Snack food manufacturing develops a taste for the future

A recent report by IBISWorld forecast a sweet future for the snack food manufacturing industry in Australia.

The report anticipates that industry revenue will rise by 1.2 per cent each year in the five years until 2023-24, reaching a total of $1.8 billion.

The report puts down this increase to rising household disposable incomes and the greater popularity of healthy snack foods.

While the increase in health-conscious snacking habits by consumers, particularly in urban areas, the traditionally high-sodium and high-fat snack offerings have receded in popularity. However, with food manufacturers developing new healthy snack products, consumers are starting to come back to snacks.

The report notes that the higher sales of muesli bars, grain or wheat snacks and nuts has driving this new popularity for healthy snacks, and those manufacturers who have included wholegrain and premium chips in their range or low-fat and low-carbohydrate versions as seeing increased sales and growth.

Another impact on the value and popularity of snacks has been the increase in the domestic price of vegetables, which the report predicts will continue to rise, however not as quickly as in the past five years.

As eating patterns continue to shift, snack manufacturers could adapt to the increase in the appetite of consumers for out-of-home eating. The portability of snacks in smaller package sizes and their distributed purchase points make them attractive to consumers who are seeking a food purchase on the move.

In contrast to the past five years, where industry revenue dropped as private labels encroached on the market share of established players and input prices became increasingly volatile, IBISWorld sees a positive future for the industry.

The effect of veganism on the meat industry

According to industry research company IBISWorld, sales of vegan food products have soared over the past five years in Australia, with major food manufacturers and takeaway chains increasingly introducing new products to meet demand. However, as the cost of meat and international meat exports continue to rise, this surging demand for vegan products represents a growing threat to local demand for Australian meat and dairy.

Vegan food manufacturing soaring
According to IBISWorld research, demand for plant-based products has surged in recent years, with food manufacturers and takeaway chains in Australia constantly having to introduce new products to keep up.

“The quality of these products is also increasing at a rapid pace, with plant-based alternatives to meat and dairy foods continuously being launched. Unilever recently launched a plant-based alternative to its Magnum ice cream products, and popular food chains Hungry Jacks, Schnitz and Grill’d have all recently added plant-based options to their menus, in an attempt to take advantage of rising demand,” said IBISWorld Senior Industry Analyst, James Caldwell.

Rising cost of meat in Australia increasing demand for plant-based products
While demand for plant-based foods has soared over the past five years, so too has the price of meat products. This trend has weakened local demand for meat products, and forced the meat sector to turn to overseas markets to sustain growth.

“This surging demand for plant-based alternatives represents a growing threat to local demand for meat and dairy products, which will in turn affect the long-term viability of the Australian meat processing, beef cattle farming, cheese manufacturing, butter and dairy product manufacturing, and milk and cream processing industries. The Australian meat processing industry now generates over 60 per cent of its revenue from overseas, and we expect this number to rise over the next five years,” said Mr Caldwell.

Vegan product innovation
According to IBISWorld, several food-based innovations have allowed manufacturers to produce plant-based foods which mimic the taste and texture of meat products. Companies such as Beyond Meat and Funky Fields are now producing meat alternatives that are so realistic, they are being sold next to meat products in supermarkets. With the rise in the price of meat products over the past five years, we are now at a stage where plant-based alternatives are comparable to traditional meat in terms of both quality and price.

“The quality of these products is only expected to improve. Eric Schmidt, the director of Alphabet, Google’s parent company, recently listed plant-based proteins as the most important trend in the technology industry, ahead of self-driving cars and 3D printing. As new technology allows the quality of these products to improve, so will demand,” said Mr Caldwell.

Environmental awareness affecting meat consumption
Australians are increasingly concerned about their impact on the environment, which IBISWorld analysts believe to be a factor behind the rise in demand for plant-based products. The meat and dairy sectors have been considered to have a large carbon footprint by environmental organisations, with research finding animal-based agriculture responsible for 18% of greenhouse gas emissions. A 2017 study by GRAIN also found that the world’s three largest meat firms produced more emissions in 2016 than the whole of France.

“In addition, raising animals for slaughter is a very water and land intensive process. According to the UN’s Priority Products and Materials report[3], both meat and dairy require more resources in terms of land and water, and produce more emissions per kilogram of food than plant-based alternatives,” said Caldwell.

“This rings particularly true for Australian consumers in light of the recent droughts in Queensland and New South Wales. Australia is the driest continent on earth, and is only expected to get drier as a result of climate change. Given this, consumers are increasingly turning to more sustainable food options,” Caldwell continued.

Rising health consciousness driving Australians to go vegan
Rising health consciousness is another major driving force behind the trend towards greater consumption of plant-based foods. For example, the International Agency for Research on Cancer (IARC) recently classified processed meat as a Group 1 carcinogenic, placing it alongside asbestos and tobacco. As a result, domestic meat consumption has stagnated and is expected to fall over the next five years, reflecting increasing health consciousness among consumers.

In addition, dairy products have been linked to increased saturated fat intake. As obesity rates continue to rise among Australians, low-fat dairy alternatives are becoming more attractive to increasingly health conscious consumers. As a result, plant-based milk alternatives that are frothable are also increasingly popular in Australia’s coffee shops. Mr Caldwell believes that demand for these products will intensify as the quality of milk and cheese alternatives continues to improve.

