Reports

Food Industry Monitor 2021

The challenge of sustainable growth for Food companies

The 2021 edition (the seventh) is dedicated to the analysis of the relationship between economic performance and strategic choices of food companies, in terms of sustainability and innovation.

 

Business performance analysis and projections 2021-2022

In 2020 the food sector recorded a 1% contraction in growth, a substantially contained value if compared to the -8.9% of the Italian economy. The downturn in the sector is mainly due to the contraction of consumption in the Ho.Re.Ca. segment and the rescheduling of investments in production capacity, which have been postponed to the end of the year. 2021, and 2022, will be years of strong recovery, with growth expected to be just under 6% per annum, a rate higher than Italian GDP growth. The packaging sector will grow at a very fast pace thanks to the boost generated by the redesign of increasingly sustainable packaging. The coffee and wine sectors will undergo significant growth, driven by the strong recovery of the Ho.Re.Ca. segment. Significant progress is also expected in the food equipment sector, driven by new investments stimulated by the recovery plan.

Trade margins were also affected by the economic crisis. In 2020, ROS fell to 3.8%, but 2021 is expected to return to the values of previous years (6.8%). Despite the economic situation in 2020, which saw exports fall by 1.5%, in the two-year period 2021-2022 exports will regain strength with a growth of 3%.

Sustainability, innovation and performance

For the seventh edition of the Food Industry Monitor, a study was conducted on the relationship between economic performance and strategic choices made by companies regarding sustainability and innovation. For the purposes of the analysis, qualitative data were collected with the help of a questionnaire administered to a sample of companies in the Italian food industry.

The analysis shows that 81% of the companies surveyed consider themselves a “sustainable company” and 56% have already implemented a formalized sustainability strategy. 78% of companies currently have one or more products in their range that can be defined as sustainable.

Sustainability choices do not only concern production processes: 54% of companies have modified their packaging in a sustainable way and 44% choose their suppliers by evaluating their sustainability profile.

74% of companies surveyed believe that implementing a communication strategy focused on sustainability issues has a positive impact on sales, although 63% also believe that implementing sustainable production processes implies an increase in business costs.

A particularly significant figure is investment. 93% of companies say they have made investments in sustainability in the last 5 years and 80% will make further investments in the next 3 years. On average, Italian companies have increased their investments in sustainability by 38.8% in the last 5 years, demonstrating the beginning of a trend of structural change.

Companies that have a formalized sustainability strategy, have increased investments in sustainability over the past 5 years, and effectively communicate their choices have superior growth performance.

Companies that have invested in sustainability have a proactive approach to innovation, particularly process innovation, and this is reflected in growth performance, both in the medium and long term.

Download the FIM 2021 Presentation here

Previous editions and download area

VI edition FIM 2020

Food is Health. Competitive scenarios in the food industry  

The sixth edition, which took place in June 2020, was entirely dedicated to the relationship between food and health and sustainable innovation.

 

Company performance

2019 represented a positive year for the food market, with growth performance of 3.1%, compared to the Italian GDP growth of 0.3%. In 2020, even the food market was affected by the impact of the Coronaviruswith a drop in growth of around 5%: a figure, however, contained in relation to the GDP forecast (-9.5%). 2021 will be the year of recovery, with a rate of 7.7% for the market. Trade margins will be affected relatively, ROS will fall from 6.2% to 5.9% in 2020, rising to 6% in 2021.

Despite the economic situation, food exports will grow by an average of 11% in 2020-2021.

 Market trends

Market trends were analyzed through a topic analysis conducted on more than 900 texts from 42 national and international online journals on food & beverage related topics, between 2015 and 2019. The topic analysis allows to measure how often people talk about specific topics and, therefore, to make assumptions about the level of attention of sensitivity of consumers with regard to these issues.

The analysis identified 9 recurring topics. The topic of health foods is the one with the greatest increase in citations over the 2015 to 2019 period. International media show an increasing attention towards food safety issues and food processing processes; the Italian market seems more interested in nutritional characteristics and tradition related topics.

The perceptual positioning of the topics highlights the polarization of  contents on two clusters of topics: the first cluster links the evolution of consumer tastes with the innovation in production processes and food safety; the second one emphasizes a strong link between product innovation and nutritional benefits of food. Therefore, it means that innovation, food safety and nutritional characteristics of food are deeply connected in consumers’ perception.

The topic analysis reveals that consumers have a high level of sensitivity with regard to health issues and that innovation cannot be considered separately from nutritional benefits according to consumers. These data refer to the media prior to the Coronavirus emergency, we expect the trends that emerged to have been further strengthened after the pandemic.

