Economy

Healthy future

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Australians’ appetite for snacks continues to grow, but tastes are changing towards healthy foods and away from salty snacks.

Snack facts:

Opportunity: Huge opportunities for manufacturers of healthy, marketable snack foods.

Warning: Slower growth for manufacturers of salty snack foods unless they adapt to changing consumer expectations.

Change: Pharmaceutical companies will enter the snack food market with food additives that will replicate the tastes of sugar and salt.

Australia’s preoccupation with battling obesity is having an impact right across society; even snack food manufacturers are feeling the pinch.

IBISWorld’s research shows that manufacturers are turning away from high-fat snack foods in favour of healthier, more marketable alternatives. This will translate into continued rapid growth in the nutritious snacks as well as nuts and pretzels.

Nutritious snacks has been the fastest-growing segment of the snack food market in the past year, expanding by 22%. It now accounts for 11% of the market. Nuts have also experienced significant growth over the past few years due to their perceived health benefits, and now hold 12% of the market.

Health concerns mean the salty snack food segment is likely to suffer slower growth. This does not signal the end for the classic potato crisp, however, which dominates the market with 49% market share; couple that with the more flamboyant corn chip, with 11.5%, and the domination of crunchy crisps is irrefutable.

This market reality is reflected in the dominance of Frito Lay, which controls a 32% share of the snack food market. Although the company’s primary focus is (you guessed it) potato chips, the importance of the health-conscious consumer to the future of this industry is reflected by the company’s 2005 purchase of Sakata, which claims to be the leadin–g brand in the far more health conscious Australian rice snack market.

Overall, industry revenue is expected to grow by an annual average of 2.1% over the next five years, from $2 billion now to $2.3 billion in 2012. This is a considerable drop on the previous five-year growth average of 7.6%. This drop will once again be a reflection of the increased health awareness among Australian consumers, which will moderate future spending on snack foods.

Although revenue growth may slow, the industry is still classified as being in a growth phase of its overall life cycle, making companies in that industry attractive acquisition targets.

For example, PepsiCo International (the parent company of Frito-Lay) is looking for acquisitions in Australia to expand its snack foods empire. The company recently spent $215 million buying New Zealand’s Bluebird group from Burns Philip, which gave it 50% share of the salty snacks category and 40% of the nutritious and fruits snacks category.

Companies will also adjust their products and strategies to appeal to changing consumer expectations. Australia has strong R&D skills in agriculture and food production, which could help local food manufacturers develop new processed foods, increase shelf-lives and improve packaging to expand markets. Food Science Australia, a joint venture of CSIRO and the Australian Food Industry Science Centre, is the largest food research organisation in the Asia-Pacific region. Food manufacturers in this industry will continue to invest in R&D to come up with new food products and production techniques.

Due to the fact that health consciousness has put the industry in a changing sphere, it is expected that the pharmaceutical industry is to enter the field of so called “functional foods”.

Consequently, players in the food industry are interested in new food additives. For example, US biotechnology company Senomyx is developing the additives that enhance or replicate the taste of sugar, salt or monosodium glutamate by activating or blocking receptors in the mouth. This would allow food manufacturers to reduce the amount of salt or sugar in foods by 30–50%, thus allowing food companies to suit the increased consumers’ health consciousness. Additionally, Majans’ Monsoon chips contain 30% less fat than regular potato chips and are made of chickpeas. The product has a low glycemic index of 32 to provide energy and gluten and cholesterol-free as well as high in protein.

The snack food manufacturing industry cannot exclude itself from these developments and is expected to continue innovating new functional foods to suit consumers’ tastes in an extremely competitive environment.

Growth Expectations

Year

Revenue ($m)

Growth (%)

1998-99

1,557.0

N/A

1999-00

1,872.6

20.3

2000-01

1,471.5

–21.4

2001-02

1,879.5

27.7

2002-03

1,970.6

4.8

2003-04

2,022.6

2.6

2004-05

2,124.8

5.1

2005-06

2,083.7

–1.9

2006-07

2,077.6

–0.3

2007-08

2,131.6

2.6

2008-09

2,186.2

2.6

2009-10

2,245.7

2.7

2010-11

2,285.6

1.8

2011-12

2,303.8

0.8

Source: IBISWorld

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