The global financial situation, volatile markets, food safety issues and rising raw material costs are taking their toll, according to Christopher Shanahan, research analyst, Global Chemicals, Materials and Food, at Frost & Sullivan.
And as 2008 comes to a close the analyst has offered his insights on what is in store for the US food and beverage (F&B) industry in 2009.
Shanahan said: "The expected effect of the global financial situation and volatile food prices is that a growing number of consumers will begin to switch away from fresh meats, fresh fruits and vegetables, and value-added food products, and begin to consume more shelf-stable and relatively more affordable alternatives.
"Private label food products are clearly a benefactor to the global financial situation and volatile food prices because they are statistically less expensive relative to the national brands."
He said that continuing economic difficulties are likely to eat into consumer demand in 2009 and added: “Supply chain issues such as ingredient availability and vendor pricing will also continue to put pressure on F&B manufacturer margins.
“In turn, many ingredient manufacturers face diminishing demand from its end users as product manufacturers increasingly adjust production levels downward and streamline inventory levels.”
Shanahan predicted above normal profit levels in the short term because of the wholesale increase in consumer food prices in 2008 and the recent drop in commodity prices.
But he said: “In the long run these same manufacturers will endure increased pressure to lower its prices and may face increased competition from low-cost private label producers."
The analyst outlined three trends expected to impact the F&B manufacturing industry in 2009.
The first is limited consumer knowledge and taste perceptions as key barriers to healthier eating.
He said that while awareness is growing, consumers are still in the dark regarding the functional benefits of some ingredients, such as prebiotics, sterols, glusoamines as compared to Omega-3, probiotics and antioxidants. They may also perceive that taste could be compromised.
The second is legislative restrictions challenging market growth. Shanahan said that obtaining government-endorsed qualified health claims for various ingredients poses a major challenge to the growth of the value-added/specialty food and beverage ingredients market.
And the third is the curb on growth that the economic slowdown may have in the functional food ingredient markets.
Shanahan believes that the growth in value functional food and beverage categories may be constrained as the average consumer’s food budget shrinks, particularly where premium pricing strategies are usually employed and where coupons and store/private label brands choices are limited.