 

Business models

The analysis of companies’ business models shows that 40% of the products offered by Italian food companies are health-conscious products, i.e., products that, depending on the sector they belong to, may have one or more of the following characteristics: they contain raw materials of organic origin, undergo minimally invasive transformation processes, contain no artificial additives or preservatives and have functional beneficial effects on the consumer’s health.

Companies characterized by a healthy supply have higher growth performance and commercial profitability. Their return on investment is also positively influenced by the use of health-based communications.

Average productivity is significantly higher for companies that offer functional health products, i.e., with beneficial effects on health, and use health-conscious formulations for the production of their products.

Therefore, we can conclude that, in specific sectors of the food market, health-conscious orientation in the offer is linked to an improvement in business performance.

Download the FIM 2020 Presentation here 

V edition FIM 2019

Traditional knowledge, creativity and innovation in the Italian food industry

 

Key industry and segment performance

In 2018, the agri-food market continued to grow and recorded a growth rate of 3.1%, a positive figure when compared to the overall Italian GDP trend. The growth trend is set to continue at rates above 3% per year in 2019 and 2020.

Income performance slightly slowed down in 2018 compared to 2017 in terms of return on sales, (while) the return on invested capital is slightly growing. There is a decrease in the debt ratio of the agri-food market that stood at 2.30 in 2018.

An analysis of long-term performance (2009-2017) shows that the fastest growing sectors are: floursfood equipmentcoffee, frozen foods, oil, packaging, and wine.

Profitability (ROS) in the spirits sector is, historically, higher than the other sectors (13.3%); however, good performances were also registered for food equipment (9.6%), water (8.4%), confectionery (7.9%), beer (7.7%), pasta (6.9%) and  coffee (6.4%) segments, which have values above the average of the entire market (5.9%).

Critical issues continue to affect the oil, meat products and flour sectors. There was a slight recovery in profitability in the milk sector (4.3%), although the result remains below the average of the entire market (5.9%).

ICS – Sustainable Growth Index and High Potential Development Sectors

The ICS – Sustainable Growth Index is calculated by taking into account the growth in revenues, sales margins (ROS) and financial structure over a multi-year period (2009-2018). The higher the index, the greater the chances of growth for the market or for the individual company. The analysis of the ICS over the period considered shows that only four sectors have a satisfactory Sustainable Growth Index that highlights the presence of growing companies, with good income performance and a solid financial structure.

In particular, the sectors that registered the best performances for the three above-mentioned profiles are: coffee (ICS 25.6), food equipment (ICS 23.4), spirits (ICS 19.7), flours (ICS 11.9) and, to a lesser extent, wine (ICS 10.7). In fact, these sectors combine an increase in sales and margins with a low level of debt.

Sectors such as pasta (ICS 8.1), frozen foods (ICS 7.7) packaging (ICS 7.1) and water (ICS 6.1) occupy intermediate positions in the ranking as they do not excel in all three profiles that make up the index. Finally, several sectors such as cured meats (ICS 1.6), oil (ICS 3.1) and milk (ICS 3.3) continue to be in a critical situation.

Performance analysis by size classes

The growth, profitability and financial structure performance of large companies (with a turnover in excess of €100 million) were compared with the performance of medium-sized companies (with a turnover between €100 million and €50 million).

There is a clear improvement in the growth rate of medium-sized companies and a higher profitability performance (ROIC) for medium-sized companies than for large companies. Profitability is higher for medium-sized companies with very high values in the following sectors: distillates (15.4%), sweets (8.5%) and pasta (8.0%). Commercial profitability of large companies is higher in the wine sector (8.2%), followed by coffee (7.3%), cured meats (2.6%) and oil (2.2%). Large companies grow at higher rates only in those sectors where the business model of trading companies prevails, such as oil and wine.

Cross-sector comparison

Analyzing the performance of other sectors of the Italian economy in relation to the performance of the food market, a slight deterioration in the performance of the food market is observed. In fact, the intersectoral comparison reveals that the return on investment in 2017 is lower (ROI 9.8%) than that of several sectors of the Italian economy such as clothing or the metal-mechanical sector (comparison with MBRES data).

Considering the evolution of the debt rate of both the MBRES sample of Italian companies and the food market, there is a decreasing trend in the long term: they are the lowest levels for the food market, which in 2018 had the lowest indebtedness rate (2.30) of the entire period considered (2010-2018). In 2017 the food market showed a greater dynamic of investment in tangible fixed assets compared to the average of the other sectors of the Italian economy.

