FreshIncite January 2016

What We’re Seeing

Understand the key trends facing foodTop

New trends are driving the shape of Australia’s $34bn+ fresh food market, in concert with key factors that have now become established market settings. These trends are generating opportunities to add value to the market as well as potential challenges over the next 1-2 years, and are identified and analysed in Freshlogic’s FOODFrontiers 2016 report.

FOODFrontiers is a forward-looking, in-depth set of insights about the Australian food market. It identifies key food market trends that are forecast to impact the Australian market over the next 12-18 months, and highlights the implications for your business.

The key FOODFrontiers trends forecast to impact Australia’s fresh food market in the next 1-2 years are profiled in this month’s Freshincite. To pre-order your copy of FOODFrontiers 2016 contact us, and click here to learn more about how FOODFrontiers can help your business.

Pressure on the centre in food retailTop

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Pressure is mounting on retailers in the middle of the food retail value spectrum. These full service supermarkets are being squeezed from underneath by lower-cost discounters, while the top end of the market is still defensibly held by the greengrocer sector, seen by many consumers as holding the most premium quality offer.

That pressure will accelerate in 2016, with Aldi starting their rollout of 50 stores in South Australia and up to 70 in Western Australia. Costco is opening three new stores this year in Queensland, New South Wales and Victoria, taking it to a total of 11 outlets. Costco has eventual plans for 4-5 stores each in Sydney and Melbourne, with more in Brisbane and ‘tier 2’ cities like Newcastle, Wollongong and Darwin.

Meanwhile, the burgeoning online grocery retail sector is shaving share from all levels of the bricks and mortar retail market. While online retailers currently only hold 1-2% of the grocery market in Australia, precedents for a share of 6-7% have already been set in the UK and US. This is an unfamiliar and new type of pressure being felt by the retail sector.

The mid-value supermarkets are being squeezed between growing discount retailer share, a dug-in greengrocer sector, and an online offer that’s nibbling at the toes of the whole retail market.

Speed of consumer backlashTop

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The opinions of consumers have never been so powerful, and the ramifications of consumer backlashes on social media can be irreversible. The speed of reaction and public opinion in the modern environment often doesn’t leave the supplier enough time to mount a defence, and in particular to correct misinformation. Once the damage is done, it’s done, and the truth is quite often a casualty.

The rapid speed with which consumer opinion can turn has been illustrated in recent examples like the Victorian Taxi Association’s #yourtaxis social media campaign, Patties Food’s Hepatitis A frozen berry recall, and Volkswagen’s emissions scandal.

The enhanced accessibility of information – and misinformation – and the speed at which critical opinions can be shared through new media poses a potential backlash for all companies.

The export imperatives become apparentTop

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A falling dollar, a reduction in tariffs due to trade agreements with key international markets, and new phytosanitary access arrangements are reinvigorating Australia’s fresh food exports.

Particularly in the horticulture sector, export volumes are on the rise. In 2015, the export value of all vegetables (fresh and processed) rose 64% on the year before, and all fruits rose 55%. That growth has barely scratched the surface of the potential growth Australia could see in food exports, particularly into markets like mainland China.

The increased prominence of exports on Australian food companies’ balance sheets has the potential to shift their focus onto international markets, and with increased demand internationally domestic buyers will have less influence on pricing dynamics.

New type of competition from technology stakeholdersTop

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Technology and online stakeholders are diversifying their businesses and increasingly getting involved in food retail. These tech giants – the Amazons, Googles, Apples and Samsungs of the world – come with significant investment capability and a history of innovation that could create havoc for their competitors.

They’re companies that frequently enter new markets by following the famous slogan from Amazon’s Jeff Bezos, ‘get big fast’, and the high-frequency, high-volume nature of food retail is seen by some as a vehicle to enable rapid platform growth.

New business models are poised to come into play in the future food retail market, with very different capacities and a different profit imperative.

Ingredients going green and packaging going cleanTop

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Consumers wants more transparency in ingredients in the food they eat, and as a result suppliers are now dropping ingredients that consumers don’t understand. ‘Artificial’ has become public enemy number one, and manufacturers and foodservice businesses around the world have begun spending hundreds of millions replacing ingredients with ‘natural’, ‘pure’ and ‘simple’ alternatives.

But consumers still don’t have the patience for complicated explanations or small print. The combination of these two factors is driving a change in food packaging to clearly show ingredients in imagery.

The upside is the opportunities for ‘natural’ foods to be included as new ingredients. The downside is the challenges for manufacturers that may need to reformulate their food products.

Food waste in focusTop

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Consumers are becoming more concerned about their effect on the environment, and are putting more focus on food waste as a result. Driven by this, a desire for efficiency and a sense of corporate social responsibility, governments and businesses globally are getting deeply involved in food waste management.

One of the most visible cases of this has been in retail programs looking to sell ‘ugly produce’ or ‘odd meat cuts’, which have become popular with retailers across developed markets.

But while there is an increasing momentum to efforts in the food supply chain to manage waste sustainably, the majority of food waste in Australia is still occurring in the household.

Consumers’ desire to minimise waste is changing the products they are purchasing, either to cater to their aspirational desires or because of changing behaviour at home, such as preparing fewer portions of food at once.

From ‘local’ to ‘location’Top

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The local food movement has struggled with sourcing a full range of products under a ‘low food miles’ constraint, as well as the concerns about the sustainability of a fragmented production base.

As a result, there is an increasing shift from ‘local’ to ‘location’; food identified by its unique production origin. This location-based marketing still enables suppliers to present consumers with the strong provenance story they’re looking for, but in a way that can be used across the country and avoids many of the challenges of committing to local produce.

There is value in investing in provenance stories about locations and regions, but there are also challenges with the inability to control what products are associated with a geographic region that has been turned into a brand.

There's more!

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Freshincite is a publication prepared by Freshlogic

Freshlogic is a specialised provider of food market insights and analysis, with deep expertise in the dynamics of fresh foods. We deliver a range of services to industry and corporate clients, which aim to interpret market and supply chain conditions, or address challenges faced in food supply chains associated with changes in the preferences of consumers, supply dynamics, and economic settings.

For more information on any of our products and services, please contact us on phone (03) 9818 1588 or email info@freshlogic.com.au