United States Food and Drink Report Q1 2012

The middle class in the US has struggled over the past decade as its share of the country’s wealth fell. We expect consumption growth to remain subdued in comparison with historical standards and believe it will be heavily reliant on government stimulus as well as loose monetary policy. The risks to our forecasts are largely to the downside, especially given the heightened price sensitivity and the subsequent increase in the consumption of private label goods across nearly all product categories.
Headline Industry Data
?? 2011 per capita food consumption = +1.1%; forecast compound annual growth rate to 2016 = +2.1%
?? 2011 spirits value sales = +4.1%; forecast compound annual growth rate to 2016 = +3.7%
?? 2011 soft drink value sales = 3.1%; forecast compound annual growth rate to 2016 = +2.1%
?? 2011 mass grocery retail sales = +5.2%; forecast compound annual growth rate to 2016 = +3.5%
Key Industry Trends And Developments
PepsiCo Remains Interested in Foreign Markets: Continuing its international expansion, in November 2011 PepsiCo completed the acquisition of Brazilian biscuit maker Mabel, according to a report in local newspaper Estado de S. Paulo. The deal is said to be worth about US$520mn and represents a sizeable investment in the market. Mabel currently has five factories and offers more than 100 products including biscuits, crackers and wafers.
Expansion of Soft Drinks Portfolios: In November 2011, Kraft Foods announced plans for a caffeinated energy drink based upon its MiO no-calorie drink launched on the market in 2010. The product, launched in December 2011, will rival such brands as Red Bull. PepsiCo is also looking to renew its focus on ‘indulgent brands’ in an effort to drive growth across its portfolio, according to Albert Carey, CEO of PepsiCo Americas Beverages. Similarly, US beverage company Dr Pepper Snapple Group (DPSG) announced in December that it will build on the success of its new Dr Pepper Ten reduced calorie drink by testing five more varieties in selected locations in the US starting in January 2012. The widening portfolios are not only the result of organic expansion. In December, Coca-Cola announced that it had acquired a 50% stake in Saudi Arabian beverage manufacturer Aujan Industries. The deal, worth US$980mn, will allow Aujan to pursue its international expansion plans for brands including Barbican and Rani, as well as build upon the regional success of its Vimto brand.
Private Label Repositioning: Having failed to acquire the private label specialist Ralcorp Holdings, US company Conagra Foods in November 2011 demonstrated that it is sticking with a strategy of expansion within the private label sector by announcing the purchase of US private label firm National Pretzel. A large chunk of Conagra’s portfolio consists of smaller secondary brands, and it is expected this will push it to consolidate in an attempt to shore up margins.
Key Risks To Outlook Downside Risks Prevail: The risks to our consumer outlook are firmly on the downside. Given the still weak albeit improving state of the US labour market, we highlight that the potential for fiscal consolidation and the removal of tax breaks set to expire over the next 12 months poses the largest risk to consumer spending. We also expect the US consumer to remain in low gear over the forecast period to 2016. With household balance sheets still in repair and little ability for consumers to leverage up, it is difficult to see from where a catalyst that would fuel consumption would come.

