Food, glorious food & beverage
Revving up NZ’s export performance
It probably comes as no surprise that New Zealand's food and beverage (F&B) sector continues to set the pace for our export performance; or that the F&B industry is absolutely critical to achieving the government's longterm export goals.
The evidence is in the 2013 Food and Beverage Industry Reviews, put out by The Ministry of Business, Innovation and Employment (MBIE) – reports that also highlight the diversity of our F&B sector, far beyond dairy.
Processed food exports were worth around NZ$2.1 billion in 2012 – up by $8.1 million on 2011. The New Zealand wine industry alone contributed NZ$1.2 billion in 2012.
The need for New Zealand to produce high-value (premium) food and beverage products has long been recognised as the best export strategy going forward, as they deliver more profits and jobs than commodities; and it's generally agreed that our capability to produce commodities is limited by our geographical size and our desire to preserve the natural environment. We all know the importance of living up to our ‘clean, green' image.
Other factors impacting on New Zealand's F&B export strategy is the rise of the informed consumer who demands healthier, safer, authentic food and drink in his or her local supermarket – wherever in the world that may be.
Changing consumption habits, particularly in Asia, represent one of the greatest opportunities ever for New Zealand's food and beverage exporters. Shaun Conroy, NZTE's regional director East Asia, who works across markets from Indonesia to South Korea and Japan, believes Asian consumption is at a turning point. “The roughly 3.5 billion consumers in emerging Asia still account for less than 30 percent of global GDP,” he says. “Propelled by rapid urbanisation and the rise of its middle class, Asia is set to be the world's consumption engine.”
The winners will be companies that evolve their business models from exporters to inmarket players.” – Shaun Conroy, regional director East Asia, NZTE.
Food price rises and changing dietary habits will lift spending on food in this region, he believes, and meat is definitely on the menu. The FAO has predicted that global meat consumption will rise to 460 million tonnes in 2050, an increase of 65 percent in just 40 years.
“Meat consumption is growing the fastest in Asia and the potential for higher demand is huge, due to relatively low per capita meat consumption.”
Food consumption trends are happening in every market, Conroy says. “For example, in Korea and Japan, we're seeing a rise of single urban dwellers. This provides opportunities for the sale of individually portioned meals; whereas in Thailand and Vietnam there is a demand for health food and bioactives – such as supplements and manuka honey.”
Conroy has a strong message for F&B manufacturers eyeing up Asian markets. “The winners will be companies that evolve their business models from exporters to in-market players. These are companies that import, process, value-add and market to their customers,” he explains. “They become in effect supply chain managers that source in the lowest cost market, process in the lowest cost market and sell in the highest cost market – taking advantage of efficiencies in freight logistics, labour and tax, while optimising their business to take advantage of regional FTAs.”
As mentioned earlier, on of the greatest strengths New Zealand's F&B exporters have is the ability to leverage the country's reputation for safe and clean food. “It's vital exporters uphold their commitments to food safety to the highest possible level,” says Conroy, “and have a plan in place to act quickly if there's a breach in their systems.”
Do your research and choose your opportunities wisely, he advises. “It's better to take your time to work out the right path to market than to jump into a situation that may be difficult to extract yourself from in the future.”
Safety and authenticity
Mention food exports and the words ‘safety' and ‘authenticity' are never far away. Following certain events in China in 2013, F&B exporters need no reminder of the need to maintain the integrity of their product right through the supply chain – from sourcing raw material to point of sale.
There are new technologies available to help deliver this outcome – one being AsureQuality's inSight brand, which gives shoppers independently verified information about the products they're about to buy. For producers and manufacturers, eligibility is via strict assessment and a licence from AsureQuality, which allows them to place the inSight logo and QR code on their product packaging.
“The focus is to protect and uphold the reputation and value of products and companies that believe in, and can demonstrate, transparency, integrity and safety,” explains AsureQuality sales and marketing manager Mark Inglis. “Consumers want to know more about the food they are eating. Where's the proof that a product is safe and authentic? inSight offers a single mark that addresses multiple interests and concerns.”
It's all about transparency, says Inglis, ensuring that good manufacturing processes are followed and all product claims credible. It addresses environmental sustainability, social and ethical concerns, nutrition, origin, security, food safety and quality assurance; everything that would concern a busy, middle-class shopper in downtown Hong Kong or Shanghai – or anywhere else for that matter.
Tenda Nutritional Foods, an Auckland-based producer of infant formula products, is the first licensee to take the new inSight brand to China. Inglis is confident other exporters will want to utilise the brand to differentiate themselves in today's crowded FMCG marketplace.
“We're already seeing growing customer and consumer expectations and concerns relating to food safety and quality such as animal welfare, environmental impacts, product provenance, and sustainable farming practices; and there's growing product differentiation based on moral preferences such as organic, food miles and fair trade,” he says. “When you combine these trends with the increased food safety regulations in emerging countries where New Zealand has strengthening trade relations, such as China, the demand for products such as inSight becomes even more apparent.”
A recent entrant in this technology space is Expander – a company founded in March 2013 at Wellington's Lightning Lab accelerator. It's system, which is well into commercialisation, has anticounterfeit and analytics components, as well as consumer engagement.