Italian enterprises between tradition and innovation

The analysis of the characteristics of business models and the link with companies’ growth performance and profitability was carried out through a survey with questionnaires that involved a sample of companies representative of the different sectors.

Data reveal that 70% of Italian companies are very tradition-oriented. Moreover, 63% of the surveyed companies make products which are actually based on traditional recipes handed down within the company. Although they are industrial food productions, many companies declare to adopt production processes that can be defined as artisan, as they are carried out with a weighted level of automation. Process innovation is an important element for the competitiveness of companies and it is not by chance that 70% of the sample adopts innovative production processes.

For almost all of the sample (93%), the selection of raw materials is a key point of the production process, 68% of the companies in the sample rely on local artisans or farmers as suppliers and have long-term commercial relationships with them. Precisely, more than 50% of the companies state that they implement policies to support and sustain their suppliers through incentives of various kinds. Finally, 50% of the companies in the Italian agri-food market have active collaborations with their suppliers in order to develop new products and processes.

For the promotion and communication of their products on the market, more than 70% of Italian companies rely on the link with the Italian or local gastronomic traditionMore than 50% of the companies surveyed use Denominazioni d’Origine or Slow Food Presidia to promote their products on the market. Approximately 45% of companies make use of themes that recall craftsmanship, a complex subject that most of the time implies the idea of handmade – that is, created by hand – without any particular industrial aids. For 62% of the sample, the communication strategy is in line with the latest health trends, that is, it uses names that recall the healthiness and well-being potentially implied by the promoted food product.

Focusing on the distribution strategies of the companies in the sample, we find that 70% of the companies do not sell directly or through a channel they control. Only 30% of companies have their own online sales channel.

Tradition and innovation and the link to growth performance and profitability

Companies with a strong focus on craftsmanship in their products and production processes over the past decade have experienced greater growth than companies that have not made the choice of craftsmanship.

The growth of the profitability of sales (ROS) is strongly influenced by the link with the territory, i.e. companies that have been affected by the improvement of profitability are those with production facilities located in a specific territory, that have links with local suppliers and that support local development. The growth of ROS is very positively affected by the orientation towards innovationwhich is realized through the continuous refinement of production processes.

With regard to the growth of the return on invested capital (ROIC), it can be seen that the orientation towards process and product innovation, as well as the link with the territory, positively determine the growth of the return on invested capital of the companies in the sample.

In conclusion, the link with the territory and craftsmanship combined with innovation in production processes are the main determinants of profitable growth for companies in the market.

Forecasts for 2019 and 2020

The forecasting model developed for the fifth edition of FIM analyzes the performance of growth, profitability and financial structure of companies operating in the food market. A further analysis was devoted to export performance by individual sector.

Forecasts were developed for the 2019-2020 biennium by using a variety of statistical models.

Food companies will continue to grow in 2019 and 2020 at rates greater than Italy’s GDP. A cumulative increase of the revenues of the food market of 5.9% is previewed over the next two years.

The profitability of sales (ROS) will remain substantially in line with what has been observed in the last three years, while the return on investments (ROIC) will undergo a slight increase reaching over 10% from 2019 onwards. The rate of indebtedness will register a further decrease and confirm the solidity of companies operating in the agri-food market.

Food sectors will see an increase in exports over the next two years (+6.7% in 2019-2020). The sectors of watercured meatsbeer and coffee will record the highest values of export growth and above the sector average. Lower growth performances will be observed for the pastacanned goodsfood equipment, and flour sectors.

Download the 2019 FIM presentation here

IV edition FIM 2018

Innovation, productivity and growth

Search results

In 2017, the food market grew at a much higher rate (+3.6%) than Italy’s GDP (+1.5%).

The Italian food industry is a high value-added industry. Since 2012, the value added produced by the companies in the sample has grown at increasingly high rates and has outpaced the growth in turnover. The Italian food industry possesses unique product and process know-how that allows it to add value to quality raw materials through production processes, communication, branding and distribution

However, despite commercial profitability slightly contracted in 2017 (4.2%), there is good resilience in the financial structure which was essentially unchanged from 2016 to 2017.

 

Long-term performance 2009-2016

The analysis of long-term performance shows that the sectors that are growing the most are: floursfood equipmentfrozen foods, oil, coffee, packaging and wine.