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BMI Industry View 7
SWOT Analysis 9
US Food Industry SWOT 9
US Drink Industry SWOT 10
US Mass Grocery Retail Industry SWOT 11
Business Environment 12
BMI’s Core Global Industry Views 12
Table: Agricultural Commodity Prices 14
Table: Core Views Q112 25
Macroeconomic Outlook 26
Table: GDP Contribution To Growth 30
Industry Forecast Scenario 31
Consumer Outlook 31
Food 34
Food Consumption 34
Table: Food Consumption Indicators – Historical Data & Forecasts 35
Confectionery 35
Table: Confectionery Value/Volume Sales – Historical Data & Forecasts 36
Canned Food 38
Table: Canned Food Value/Volume Sales – Historical Data & Forecasts 38
Dairy 39
Table: Dairy 39
Drink 43
Alcoholic Drinks 43
Beer 43
Table: Beer Value/Volume Sales – Historical Data & Forecasts 44
Spirits 44
Table: Spirits Value/Volume Sales – Historical Data & Forecasts 46
Wine 47
Table: Wine Value/Volume Sales – Historical Data & Forecasts 48
Table: Alcohol Production, Consumption And Trade – Historical Data & Forecasts 48
Soft Drinks 50
Table: Soft Drinks Value/Volume Sales – Historical Data & Forecasts 51
Hot Drinks 52
Table: Hot Drink Value Sales – Historical Data & Forecasts 53
United States Food & Drink Report Q1 2012
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Trade 53
Table: Food & Drink Trade Balance – Historical Data & Forecasts 54
Mass Grocery Retail 55
Table: Mass Grocery Retail Sales Value by Format – Historical Data & Forecasts 56
Table: Sales Breakdown By Retail Format Type (%) 57
Food 58
Key Industry Trends And Developments 58
Interest in Organic Foods Remains Strong 58
Dairy Market Of Interest 58
International Snack Expansion For PepsiCo 59
Manufacturing Still Attracts Interest 61
Sara Lee Split To Streamline Business 62
Private Labels Gain Shelf Space, Driving Consolidation 63
Firms Cut Prices In Response To Economic Downturn 65
Meat, Confectionery Firms Consolidate 66
Targeting Of Hispanic Community A Key Growth Area 67
Market Overview 68
Food Consumption 68
Confectionery 68
Canned Food 69
Agriculture 69
Drink 71
Key Industry Trends And Developments 71
Constellation’s Share Price Buoyed By Asset Sales And US Growth 71
Diageo To Brew Red Stripe On US Mainland 73
US Cider Brand Acquired By Irish C&C 74
Brown-Forman Posts Strong Results; Beam Global Remains Takeover Target 75
CBA Posts Strong Sales Growth, But Profits Under Pressure 76
Craft Beer Growing Strongly 79
Green Mountain-Starbucks Tie-Up Is A Win For Both Parties 81
Portfolio Expansion Continues 83
Focus On Energy Drinks 84
Market Overview 86
Alcoholic Drinks 86
Soft Drinks 87
Hot Drinks 88
Mass Grocery Retail 90
Key Industry Trends And Developments 90
Walmart’s Sales Recovering 90
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Discount Sector Attracts Private Equity Interest 91
Store Expansion Continues 91
Large Retailers Report Sales Growth 92
Focus On Convenience 93
Market Overview 94
Main Players 94
Table: Structure Of The Mass Grocery Retail Market By Number Of Outlets 96
Table: Structure Of The Mass Grocery Retail Market – Sales By Format (US$bn) 97
Table: Average Annual Sales Value By Format – 2010 (US$mn) 97
Competitive Landscape 98
Key Players 100
Table: Key Players – Food Sector 100
Table: Key Players – Drink Sector 102
Table: Key Players – Mass Grocery Retail Sector 103
Company Monitor 105
Food 105
Kraft 105
Kellogg Company 108
General Mills 110
Tyson Foods 112
The Hershey Company 114
Drink 116
The Coca-Cola Company 116
PepsiCo 118
Anheuser-Busch InBev (ABI) 121
MillerCoors 123
Mass Grocery Retail 125
Walmart Stores 125
BMI Methodology 128
Food & Drink Business Environment Ratings 128
Ratings Methodology 128
Ratings System 128
Indicators 128
Table: Limits Of Potential Returns 129
Table: Risks To Realisation Of Potential Returns 130
Weighting 131
Table: Weighting 131
BMI Food & Drink Industry Glossary 132
Food & Drink 132
United States Food & Drink Report Q1 2012
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Mass Grocery Retail 132
BMI Food & Drink Forecasting And Sources 134
How We Generate Our Industry Forecasts 134
Sources 136
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