'Trends in Food Processing and Equipment' survey

The recent "Trends in Food Processing and Equipment Survey" sheds new light on US food processing category shifts and the criteria influencing equipment selection

The food processing industry is constantly changing.

Food manufacturers are developing new products to meet the changing taste, texture, health and wellness considerations of consumers.

Quality and price competition is intense between food manufacturers that have to compete first for retail customers and ultimately the consumer.

Food equipment manufacturers strive to produce innovations that help their processing customers better meet the needs of their markets.

The marketing and product innovation activities of food processing equipment manufacturers, therefore, are focused on meeting the future needs of their customers.

Limited information exists from our trade associations or other third-party sources on the trends driving the food processing industry.

By contrast, we have significant information available on food trends of the consumer, and in the grocery channel through huge data collection vehicles and organizations, such as Wal-Mart's Retail Link, IRI - Information Resources, AC Nielsen, GMA Surveys, etc.

This information is merged with primary research by the food companies to drive their own new-product innovation processes, but is less helpful to the manufacturing operation groups of the food companies or the food processing equipment manufacturers that supply them.

Lyco Manufacturing, a food processing equipment manufacturer, commissioned the "Trends in Food Processing and Equipment Survey" in late 2005 to better understand the needs of food processing companies, using a twenty-question survey developed and fielded by Dechert-Hampe and Co, a Northbrook (Illinois) based sales and marketing consulting firm.

The survey was executed in September of 2005 and targeted senior manufacturing operations management in food processing.

Questions included respondent profiles, processing trends, and the equipment purchase decision process.

Participants in the survey were provided with a detailed summary report of findings and conclusions for their participation.

More than 40 companies participated in the study.

The respondent list is a Who's Who of the food processing industry.

Survey details about their operations included an average of 6.3 manufacturing lines per plant with 77% of the responding companies reported to be using continuous-water or steam cooking in their plants.

Another 63% of these responding companies also reported continuous cooling processes within their operations.

Processing operations included (in order of prominence) cook/cool, blanching, pouch processing, and hydration.

One dozen process food categories were surveyed for anticipated growth over the next two years.

With the exception of canned vegetables, the survey respondents see growth in each of the categories.

Average annual growth was projected at a modest 1.7%.

However, six product categories had projected growth rates at 50-80% greater than the average, these were: Value added poultry; Food in trays; Value added meats; Hot Filled Sauce in pouches; Prepared rice; Soup pouches.

Projected growth rates of the processed food categories surveyed varied significantly across the 40 companies responding.

Worthy of note are the percent of responding companies that project growth rates of over 6% for several of the "hottest" categories.

More than 20% of the respondents believe that the processed food in trays and prepared rice categories will grow by over 6% over the next two years.

Processing food in pouches is also a high growth area named by nearly 20% of the survey respondents as both hot filled soups and sauces were noted in the survey.

The food processors in the survey service both the grocery and food service channels.

In addition, over 50% of the respondents project that prepared rice, food in trays, and value added chicken will grow by over 3% over the next two years.

Consumers and food service customers alike continue to demand products that are packaged for convenience and/or closer to ready-for-consumption.

Further research was completed on specific food categories by Lyco Manufacturing to supplement the Food Trends Survey.

Using grocery data from Information Resources (IRI), eleven food categories were selected and shown in order of total market size these are: pasta, frozen plain vegetables, rice, frozen meat, refrigerated meat/poultry, canned meat, frozen appetizers, frozen pasta, frozen side dishes, frozen prepared vegetables, refrigerated pasta.

According to IRI only four have had sustained growth over the last four years (2000-2004).

Refrigerated meat/poultry has demonstrated significant and sustained growth over the last four years.

The frozen prepared vegetable category has also sustained significant growth in both the 4yr and 3yr averages.

This value-added category grew 27% in 2002.

Seven categories show a decline in total pounds in the IRI data.

The shrinking market size categories (4 year averages) included frozen side dishes (-8.1%) and two pasta categories; refrigerated pasta (-5.3%) and frozen pasta (-4.4%).

The rice category overall is down slightly (-1.1%) in total.

Other research indicates that the value-added rice category is actually growing, but this is more than offset by shrinkage in "plain" rice.

In fact, the United States Department of Agriculture forecasts that total rice usage will grow at an average of 1.74% per year for the next 10 years.

Domestic rice usage in the United States is estimated at 80 million cwt (hundredweight) per year by the Rice Federation.

At 25%, the use of rice by the processed food industry is therefore 20 million cwt annually.

Rice usage in the process food industry has grown by an average of 3.4% annually over the last four years.

Furthermore, the Rice Federation predicts that process food use of rice will grow by nearly 2X the rate of total rice, over 3% per year.

