Food in the future – Innovating food value chain

Food in the future – Innovating food value chain

There is no doubt our world is changing, impacting all sectors at break-neck pace. Navigating this change is a challenge that many Australian food and beverage organisations face, as they seek new avenues of growth and value creation, whilst fulfilling the very basic need of feeding consumers.

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Director, Global Strategy Group

KPMG Australia

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A syringe being inserted into a red capsicum

A changing world

Four key macro trends that are driving change across food value chains are:

  1. Food demand is growing on a global scale. The world population is getting bigger and wealthier. There will be more mouths to feed, more plates to fill, with a changing variety of food and beverages, consumed in different ways as populations transition to the middle class.
  2. Consumer preferences are changing. Food is not just food anymore, it’s a symbol of status. Food is not just for sustenance, it’s an experience. Increasingly we want to know the story of food, and that it is safe to consume – where did it come from; how was it processed; how many miles did it travel to get to the plate?
  3. Existing supply capacity cannot sustain the forecast growth in food demand. Arable land is decreasing as urbanisation increases pace, global water usage will be an ongoing constraint, not to mention the impacts of climate change on agricultural output. These supply constraints are accelerating the need to find alternative ways to meet food demand.
  4. Technology is converging and is reshaping entire sectors like never before. In the past decade, we have seen the rise of completely new business models, with the likes of Uber, AirBnB, Google and Apple disrupting entire industries. Food and food production is the next frontier, evidenced with the rise of agTech and Food Tech investment across the globe.

Implications for food value chains

So what does this all mean for food value chains? What will the sector need to do to survive in the future? Here are four observations that look set to drive sustainable futures for food and beverage businesses:

1. It starts with the plate, not the paddock

‘Paddock to plate’, ‘farm to fork’ – traditionally we have viewed the value chain as starting at production and ending with consumption. With the rise of the consumer, businesses need to ‘start with the plate’. In other words, start with the consumer, and work backwards.

The consumer of the future is likely to either be a millennial (one in three consumers will be millenials by 2020) or over 65 (there will be a doubling of people over 65 by 2030), and in a single household (since 1970 the number of single households has increased by 165 percent).

To get a share of their plate, food and beverage businesses will need to:

  • make it convenient to access and purchase product
  • create an experience and influence
  • focus on health and wellness
  • demonstrate value
  • be a sustainable choice.

2. The plate is bigger than Australia: it’s the world

For Australian businesses looking to invest to grow – the return on that investment will come from successfully unlocking the value opportunity in global markets other than Australia. Not surprisingly, emerging markets such as ASEAN markets, China and India present the greatest opportunity, as they have a fast rising middle class.

Australia has some distinct advantages in trading with these countries – namely geographical proximity and a favourable regulatory environment that many businesses are not taking advantage of (Australia’s free trade agreement use is low at 19 percent compared to 26 percent in Asia).

But capturing the opportunity is not as easy as just taking advantage of an FTA, and we have seen some great examples of foreign brands cracking Asian markets. However, many more have failed. Those that have succeeded have a few things in common:

  • a clear ambition and business model – market entry should not be an accident or a coincidence
  • a long term view of investment – there are no ‘quick bucks’ to be made
  • strong strategic partnerships and relationships – know who you are working with
  • investment in local capabilities and market insight – invest in a local team with the right capabilities and who know and understand how to target local consumers
  • product adapted to the market – one size does not fit all. Few products can be lifted and dropped into a market with significantly different culture and preferences.

3. Technology is a cornerstone

In less than a decade, the convergence of technology – the Internet, analytics, cloud and mobiles – has enabled a number of companies to completely dismantle ‘industrial age’ organisations. It hasn’t taken long for Google, Amazon, Apple, AirBnB, Uber and similar, to become household names.

Technology can both enable and disrupt, essentially driving two alternate futures that both leverage technology. The first is where technology is used to enable the optimisation and streamlining of businesses. But technology can also disrupt and actively displace the work of humans. This is the alternate future, which we are already seeing glimpses of with the emergence of new products (for example Whitewave and MycoSmooth), new channels and new value chains (for example Food Ink and Natural Machines).

This will not happen overnight – the two futures will develop in parallel for some time. But the second future will dominate in the long run.

4. Iterative innovation is a core capability, not a differentiator

Innovation is ripe across the food and beverage sector – we need only to consider the global investment in food tech which totalled US$6.8bn in 2015 . While most of this activity has been startups in the US (US$2.3bn) – many of these startups have become household names in Australia. Looking at the top 10 food and beverage startups we see that there is an increased focus on robotics and plant-based foods over the last 12 months, compared to the prior 12 months that was heavily focused on grocery delivery and online platforms for ordering food, and booking tables at restaurants.

In Australia, the recent announcement of $50m in federal funding for the Food Agility CRC is an example of how startups, industry, research bodies, government, investors and commercial partners are connecting to develop a vibrant food innovation ecosystem to empower Australia’s food industry to grow through digital transformation.

All of this is very interesting – but the real question is how many of these startups have been able to commercialise their product and get a return. Whilst there are some very progressive businesses producing innovative new products many are still at a very early stage, so exemplar case studies or benchmarks are still emerging. Clearly some have been very successful in terms of generating a revenue stream but many more are yet to prove their worth and generate what a typical business would expect as an acceptable level of return. Therein lies the challenge for established incumbent businesses – how do you balance the need to defend and sustain your competitive position (the ‘first’ future) with the need to think about a ‘second’ future that is still evolving?

The answer lies not in focusing on one future versus another, but being able to run with both – through:

  • agile decision making
  • a clear and quantifiable strategic ambition
  • a relentless focus on commercial outcomes
  • and being able to ‘innovate’ without the constraints of a legacy business.

Innovation should not be for the sake of innovation – but targeted to address a consumer need, because if they don’t want it on their plate – what’s the point?

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