"The US Food Marketing System" examines major developments in the arena over the past decade, and their implications on the cost, quality and variety of food products.
Released in May by the US Department of Agriculture's Economic Research Service (USDA ERS), the report states that major developments seen in the period have included retail consolidation as well as an influx of stores that have not traditionally sold food.
Heightened competition and increased merger and takeover activity has placed short-term downward pressure on prices. It may also lead food processors to consolidate to meet the large-scale needs of grocery retail chains, said the report.
Indeed, concentration of ownership in the food manufacturing arena has been steadily increasing. According to the Census Bureau, the top 50 processors accounted for 53 percent of food processing sales in 2002, up 39 percent since 1972.
However, after an active period of food mergers and acquisitions from 1997 to 2001, merger activity in the food system declined between 2002 and 2006. According to ERS, manufacturers found performance results disappointing and decided to focus on their core assets and top-selling product lines.
Recent major acquisitions have included food processor Smithfield Foods acquiring pork packer Farmland foods in 2003. The largest deal in 2004 was Wrigley's purchase of Kraft Foods' confectionery brands. In 2005, beef packers American Foods Group and Rosen's Diversified merged. In 2006, mergers were announced between major chicken processors Pilgrim's Pride and Gold Kist, as well as between pork processors Smithfield Foods and Premium Standard Farms.
Differentiation strategies currently adopted by food manufacturers to keep hold of their market share have included new advertising approaches, reflecting a move from mass to individualized marketing. This is seen in a shift from TV advertising to other venues, such as magazines, the internet and video games.
In 2004, several leading food manufacturers ranked among the top 50 companies in ad spending, including Altria Group, the parent company of Kraft Foods and Philip Morris ($1.4bn), PepsiCo ($1.3bn), Nestle ($1bn), Anheuser-Busch ($0.8bn), and Mars ($0.7bn).
New ways of image enhancement have also been employed, such as companies publicizing their initiatives to advance social agendas beyond those required by law. Some of the leading manufacturers to report corporate social responsibility include Kraft, PepsiCo, Nestle, ConAgra Foods and Tyson Foods.
Manufacturers have also kept up an influx of new product introduction in an effort to boost sales or expand market share. Products bringing new benefits to consumers such as improved flavor or more convenient packaging could indicate technological improvements and increased productivity, said the report.
In addition, retailers are more likely to allocate shelf space to manufactures providing new products on a regular basis, it said.
US food and beverage product introductions tracked by Marketing Intelligence Service have been trending upward since the early 1990s, exceeding those of nonfood grocery items.
In 2005, a record 18,722 new food and beverage products were introduced. Categories with the largest share of new products included candy, gum, snacks, beverages, condiments, and dairy.
However, although a growing share of new product introductions may suggest greater innovation for a category, they may also be variations of existing ones. Over 90 percent of new food and beverage introductions are classified by Marketing Intelligence Service as "not innovative".
"This suggests that food firms use new product introductions as a differentiation strategy, to offer a fresh image rather than truly novel benefits. Further, failure rates for new products are exceptionally high, exceeding 90 percent for some categories, which suggests that firms have difficulty in developing products that appeal to enough people to warrant continued," wrote the report.
"Nonetheless, some new products involve technological progress that delivers truly new benefits to consumers."
To access the report, click here .