Trade profitability (ROS) is traditionally very high in the spirits (13%); good performances are also registered for food equipment (9.3%), water (7.7%), confectionery (7.6%), beer (7.4%) coffee (6.4%) and pasta (7.1%), which have values above the average for the entire market (5.8%).

Critical issues continue to affect the cured meatoil and flour sectors. There was a slight recovery in profitability in the milk sector (4.3%), although the result remains below the average for the entire market (5.8%).

When analyzing the incidence of added value on revenues, the food equipment sector is confirmed as the best performer in the market with a value of 37.9% in 2016; followed by spirits (30.1%), water (25.8%), desserts (24.8%), packaging (24.3%), beer (24.3%), pasta (24%), coffee (23.4%) and frozen food (22.4%). The wine sector has a value of 19%, just below the market average (21.7%). Canned goods (17.7%), cured meats (16.2%), milk (15.7%) flours (9.8%) and oil (6.9%) registered the worst performance in the market with results far below average.

 

ICS – Index of sustainable growth and sectors with high development potential

The issue of economic sustainability of growth is extremely critical in the agri-food market. The ICS – Sustainable Growth Index – is an index (created ad hoc for this study) calculated taking into account the growth of revenues, commercial margins and financial structure over a multi-year period (2009-2016). The higher the index, the greater the possibility of continued growth for the industry or individual company.  Only four sectors have a satisfactory ICS index that shows the presence of growing companies with good income performance and a solid financial structure.

Coffee (ICS 27.5), food equipment (ICS 25), spirits (ICS 20.7), and, to a lesser extent, wine (ICS 10.8), are the sectors that have recorded the best performances for the three above-mentioned profiles, as they combine an increase in sales and margins with a low rate of debt.

Sectors such as flours (ICS 9.6), pasta (ICS 8.6), frozen foods (ICS 7.2) packaging (ICS 6.1) and confectionery (ICS 5.7) are “in midstream”, i.e., they do not excel in all three profiles that make up the index. Finally, the problematic situation of different sectors is confirmed, among which stand out the cured meat sector (ICS 1.0) and milk (ICS 2.4). The beer sector (ICS -1.6) registers the only negative value compared to the other sectors due to the decrease in revenue growth from 2009 to 2016.

Analysis by size classes

The analysis of the sectors by size class provides for the comparison of the performance of growth, profitability, financial structure of large companies (turnover above 100 million euros) and medium-sized companies (turnover between 100 million and 50 million euros).

Large companies grow at higher rates than medium-sized companies, especially in those sectors where companies adopt the trading company business model, such as in oil (10.3%) and wine (11.4%). Medium-sized companies in the cured meats sector recorded higher growth rates than large companies (5.3%). There was a trend reversal in the milk sector, where large companies recorded better performances with a CAGR of 3% compared with medium-sized companies, which recorded growth of 1.8%.

In general, profitability is higher for large companies with very high values for distillates (15.3%), sweets (8.4%) and pasta (8.1%). Profitability of medium-sized companies is higher in the wine sector with a value of 10.2%, followed by coffee (7.2%), cured meats (2.6%) and oil (2.2%).

Cross-sector comparison

The intersectoral comparison confirms the good performance of the agri-food market, in fact the return on investment (ROI) in 2016 is higher than the one of several sectors of the Italian economy such as clothing, wood and furniture (comparison with MBRES data).

The trends in the debt rate of the MBRES sample of Italian firms and the food market are both decreasing over the long term and lower levels for the food market are confirmed, which in 2016 recorded the lowest debt rate (2.39) compared to the entire period considered (2010 – 2016).

Tangible and intangible investments in the food sector show a growing trend in the period 2009-2016; Italian companies (MBRES sample), on the other hand, have reduced investments, especially in the two-year period 2013-2014. In the last two years considered, there is a slight growth in tangible investments for Italian companies. In 2015 and 2016, investments in the food sector grew slightly less than those recorded by Italian firms. Investments in intangible assets are characterized by positive growth rates only for the food market, while the sample of MBRES companies registers a further decline in 2016 that stands at -1.1%.

 

The wine sector

The analysis of data related to the wine sector shows good growth performances and a slight decrease in commercial profitability and return on invested capital. Financial performances show a clear improvement with a remarkable decrease in the debt rate.

From the analysis of the multi-year performances (2009-2016) of wine producers, it emerges that companies adopting the business model of the trader (bottlers, who buy wine and bottle it) have the highest multi-year growth performances – despite a commercial profitability around 3% – that is definitely lower than the value recorded by integrated producers (7%), that is small and medium sized companies having wine production inside them. Cooperatives, a driving force of the sector in terms of size, show a good growth performance, in line with the one recorded by integrated producers: however, they have a very low profitability, with commercial margins lower than 2%.

