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From: Food Quality & Safety magazine, April/May 2007

Consumers, Retailers Changing Equipment Landscape

Survey Sheds Light on Criteria Influencing Equipment Selection in Food Processing

by Richard A. Carman

Here, primary research has been tied to the trends and purchase behavior of food processors to relevant secondary-research. This integrated view provides the equipment manufacturers with key insights into the requirements of their markets and customers.

The food processing industry is constantly changing, as many food manufacturers are developing new products to meet the changing taste, texture, health and wellness considerations of consumers. At the same time, quality and price competition is intense between food manufacturers, who 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 on the trends driving the food processing industry. By contrast, there is a significant amount of information available on food trends of consumers and in the grocery channel through huge data collection vehicles and organizations, including Wal-Mart’s Retail Link, IRI - Information Resources, AC Nielsen and GMA Surveys. Food companies merge information generated by these sources to drive new-product innovation.

Lyco Manufacturing (Columbus, Wis.), a food processing equipment manufacturer, commissioned the “Trends in Food Processing & Equipment Survey” in late 2005 to better understand the needs of food processing companies using a 20-question survey developed and fielded by Dechert-Hampe & Co., a Northbrook, Ill.-based sales and marketing firm.

The survey, conducted in September 2005, targeted senior manufacturing operations management in food processing. Questions included respondent profiles, processing trends and the equipment purchase 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.

Survey details about their operations included an average of 6.3 manufacturing lines per plant with 77 percent of the responding companies reported using continuous-water or steam cooking in their plants. Another 63 percent reported continuous cooling processes within their operations. Processing operations included (in order of prominence) cook/cool, blanching, pouch processing and hydration.

Twelve Categories Surveyed

A dozen process food categories were surveyed for anticipated growth over the next two years. With the exception of canned vegetables, the survey respondents projected growth in each of the categories. Average annual growth was projected at a modest 1.7 percent. However, six product categories had projected growth rates at 50 to 80 percent greater than the average. Those categories are value-added poultry, food in trays, value-added meats, hot filled sauce in pouches, prepared rice and 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 more than 6 percent for several of the “hottest” categories.

More than 20 percent of the respondents believe that the processed food in trays and prepared rice categories will grow by over 6 percent over the next two years. Processing food in pouches is also a high growth area deemed by nearly 20 percent 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, more than 50 percent of the respondents projected that prepared rice, food in trays and value-added chicken will grow by over 3 percent 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 survey. Using grocery data from Information Resources (IRI), 11 food categories were selected and shown here in order of total market size – pasta, frozen plain vegetables, rice, frozen meat, refrigerated meat/poultry, canned meat, frozen appetizers, frozen pasta, frozen side dishes, frozen prepared vegetables and refrigerated pasta.

According to IRI, only four have had sustained growth over the last four years (2000 to 2004), with refrigerated meat and poultry demonstrating significant and sustained growth over the last four years. The frozen prepared vegetable category has also sustained significant growth in both three- and four-year averages. This value-added category grew 27 percent in 2002. Seven categories show a decline in total pounds in the IRI data. The shrinking market size categories (four-year averages) included frozen side dishes (-8.1 percent) and two pasta categories; refrigerated pasta (-5.3 percent) and frozen pasta (-4.4 percent). The rice category overall is down slightly (-1.1 percent) 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 USDA forecasts that total rice usage will grow at an average of 1.74 percent per year for the next 10 years. According to the USA Rice Federation (Arlington, Va.), domestic rice usage in the United States is estimated at 80 million cwt (hundredweight) per year, with the processed food industry us 20 million cwt, or 25 percent.

Rice usage in the process food industry has grown by an average of 3.4 percent annually over the last four years. Furthermore, the Rice Federation predicts that process food use of rice will grow by nearly twice the rate of total rice, over 3 percent per year.

Pouch-Processing Upswing

The survey also developed data on a growing trend in the food processing equipment marketplace – pouch processing. The survey showed that 25 percent 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, pasteurizing or cooling.

Pouch-processing operations were tied with basic cook/ cool processing as the predominate 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. The Freedonia Group, a research firm based in Cleveland, Ohio, estimates that the food pouch market itself will grow at 5 to 6 percent per annum for the next six years. This is nearly double the projected growth rate of total food shipments over the same timeframe.

Innovations Mirrors Consumer Trends

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 (Houston, Texas) sponsored their first survey of the food and beverage industry in 2005. More than 120 companies participated with 27 percent being 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 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 t customers better meet these needs.

Equipment-Selection Criteria

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 10 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 percent of the respondents. That means nearly the entire field of respondents rated that attribute as either the highest or second-highest in the survey. Two other important factors mentioned by the respondents were “parts availability” and “installation support” with top-two-box mentions of 75 percent and 63 percent respectively. Food processing equipment manufactures must come to market prepared to meet specifications and provide the parts and installation services required by their customers.

Perhaps 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 criteria were provided to the survey participants. Some overlapped with the aforementioned “factors” while others were independent.

Once again, meeting specifications 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 percent 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 may deal 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.

The type of information presented here is not readily available. For this reason, Lyco Manufacturing commissioned the “Trends in Food Processing & Equipment Survey.”

Richard A. Carman is managing director in the Northbrook, Ill., office of Dechert-Hampe & Co., a sales and marketing consulting firm. Reached him at rcarman@dechert-hampe.com.

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