Packaged Food: Quarterly StatementQ2 2017

Strategy Briefing

About This Report

Jun 2017

Despite GDP forecasts for 2017 being maintained or improved in most markets, the quarterly update forecast for packaged food shows a downgrade globally and in key markets, particularly in large developed economies. Poor forecasts for Mexico, the UK and the US reflect potentially adverse economic policies. As stagnation hits developed markets, and expansion in emerging markets is more challenging to achieve, key players are lowering their organic growth targets and focusing on cost cutting.

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Packaged Food: Quarterly StatementQ2 2017

Stable GDP forecast hides uncertainty and various macroeconomic scenarios impacting packaged food

Due to the resilience of the global economy in 2016 and the GDP upgrades in most large economies, the packaged food forecasts have not seen a major change in the last quarter. However, numerous geopolitical risks and a high level of uncertainty weigh on consumer sentiment and contribute to recovery being slow in many developed economies, notably in the Eurozone, with high levels of unemployment also contributing to low levels of consumer confidence, leading to a downgrade of packaged food growth forecasts.

Low organic growth forecast for major food companies

In a context of sustained low growth across developed markets and high levels of uncertainty in many emerging markets, notably Mexico and to a lesser extent China, large packaged food players are taking a cautious approach in their organic growth forecasts, with some companies instead choosing to focus on cost cutting, in order to maintain profits while building a war chest for future acquisitions.

Potential impact of UK and US policies on packaged food in neighbouring markets

The no-deal Brexit scenario is forecast to have by far the greatest impact on packaged food sales in the UK, and to have a more modest impact on EU economies. The adverse policies scenario following the election of President Trump in the US is forecast to create a greater disturbance to Mexico’s packaged food sales than to the US.

Most large emerging markets see resilience or recovery, offering further growth prospects

A recovery in Brazil’s economy and the resilience of China’s growth lead to reduced downside risks, with both markets still offering major growth opportunities for global packaged food companies to offset stagnation in their domestic markets, notably for General Mills and Yakult. The robust economic recovery in oil-dependent Russia, leading to an upgrade in forecasts for baby food and impulse-driven categories, has not been mirrored by a similar improvement in Nigeria.

Introduction

Scope
Executive summary
GDP forecasts: R evisions over last quarter
Global risk scenarios
Major macro risks for packaged food industry
Key findings

Forecast Update

Forecast downgrade: US and UK strongly impacted b y uncertainty
Oil dependent economies: Nigeria downgrade vs Russia upgrade
Dairy update disparities: Mexico vs Russia and cheese vs milk
Emerging markets no longer offset developed market stagnation
Small impact of each geopolitical risk but may create domino effect
US adverse trade policies: China and Mexico likely to be most hit
US adverse trade policies: I ndulgent and premium food to suffer most
No-deal Brexit: UK downgrade increases, Ireland exposed to risks
U ncertainty and low growth prospects lead to reduced sales targets

Evaluation of Growth Strategies

Companies issue wide range of growth targets; uncertainty persists
General Mills: Forgoing US growth, targeting niches in key markets
Nestlé: Emerging markets slowdown may lead to revised strategy
Yakult: Broad geographic reach in emerging markets, focus on Asia
Conclusion: Challenging environment influences paths to growth

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