The wine business has difficulties in supporting a certain product positioning and, therefore, adequate selling prices. This can be seen from the analysis of export data, which shows that Italy has higher export volumes than its closest competitor France. However, in terms of value, Italian wine export is worth 40% less than the French one. That’s because of the tendency to export a “budget” product with a lower price positioning compared to French products. Therefore, it is not by chance that profitability results are not satisfactory and that wine represents the classic example of a sector where companies have focused on growth at the expense of profit margins.

 

Forecasts

For the fourth edition of the Food Industry Monitor, a forecasting model was developed to analyze the evolution of growth and profitability at the industry level and at individual sector level. A stability in revenue growth is observed in the two-year period 2018 -2019 with a cumulative growth rate of 6.5%.

The analysis of cumulative growth prospects in the two-year period 2018-2019 for individual sectors shows very mixed performances. High growth is found for the coffee (13.9%), flour (12.2%), wine (7.9%), oil (7.8%) and canned goods (7.3%) sectors. The milk (2.4%), spirits (2.5%) and confectionery (2.5%) sectors registered modest growth. The cured meats (0.0%) and frozen food (-0.3%) sectors recorded negative growth rates for the two-year period considered. The wine, coffee, oil, confectionery, water and frozen food sectors are also expected to see growth in ROS over the next two years.

At the aggregate level, all sectors of the food market register positive increases (cumulative growth in the period 2018-2019) in exports for the two-year period 2018-2019. We highlight the particularly positive result for the water sector with a cumulative rate of change equal to 14.7%. Also for cured meats (8.4%) and wine (6.4%) there are substantially positive export performances.

 

Download the 2018 FIM presentation here

III edition FIM 2017

Finance and sustainable growth in the agri-food market

Search results

In 2016, the food market registered a 2.5% increase in revenues that is significantly higher than GDP growth (0.9%). For five years now, the food sector has been performing significantly better than Italian economy.

The Italian food industry is a high value-added industry. Since 2012, the value added produced by the companies in the sample has grown at increasingly high rates and has outpaced the growth in revenues. In 2016, the increase in value added was 5% in line with the previous year and significantly higher than the growth in revenues. The Italian agri-food industry possesses unique product and process know-how that allows it to add value to quality raw materials through production processes, communication, branding and distribution.

However, despite commercial profitability slightly declined in 2016, there is a strengthening of the financial structure with a decrease in the debt ratio.

 

Long-term performance 2009-2015

The analysis of long-term performance shows that the sectors that grow most are: floursfood equipmentoil and packagingcoffee and wine.

Commercial profitability (ROS) is traditionally very high in the spirits sector (12.9%); good performances were also recorded for food equipment, desserts, coffee, water and pasta, which have values above the average for the entire market (5.7%).

As highlighted in the last edition of the study, there are still some critical points affecting the cured meatoilflour and milk sectors, which have commercial profitability (ROS) and return on invested capital (ROIC) significantly lower than the market’s averages.

In terms of added value, the food equipment sector is confirmed as the best performer in the market with a CAGR of 8% in 2009, followed by spirits (5.8%), flours (5.7%), wine (5.7%), packaging (5.1%) and canned goods (4.2%). The confectionery (1.4%), pasta (1.5%) and beer (1.7%) sectors registered the worst performances in the market, with results far below average. The cured meats (1.1%) continues to be in a substantial crisis, registering the lowest value in the market.

 

ICS – Index of sustainable growth and sectors with high development potential

The issue of economic sustainability of growth is extremely critical in the agri-food market. The ICS – Sustainable Growth Index – is an index (created ad hoc for this study) calculated taking into account the growth of revenues, commercial margins and financial structure over a multi-year period (2009-2015). The higher the index, the greater the possibility of continued growth for the industry or individual company.  Only four sectors have a satisfactory ICS index, which reveals the presence of growing companies with good income performance and a solid financial structure.

Spirits (ICS 22.6), coffee (ICS 21.3), food equipment (ICS 21.1) and, to a lesser extent, wine (ICS 10.5), are the sectors that have recorded the best performances for the three above-mentioned profiles, as they combine an increase in sales and margins with a low level of debt.

Sectors such as pasta (ICS 9.9), flours (ICS 7.7), packaging (ICS 7.7) and water (ICS 7.5) are “in midstream”, i.e., they do not excel in all three profiles that make up the index. Finally, the problematic situation of different sectors is confirmed, among which stand out the cured meat (ICS 1.3) and milk (ICS 2.2). The beer sector (0.5) registers the lowest value compared to the other sectors due to the substantial stability of growth from 2009 to 2015.

