure on home-prepared food. This represents some 54.72 percent of monthly recurring costs. (See Fig A)
The Thai household will spend THB 2,158 of its food bill food for consumption outside of the home. This is about 15.08 percent of their total expenditure. Thais do not seem to like to their drink, they spend an average of THB 356 on tipple. This minute amount spent on alcoholic drinks only accounts for 2.49 percent of their food bill.
According to statistics from the customs department of Thailand, only 15.44 percent (9.13 million) of the 59.17 million Thais consume fast food. For most of the minority that goes for fast food, it is an infrequent affair (one to two times per week). Only 1.15 million Thais have fast food three to four days per week. Thais who have fast food daily are even more of a rarity, only 290,003 do so.
As expected, fast food is popular amongst the younger population. The age groups that consume the most fast food are those between 15 – 24 and 25 – 29 years of age. Of the 9.13 million Thais that consume fast food, 2.82 million are 15-24 years of age and 39.06 million are 25-59 years of age. In total, these two age groups account for 73.68 percent of the Thai consumption of fast food. (See Fig B)
Consumption figures between the sexes are roughly equal, so gender-targeted marketing efforts might not be suitable. What might be useful for this segment of the industry would be to increase their share of food expenditure through more stores or greater availability.
According to statistics from the customs department of Thailand, the majority of Thais consume processed foods. Of the 59.17 million Thais aged six and over, 49.23 million (83.19 percent) of the sampling pool have processed foods at least once a week.
However, of this number that are accepting of processed foods, most of them consume only once or twice a week (26.6 million Thais). Of the nearly 50 million strong processed-food consumers, only
