Cost Savings Today: How would you describe the food and drink industry?
Frank Thorsen: The food and drink sector is the largest manufacturing industry in Europe with a total turnover of €1,244 billion, 289,000 companies and more than 4 million people employed*.
The prospects for growth are good with an ever growing population; also once the European economy improves, there will be a general trend to spend a bigger proportion of our income on foodstuff.
As you see above, it is a very important industry with many companies and employees. In Europe the biggest companies are the likes of Nestlé, Procter & Gamble, Unilever and Heineken - companies that are also big players in the rest of the world. With 289,000 companies in total in Europe, you will see them all over Europe in any country – many of them only serving the local market with local products.
This industry is also very competitive and innovative. The customers (retailers and food service companies) are very strong and demand lower prices every year, and therefore cost savings and innovation are high on the agenda in this industry.
CST: What are the main challenges in the sector?
FT: The most important challenges of the sector are the climate changes that have and will carry on having a huge impact on the places where we can grow crops and livestock.
There are also human challenges and evolutions: for instance the populations in Asia and Eastern Europe are changing their dietary habits and are consuming more expensive food products such as meat, fish and dairy – in comparison to the traditional eating habits.
Also the Food sector is a global industry but a major trend, at least in Europe, is consumers’ demand for locally produced foodstuff – presenting both a challenge and an opportunity. Additionally, customers demand more and more information on the origin and production of foodstuff and on the sustainability in the supply chain. In more developed, wealthier parts of the world, the demand for organic products is also growing. For these organic products, there is a different production set-up and generally smaller yields as well.
CST: What are the main cost categories where potential savings can be found?
FT: The Food industry is a very competitive and innovative industry. Due to the price pressure mentioned above, the industry has a big focus on cost savings and innovation. They need to reduce their cost on a yearly basis and at the same time present new and better products.
ERA has for many years helped the industry in reducing their costs on the more normal indirect categories like Facility Management, Waste, Factory Consumables, Fleet, Transport etc., but we have now also started to help in reducing the cost in the direct spend area – on Food Raw Materials like ingredients, vegetables, wheat, dairy etc.
We can also help the customers in improving their supplier innovation process, so on top of better prices they often also improve the quality of the products.
CST: How big is the expenditure in these categories usually?
FT: There is no standard size, but it is not unusual to find savings in the region of 10-20%, when you do a reengineering in the different categories.
CST: What are the main issues – and why can’t these issues be resolved by in-house purchase or department managers?
FT: Most companies in the FMCG industry have lean organisations, and therefore they do not have the resources or the in-depth knowledge of all the different products – and therefore we can help them in achieving cost-efficient recipes with our global supply base knowledge.
CST: What is the outlook for 2017?
FT: After some years with stable or deflation in prices, we will start to see higher prices in most food categories in the coming years – and therefore it is also even more important to have the most cost effective specifications.
Within the last few months we have also for the first time seen new kind of supermarkets that only sell food close to expiry date to reduce the waste issue in the industry. There is a growing concern regarding waste, and this is one way to reduce it.
* (Sources: Eurostat, UN COMTRADE, OECD)
A former CPO in several major international companies, Frank has an extensive experience in FMCG, Biotechnology and Healthcare, built in Denmark, Sweden and England.
Within Expense Reduction Analysts, Frank Thorsen is an international expert at in FMCG, especially in the Food industry as well as specific food raw materials and proteins (meat, poultry, fish, vegetables, etc.).