 

Analysis by size classes

For the third edition of the Food Industry Monitor, an analysis of sectors by size class was developed. Performance in terms of growth, profitability and financial structure was compared between large companies (turnover of over 100 million Euros) and medium-sized companies (turnover between 100 million and 50 million Euros).

Large companies are growing at higher rates than medium-sized companies, especially in those sectors where companies adopt the trading company business model, such as oil (13%) and wine (12.1%). Medium-sized companies in the milk and cured meats sector recorded higher growth rates than large companies (4.8% and 3.7%). This result is influenced by specialization dynamics and choices of focusing on quality products made by smaller companies.

In general, profitability is higher for large companies, with very high values for spirits (15.2%), sweets (8.3%) and pasta (8%).

The indebtedness of medium companies is higher than big companies’ one with regard to the sectors of oil (4.18), milk and dairy products (4.3), sweets (4) and coffee (2.39). Large companies in the wine sector are characterized by a higher debt (4.07) than medium-sized companies: also in this case it is a physiological fact generated by the presence of trading companies.

 

Cross-sector comparison

The intersectoral comparison confirms the good performance of the agri-food market: in fact, the return on investment (ROI) in 2015 is higher than the one of other sectors of the Italian economy such as clothing, wood and furniture (comparison with MBRES data).

The debt situation of the food market is slightly lower than the one of the MBRES sample of Italian companies and is characterized by a decreasing trend in the long term.

Tangible and intangible investments in the food sector show a growing trend in the period 2009-2015; Italian companies (MBRES sample), on the other hand, reduced investments, especially in the two-year period 2013-2014. In 2015, investments in the food sector grew slightly less than those recorded by Italian companies. Investments in intangible assets are characterized by positive growth rates only for the food market, while the MBRES sample of companies recorded a decrease of -0.4%.

 

Dowload the 2017 FIM presentation here

II edition FIM 2016

Innovation and growth in the agri-food industry

 

Research Abstracts

 The agri-food market is confirmed to be in clear recovery, it is a growth with solid foundations as it is accompanied by positive profitability and a relatively solid financial structure. The market is growing at a much faster rate than the Italian economy also thanks to the strong development of exports. The trend of tangible investments (production plants and logistics) and intangible investments (research and development and communication have) as well higher values than the average of Italian companies.

In 2015, the food market recorded a 4.6% increase in revenues, significantly higher than GDP growth, which in 2015 registered its first positive value (+0.8%) after three years of contraction. Since 2010, the food market has grown at rates significantly higher than the ones of Italian economy.

The Italian food industry relies on the quality of raw materials, but adds value through production processes, communication, branding and distribution. Starting in 2016, the added value produced by the companies in the sample grew at increasingly high rates and outpaced the growth in turnover. In 2015, the increase in value added was 8%, that is almost twice the turnover growth. This figure uniquely characterizes the Italian agri-food industry, which is not a mere processing industry, but is configured as a system of companies able to make innovation and add value to natural resources of great quality.

The commercial profitability (ROS) increased from 5% in 2012 to 6.8% in 2015, the return on invested capital (ROIC) is also recovering significantly and, in 2015, exceeded 11%, returning, to the “double digits” after many years. The debt ratio remained stable throughout the period considered at around the average value of 2.7.

The analysis of average performance in the period 2009-2014 shows that the sectors that grow most are: floursfood equipmentoil and packagingcoffee and wine.

Commercial profitability (ROS) is traditionally very high in the spirits segment (12.7%); good average performances (again in relation to the period 2009-2014) are also recorded for food equipment, desserts, coffee and pasta, which have values above the average for the entire market (5.5%).

As highlighted in the last edition of the study, there are still some critical points affecting the cured meatoil and milk sectors, which have commercial profitability (ROS) and return on invested capital (ROIC) significantly lower than the averages for the agri-food market.

 

The issue of economic sustainability of growth is extremely critical in the agri-food market. The ICS – Sustainable Growth Index – is an index created specifically for this study that is calculated taking into account the growth of revenues, commercial margins and financial structure over a multi-year period (2009-2014). The higher the index, the greater the possibility of continued growth for the sector or individual company.  Only four sectors have a satisfactory ICS index, which reveals the presence of growing companies with good income performance and a solid financial structure.

