Recession? What recession? Only select areas of the food and beverage industry struggled during the past two years. The industry as a whole performed well overall in 2009 and will likely continue to develop in promising emerging regions after having proven capable of adapting its product offer to new consumer tastes in mature markets.

Many of the major players in this industry, such as Campbell, Kraft, Danone, and Yoplait have all survived the downturn my pursuing aggressive marketing policies. Although this may have increased selling costs, it limited the decline of sales volume enough to pay off. Increasing low-price products, reducing size, and following a low-cost model has really paid off and now the only smart way to survive would be to follow suit. Meanwhile the smaller companies are for the most part going to suffer because of their lack of economies of scale, demand not being there from their niche market positions, and need for more working capital financing with a tight credit market. What implications does this have for the industry as a whole?

Well first, many will try to refocus their core competencies and have a few really good products. The other is that smaller companies will look at the buyout opportunities available which will spur the concentration process. With larger takeovers we will see an even greater economies of scale.

There have been a few trouble spots with the industry. The high raw material price volatiiliy (wheat, corn, sugar, soybeans) has put the industry in a bind once these prices started rising. The prices as a whole have been very volatile recently and in turn hard to predict and budget costs. Companies facing this volatiliy may need to hedge their supply needs and this will be especially tough for those smaller companies already facing huge financial risks. There are also many health risks facing the industry. It may look like all bad news, especially with the pressure on margins, but overall the healthiness of this industry looks to be in great condition.

If you are a producer or retailer in this industry, understand that consumer buying behaviors are changing in industrialized countries. Spending will not decrease on these products, especially the entry-level ones, even though spending overall has. People will always need food to sustain themselves. This will be especially true in emerging countries, with a developing middle class who are attracted to these sorts of products. If you are looking to invest or even enter this industry, the risks are definitely there, but if you have the opportunity I'd start now before it really takes off other companies have the head start in developing markets.

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