“Australia is currently experiencing a rising fitness culture, which is encouraging consumers to reduce their meat intake, and to move to low calorie diets. Plant-based food manufacturers have been acutely aware of this trend, and have increasingly produced foods with few calories and low levels of saturated fat. This trend has significantly contributed to rising demand for plant-based foods,” said Caldwell.

The future of Australia’s meat and dairy sectors
According to IBISWorld, the number of people following a vegan diet in Australia is expected to continue rising over the next five years, bringing the country’s meat and dairy sectors under increasing strain. As demand for vegan products rises, food manufacturers are expected to increase the range and quality of their plant-based foods, driving further demand.

On the other hand, rising prices and stagnant domestic demand have driven Australia’s meat and dairy sectors to look overseas in search of revenue growth. Australia’s pristine environment, and reputation as a producer of high-quality food products have boosted exports of meat and dairy products over the past five years.

“However, concerns about their position in the domestic market haven’t been ignored. Meat and dairy sector lobby groups have recently called for the banning of plant-based food manufacturers using terms such as milk and cheese in their marketing,” said Caldwell.

IBISWorld explores the key issues impacting the fast-growing food-delivery sector

Online food delivery services have been a major innovation in the fast food and takeaway food industry.

However, as third-party delivery services continue to grow, everyone—from the third-party operators, to the partner stores, to consumers—face risks.

IBISWorld explores the third-party delivery wave.

The dawn of third-party delivery operators was met with great enthusiasm by investors.

READ: Foodora stops food delivery services in Australia

Menulog was acquired for $855 million by British delivery service Just Eat in May 2015.

The business model was simple. The company provided an online advertising and order platform for small stores that couldn’t afford one.

Menulog attracted consumers who were looking for somewhere they could compare multiple fast food options.

Stores and consumers flocked to the site, leading to very positive statements from Just Eat in March 2016 about the ability to get a positive return on its acquisition.

Then, in August 2016, Uber Eats launched in Melbourne and Sydney. By October, it spread to most areas of Australia.

IBISWorld senior industry analyst, Andrew Ledovskikh, said the difference in Uber Eats’ model was that it provided delivery.

“Menulog was limited by the fact it could only provide services to stores with existing delivery staff and services,” he said.

“By March 2018, Just Eat slashed the value of Menulog by 40 per cent. The company claimed this was a goodwill impairment to account for the cost of Menulog launching its own delivery service, rather than pressure from Uber Eats,” said Ledovskikh.

Concerns over remuneration and conditions for third-party delivery drivers has been strong over the past five years.

“This contractor status is vital to third-party operators, as it keeps costs down. It means these companies do not need to provide award wages, superannuation or benefits such as long service leave. Without the ability to employ these drivers as contractors, many third-party delivery operators would see their business model become unprofitable,”  said Ledovskikhn.

“This would see some operators collapse, while others would have to severely increase service charges to partner businesses,” he said.

IBISWorld forecasts the industry will face increased regulation on workers’ rights.

Many hospitality businesses jumped rapidly onto services liked Menulog and Uber Eats over the past five years, with Menulog having more than 10,000 partner stores in 2018.

IBISWorld explains the number is jumping every year.

But, while consumers are receiving the benefits of increased convenience through food-delivery services, they are increasingly paying higher prices for fast food and takeaway.

Additional delivery and the third-party commission fees built into the price of the food has meant strong growth in fast food prices paid by consumers, which in many cases is siphoned directly to third-party delivery operators.

“The pressure on third-party operators to ensure large investments pay off, and the possible increased costs to these operators if they lose regulatory battles surrounding contractor delivery drivers, will likely lead to consumers and small businesses facing higher charges over the next five years,” said Ledovskikh.

A February 2018 study by Finder.com.au, found that a third of all Australian adults living in capital cities were delivery-service users, and that their yearly average spend was already nearly $1,600.

 

Fonterra tops the list of IBISWorld’s Top 100 food and beverage companies

Fonterra has remained to be on the top of the IBIS list of food and beverage companies by revenue generated.

The largest 100 food and beverage companies in Australia generate in excess of $100 billion in revenue (up from over $96 billion in 2014-15) and employ more than 130,000 Australians. 

Strong growth in food processing industries, in addition to milk production in Australia benefitting from joint ventures and expansion of airfreighted fresh milk exports to growing Asian markets has pushed Fonterra into the #1 spot for over two years.

According to IBISWorld senior industry analyst Spencer Little, industry revenue is set to decline in the beer industry as alcohol consumption continues to fall.

"The two newcomers to the list are Green's Foods and a2 Milk. a2 Milk posted revenue growth of 40.2 per cent over the year through June 2015, on the back of fresh milk exports to China and substantial sales growth in a2 Platinum Infant Formula across Australia and New Zealand," Mr Little said.

"After purchasing the remaining 50 per cent interest in the a2 Milk Company Limited joint venture and converting it to a fully owned subsidiary, a2 Milk began exporting fresh milk to China in August 2014. Sales of the company's infant formula skyrocketed in 2014-15."

Top Ten Food and Beverage Companies revealed by IBISWorld

  1. Fonterra Co-Op Group
  2. Lion Nathan National Foods
  3. Coca-Cola Amatil
  4. JBS Australia
  5. Devondale Murray Goulburn
  6. Teys Australia
  7. Bidvest
  8. Inghams
  9. Food Investments
  10. Nestle