 

Distillates (ICS 24), coffee (ICS 21.9), food equipment (ICS 18.8) and, to a lesser extent, wine (ICS 10.2), are the sectors that have recorded the best performances for the three above-mentioned profiles, combining an increase in sales and margins with a low level of debt. Sectors such as pasta (ICS 9.1), confectionery (ICS 7.7), flours (ICS 7) and packaging (ICS 5.4) are “in midstream”, i.e. they do not excel at least in one of the three profiles that make up the index. Finally, several sectors continue to be in a very difficult situation, among which stand out cured meats (ICS 1.2) and milk (ICS 2.2).

The intersectoral comparison confirms the good performance of the agri-food market, in fact the return on investment (ROI) in 2014 is higher than that of several sectors of Italian economy such as clothing, wood and furniture (comparison with MBRES data).

 

The debt situation of the food market is slightly lower than the MBRES sample of Italian firms and is characterized by a decreasing trend over the long term. In 2014, the food market’s debt ratio is 2.57 compared to a slightly higher value of 2.65 for Italian firms.

 

Tangible and intangible investments in the food market reveals a growing trend in the period 2009-2014; Italian companies (MBRES sample), on the other hand, have reduced investments, especially in the two-year period 2013-2014.

 

Comparison with Italian large-scale retail trade data confirms that the development of the food market is largely attributable to exports and it also benefits from the contribution of new distribution channels. Although it controls a good part of the food chain turnover, the large-scale retail trade has a very low commercial profitability, with an ROS of 1.35% in 2014. Therefore, it could be said that, probably due to the contraction of domestic consumption, the large-scale retail trade has become a sort of “weak link” in the agri-food system that must necessarily renew its business models, but which is unlikely to be able to sustain investments in innovation with such reduced commercial margins.

 

Download here the FIM 2016 Presentation

I edition FIM 2015

Competitive Challenges for Food and Beverage Companies

The first edition of the observatory analyzes the performance of 519 companies for 43.5 billion in aggregate revenues. The analysis of companies is divided into 10 sectors for which the top 50 in terms of size were considered.

The sample represents approximately 71% of all the capital companies operating in the sectors considered. For each sector, analysis was carried out on four profiles: growth, profitability, productivity and financial structure.

Within each segment, the performance of the top 20 players was analyzed with a focus on the financial sustainability of growth.

The aggregate performance of each sub-fund was compared to allow identification of the top performing sub-funds.

Growth

The analysis of aggregate performance in the period 2009-2013 reveals a revenue growth rate (CAGR) of 4%; this is a relatively positive result when compared with the general economic trend. The sectors characterized by the greatest growth are: food equipment (production of plant and machinery for the food industry), oil, coffee and wine; these sectors are structurally more export-oriented and are characterized by the presence of companies with strong brands and a consolidated position on international markets. The milk and spirits sectors also performed above average.

The sectors that have recorded a revenue growth rate below the industry average are: water, pasta, confectionery and cured meat products. These segments have experienced significant price pressure and, in the case of water and cured meat products, they are more dependent on the domestic market.

Profitability

The average commercial marginality (ROS, 2009 -2013) is around 6%. The sectors with above-average results are: spirits, confectionery, food equipment and pasta. In line with the average are: water and coffee; lower performances are recorded in: wine, milk and oil.

The average return on invested capital (2009-2013) is around 8%. The food equipment sector performs above average as it adopts a different business model compared to companies that produce food and beverages and are traditionally subject to the relationship with the distribution channel. The pasta, desserts, spirits and water sectors have values above average. Coffee is slightly below average whiler wine, oil, cured meat products and milk are significantly lower.

Productivity

The analysis of productivity of human resources (average revenues per employee) shows a homogeneity among most of the sectors which are positioned around the average value of 380,000 Euros per employee. The milk and spirits sectors have higher values than the average because production processes allow maximizing the productivity per employee; furthermore, the oil sector is characterized by the presence of many companies that adopt a business model based on the trading of oils produced by third parties. Food equipment is characterized by lower staff productivity due to the high level of skilled labor required both in the production cycle and in the installation of plants.

The analysis of productivity of tangible investments reveals a situation of substantial uniformity. The milk sector shows higher values as some big players have started a process of restructuring and rationalization of production capacity. The figure for oil is determined by trading activities, while for pasta and cakes it is a positive result influenced by investments in process innovation made over the years.