Expander generates a unique QR code for each individual packaged item, rather than per batch. These can be supplied as printed codes to be attached to just about any form of packaging, or in electronic form for use with variable data printers at production-line speed.
“Consumers can scan the code with any smartphone,” explains Expander's CEO Erwin Versleijen. “That launches our mobile-friendly website, which checks the code and immediately confirms it is valid.
“It's a great defence against counterfeiters because any bogus code will be immediately rejected. Counterfeiters can't just copy a single code because we'll identify that quickly.”
The Expander system makes it much harder to pass off a fake product as genuine and greatly increases the risk that counterfeiters will be caught, so they'll find an easier target instead, says Versleijen. “Retailers also won't want to be caught with invalid products, so they'll be careful to get the real thing. As we have a global view on scans, we are also able to track grey market trade for our customers.”
Expander's key feature is its anti-counterfeit system, but savvy exporters will realise this is a wonderful marketing channel too, says Versleijen. “You've started a conversation with your customers based on trust and transparency, rather than a common marketing pitch. So when our codes are scanned, we can also offer the consumer useful information, such as tasting notes for wine, or perhaps a loyalty programme. We invite the consumer to register for further information and communication, social networks and so on.
“We also record each scan so exporters can log into the Expander dashboard and see a map showing all the scans of their products, highlighting any that are invalid, appear to be grey-market or outside the product's shelf life. They can filter this map or browse the raw data. They can view and download consumer's registration information.
“Many Kiwi manufacturers haven't had much insight into their end users, and Expander can help change that,” he says. “The fact that manufacturers now also have consumer data also allows for much faster recall process in export markets.”
Versleijen says they're focusing on Asia, and in particular China, where product safety and authenticity are key concerns and QR codes are in common use. They've also designed the Expander system to integrate with existing supply chain tracking systems.
You can't help but admire the company's motives. “Our mission is to help Kiwi exporters differentiate themselves,” says Versleijen. “We want New Zealand exports to be the most credible products on the planet.”
Bigger profits through adding value
Adding value to F&B commodities has for a long time been the key to realizing healthy balance sheets for New Zealand's exporters. In a tiny office in the Auckland suburb of Grey Lynn, Graeme Peterson, MD of Aquity International, and Alister Gates, CEO of VitalZing, have been hatching a plan to create a highly profitable export business by adding value to bottled water.
Peterson is an F&B industry veteran of 35 years – initially adding value to meat commodities, having realized that in the commodity game, unless you have a major point of difference, it's extremely difficult to survive by yourself. In recent times, bottled water has been his focus. His company manages the Water For Everyone brand, for which Peterson was tasked to lift out of the struggling commodity space with a bit of ‘outside the square' thinking.
No matter how much volume you produce, it's never going to be enough to turn a decent profit in low-margin markets such as China, he says – where enquiries are inevitably based on ‘How big is your water supply? How many bottles can you produce a day? And how many containers can you ship per week and what is the lowest price?
“It's a myth that high volumes mean big profits – in reality high volumes, in a market like China, can mean you'll go broke.”
Water is also a hugely difficult product to get across borders, says Peterson; a lot can go wrong. He recalls the 18 months it took to access the Malaysian market and 15 months to get into Japan.
Peterson's thinking has also been influenced by the tiny percentage of the bottled water market occupied by ‘natural, out-of-the-ground' water (with high levels of ‘total dissolved solids') and society's addiction to what Peterson refers to as “lolly water” – water with added sugar, stabilisers, preservatives, colouring and other unmentionables which he says amounts to “dead nutrition”.
It’s a myth that high volumes mean big profits – in reality high volumes, in a market like China, can mean you’ll go broke.”
– Graeme Peterson, Aquity International.
The solution is the sugar-free VitalZing range of bottled water with specially designed ‘dosing cap' technology that allows consumers to add nutrients, flavours and vitamins at the time of use, ensuring they get the full, and immediate, benefit of those ingredients. Rather than focus on flavours, each powder focuses on “an event or cause”: for example, there's ‘Collagen' for women, ‘Performance' for sport and exercise and ‘Endurance' for people under stress or working long hours. There'll be additional products based around green tea, calcium and electrolytes.
The initial VitalZing range is set for a May/June launch, along with a ‘water drops' flavouring/sweetener based on the stevia plant.
Peterson has already taken a vertically integrated approach to market for his bottled water, involving or controlling an in-country import hub and therefore maintaining complete control over the safety and security of supply – always a major factor when shipping bottled water. Japan, China and Hong Kong are the current focus, and the VitalZing ‘added-value' range will be marketed using the same distribution model.
Australia's the first stop, followed by Japan (“one of the hardest places in the world to get into”) and Malaysia.
Peterson and Gates are excited about introducing a brand new category to the beverage market. Major US companies are also showing interest in the ‘dosing cap' market, and Gates anticipates they'll be collaborating with some in order to build market awareness in overseas markets. Closer to home, he says they plan to set up a ‘centre of excellence' in New Zealand for the production of the caps and powder formulations, which local water producers can tap into.