POUCH PROCESSING.

The "Trends in Food Processing and Equipment Survey" also developed data on a growing trend in the food processing equipment marketplace - pouch processing.

The survey showed that 25% of the reported usage of atmospheric water or steam processing equipment by multiple facility operators was in the pouch processing areas: hold hot and cool, pasteurising or cooling.

Pouch processing operations were tied with basic cook/cool processing as the predominant use of atmospheric water or steam equipment for the leading food processors surveyed.

The use of pouches in the food processing industry, serving both the consumer and institutional markets, is expected to grow.

Freedonia Research estimates that the food pouch market itself will grow at 5-6% per annum for the next six years.

This is nearly double the projected growth rate of total food shipments over the same timeframe.

INNOVATION IN PROCESSING EQUIPMENT.

It is important for equipment manufacturers in the food processing industry to fully understand the market motivators of their customers.

Innovation in food processing equipment is fundamental to the food manufacturer's ability to control costs, improve food quality, and meet the changing food tastes of the consumer.

The accounting firm Grant Thornton LLP and Food Processing sponsored their first survey of the food and beverage industry in 2005.

Over 120 companies participated with 27% of those listed as "processors".

The survey also included distributors, manufacturers, and retailers.

The respondents indicated the food categories they expect to grow over the next several years.

These consumer trends will drive the new product development launches of the major food manufacturers and their processing operations.

The innovative food processing equipment manufacturers will provide solutions that help their manufacturing customers better meet these needs.

Better-for-you products will dominate the new product landscape in grocery.

Whether it is whole grain breads, chips with reduced trans-fat, or good for you chocolate - food equipment manufacturers have an opportunity to participate by helping their customers better meet these needs.

The Lyco Trends Survey attempted to gain insight into the criteria used by food processors in their eventual equipment selection and the key decision-making factors they use.

The survey provided ten factors related to food equipment manufacturing companies and their products.

The respondents were asked to rate the factors on a five point scale from "not important" to "most important".

The number one factor regarding the selection of food processing equipment was "fulfillment of specification".

It had a top-two-box mention by over 92% of the respondents.

Two other important factors mentioned by the respondents were "parts availability" and "installation support" with top-two-box mentions of 75% and 63% respectively.

Food processing equipment manufactures must come to market prepared to meet specifications and provide the parts and installation services required by their customers.

Possibly more important than these factors are the specific purchase criteria that food processors use to select their equipment.

While the "factors" had more to do with the equipment company, these criteria are aimed at the actual equipment and its performance.

Eleven separate criteria were provided to the survey participants.

Some overlapped with the aforementioned "factors" while others were independent.

Meeting specifications again led the field as respondents listed their key criteria for equipment selection.

Quality, in this case machine quality, was the second leading criteria among the food processing respondents.

Processing cost factors make up three of the next four key criteria; yield, throughput, and operating costs.

Equipment price was a top-two-box criteria with only 28% of the respondents.

Interestingly, "service and support" was not listed as one of the key criteria for equipment selection in spite of "parts and installation service" being the second and third most important "factors" listed.

This apparent dichotomy, we believe, has to do with the "quality" criteria of the purchase selection.

That is, food processors expect the company to supply quality equipment that is dependable but also to have the parts required for scheduled maintenance and know-how to get their equipment up and running after initial purchase.

This type of information presented by this survey was not readily available.

For this reason, Lyco Manufacturing commissioned the "Trends in Food Processing and Equipment Survey".

The consumer purchasing trends in the grocery channel are readily available to the food manufacturers.

However, little is done to tie that information together from the prospective of the food equipment manufacturing community.

Here, we have tied primary research on the trends and purchase behaviour of food processors to the relevant secondary research available in the marketplace.

This integrated view provides the equipment manufacturers with key insights into the requirements of their markets and their customers.

A synopsis of the Trends Survey is available for download at the Lyco website.

If you would be interested in future surveys contact the company through the website.

For their effort, companies that participate in the survey receive an in-depth report with additional insights not available elsewhere.

Lyco partnered with Dechert-Hampe and Co to complete the Trends Survey.

DHC is a "Customer Focused Sales and Marketing Solutions" consulting firm servicing the needs of the packaged good, B2B, service and retail companies.

Lyco Manufacturing is a leading provider of innovative food processing equipment.

Their products service the cook/cool segment, liquid/solid separation, root crop processing, and snap bean equipment.

For more information on Lyco Manufacturing, please visit their website.

This summary was provided by Richard Carman, a managing director in the Chicago office of Dechert-Hampe and Co.

He is a veteran of more than 20 years with leading consumer products and manufacturing companies.

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