Five-minute focus: the food and drink industry

Find out what bankers are noting about this sector with Will Hodges – quick picture

The food and drink industry is worth an estimated £2.5 trillion a year internationally, with more than £630 billion spent on food purchases each year in the US alone. While the market continues to expand, manufacturers need to adapt to the changing tastes and demands of western consumers, who are increasingly opt for healthier and more environmentally-friendly products. Meanwhile, rising income levels across Asia and other developing regions are boosting demand for confectionery, alcohol and other high-end products.

Key issues

Healthy = wealthy

The past few years have seen considerable growth in sales of health and wellness foods and beverages as consumers seek to take a more active role in determining their own health. This trend has led to the expansion of the markets for organic foods and other products that purport to bring health benefits. Meanwhile, manufacturers have been making continued efforts to comply with new government guidelines on the reduction of salt, fat and sugar content from products. In some countries, companies have also been subjected to a "fat tax" on goods such as sugary drinks.

Eco-friendly future

Rising fuel costs and a growing awareness of the environmental impact of international trade has led to an increase in companies working hard to streamline their practices and supply chains. As a result, many manufacturers are undertaking packaging reduction initiatives and employing more ethical forms of sourcing and delivering products in order to cover fewer "food miles".

China's tingling taste buds

Rising income levels in China, India and other emerging markets are having an effect on the types of food and drink products bought by people in these countries. China, in particular, is seeing a massive increase in alcohol consumption, which in 2011 alone resulted in a sales growth of almost 5 per cent (compared with a contraction of 2 per cent in western Europe). This has led to a major realignment in the strategies of major global breweries and wine merchants whose previous focus had primarily been on North America and western Europe. Some larger beer brands, including Carlsberg, have opened breweries in China in recent years.

Discount grocers bucking the trend

While weak economic growth and the introduction of austerity measures across much of the western world has led to sluggish growth in grocery sales, budget supermarkets and other discount retailers are enjoying a considerable increase in both sales and market share. In the UK, budget supermarkets Aldi and Lidl witnessed sales growth of 26.1 per cent and 11.5 per cent respectively in the second quarter of 2012, in contrast to an overall 2.1 per cent decline in UK grocery sales. Both companies have seen their market share expand as a result. Meanwhile, appetite for frozen foods products continues to expand as consumers look to reduce waste in order to cut down on food expenditure.

Key companies

The Coca Cola Company

Earnings per share (EPS): £1.19

Country: USA

The Coca Cola brand has a presence in over 200 countries worldwide and comprises more than 500 different drinks products, including Fanta, Nestea and Powerade.

Diageo

EPS: £0.78

Country: UK

Diageo is a multinational alcoholic drinks conglomerate with a large portfolio of products, including Smirnoff, Johnnie Walker, Bailey's and Guinness. The company has offices in 80 countries worldwide.

General Mills

EPS: £1.48

Country: USA

Based in Minnesota, General Mills is one of the US's most established food manufacturers and owns a large portfolio of products including Green Giant and Betty Crocker. The company recorded sales of $14.88 billion (£9.5 billion) in 2011.

Grupo Bimbo

EPS: £0.069

Country: Mexico

Grupo Bimbo is one of the largest companies in Mexico. It specialises in baked goods and confectionery and owns more than 8,000 products within 103 umbrella brands.

Kraft Foods

EPS: £1.27

Country: USA

Kraft is the world's second-largest food company by revenues, having expanded its operations through the acquisition of UK-based Cadbury in 2010. The company's most popular products include Oreo cookies, Jacob�s crackers and Philadelphia cream cheese.

Nestl�

EPS: �1.96

Country: Switzerland

Nestl� is the world�s largest food and beverage company in terms of revenue. The company has a dominant presence in the confectionery and breakfast cereal sectors and its brands include H�agen-Dazs, Perrier and Rowntrees.

PepsiCo

EPS: �2.40

Country: USA

PepsiCo is the largest US-based food and beverage company. In addition to its flagship product Pepsi Cola, the company owns a large portfolio of brands, including Tropicana, Quaker Oats and Gatorade.

Unilever

EPS: �1.14

Country: UK/Holland

Unilever is one of the world�s leading manufacturers of consumer products and has a significant presence in the food and drink sector. Key brands include Lipton, Hellman�s and Ben & Jerry�s.

Key deals

May 2012 - China bites into Weetabix

China-based Bright Food Group acquires a 60 per cent stake in breakfast cereal brand Weetabix in a deal worth a reported �1.2 billion.

February 2012 - Kellogg gets Pringles

Kellogg Company pays Procter and Gamble �1.8 billion for the Pringles brand.

January 2012 - German takeover of UK dairy

German-owned M�ller Dairy acquires UK dairy Robert Wiseman for �280 million.

December 2011 - RBS sells pubs to Heineken

The Royal Bank of Scotland sells its portfolio of 900 pub freeholds to Dutch brewer Heineken in a deal worth �412 million.

January 2011 - Takeover of UK food manufacturer

Businessman Ranjit Singh Boparan, owner of the 2 Sisters Food Group, buys UK food manufacturer Northern Foods for �342 million.

January 2010 - Kraft gets Cadbury�s

US-based Kraft Foods acquires UK confectionery manufacturer Cadbury�s for �11.9 billion in one of the largest food sector deals in recent times.

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