Financial Structure

The average debt rate (2009-2013 period) of the market has a value of 2.7, in line with  Italian manufacturing sector’s one. The coffee sector is characterized by low indebtedness, the same as spirits and desserts, which have a rate below the average of the market. The most indebted sector is the milk sector, but that depends on ongoing restructuring processes; this situation also partially affects the oil sector, which is subject to company combinations and restructuring. The cured meat sector has a very high level of debt due to both long-term debt and short-term exposure, which is used to finance the high uptake of working capital.

The average cost of debt (2009-2013) is around 3.8%, with above average costs in the milk and food equipment sectors. Below average costs are incurred by the oil, cured meat, wine and confectionery sectors. The figue of the oil sector  is explained by the use of mainly short-term credit lines in order to cope with the strong seasonality that generates interest costs for a limited period of months.

Comparison of growth and profitability

Food equipment is the sector that shows the most favorable relationship between growth and return on invested capital. The spirits and pasta sectors show good growth, in line with the average, but with significantly higher profitability.

The coffee, milk, oil and wine sectors developed satisfactory growth during the period considered. However, this growth was achieved by sacrificing part of the return on invested capital. In particular, the result was determined by the increase in the absorption of means to finance the working capital and by restructuring and reorganization costs.

The cured meat sector suffers both in terms of growth and profitability of invested capital. This sector is affected by the drop in consumption, the development of private labels and the strong pressure on prices exerted by large-scale retailers. The mineral water and confectionery sectors have developed insufficient growth, while preserving the profitability of invested capital.

Comparison of debt and profitability

The virtuous sectors are: pasta, desserts and spirits, where a low level of debt is matched by good profitability. Food equipment can also be considered virtuous: as a matter of fact, it links a debt ratio slightly above the average with an excellent return on invested capital.

The coffee sector has a relatively balanced situation: a return on invested capital slightly lower than the average of the market corresponds to a limited level of indebtedness. The same can be said for the wine sector, which has a debt rate slightly lower than the average, but an unsatisfactory profitability.

Oil, milk and cured meat products are characterized by a critical relationship between debt and profitability; in fact, a high initial debt rate corresponds to a low return on invested capital.

Comparison of debt and growth

The comparison between debt and growth highlithts a virtuous situation for the wine, coffee, spirits and food equipment sectors, which were able to grow by containing their financial debt below the average of the market.

The milk and oil sectors have achieved satisfactory performance in terms of growth but continue to be characterized by high financial indebtedness.

Charcuterie and water producers are in a problematic situation as they have experienced lower increase than the industry, but have greater indebtedness.

Compartments Rank

An overall rank of the analyzed sectors was developed, by summing the ranks of the sectors on three indicators: the CAGR of revenues (2009-2013) to measure growth, the average ROS 2019-2013 to measure trade margins and the average debt ratio to measure the financial sustainability of growth. Summing together the ranks from each segment, an overall rank is obtained, which summarizes growth, profitability and financial sustainability.

The final result shows that coffee, spirits and food equipment sectors are in the first three places. Each of the three sectors occupies the first place in one of the three indicators used for the ranking. Coffee has the strongest financial structure, spirits the greatest commercial profitability and food equipment the growth capacity in markets. However, the three sectors also have very balanced performances in the other indicators, which means they are positioned at the top of the rank as companies capable of developing profitable and financially sustainable growth.

The pasta and confectionery sectors, which occupy the fourth and fifth position, have good performances as for trade margins and debt ratio. However, they have unsatisfactory performances when it comes to growth. The wine sector has a median position in all three indicators.

Oil has a very high growth rate, which is highly critical from the point of view of profitability and financial structure. Milk has a fair position in the growth rank, but negative performance in terms of profitability and financial sustainability. The water and cured meat sectors show strong criticality in the three profiles and highlight the presence of potential structural problems.

Cross-sector comparison

The food sector has grown in terms of revenues and added value at rates significantly higher than national GDP. In 2013 and 2014, the growth in added value was driven both by actions aimed at making production processes more efficient and by commercial development actions in the Italian and foreign markets.

A comparison between a sample of Italian companies (MBRES) and companies in the food sector shows the following:

  • Productivity of capital employed (value added/capital employed) is basically in line with the overall value;
  • The ROE of the food sector is significantly higher than the ROE of the MBRES sample of Italian companies. This is a result determined by the good net profitability of Italian food companies which have a profit and loss account less penalized, compared to the sample of Italian companies, by non-recurring costs and financial charges;
  • Companies in the food sector have a return on invested capital (ROI) in line with the ones of the manufacturing sectors representative of the national economy. Companies in the food sector are slightly less indebted than the reference sample and have a declining trend in debt.

 

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