Snack food makers will invest in marketing and new products to sustain demand
Los Angeles, CA (PRWEB) January 11, 2013
The Snack Food Production industry saw consistent revenue gains in the past five years despite facing challenges. Most notably, consumers tightened spending after their disposable incomes fell during the recession, leading them to cut back on nonessential purchases like snack food. Additionally, health-conscious consumers became wary of eating fattening snacks. Nevertheless, the industry remained resilient, mainly to the credit of its major companies, which quickly adapted to changing consumer preferences by introducing healthier snack food options. For example, low-fat baked chips and 100-calorie snack packs successfully catered to health-conscious consumers. Furthermore, economic recovery is allowing consumers to gain more disposable income to afford a larger quantity of snacks as well as more expensive, higher-quality snacks in 2012, when revenue is estimated to rise 3.2%, says IBISWorld industry analyst Olivia Tang. Consequently, revenue is expected to grow at an average annual rate of 2.6% to $29.6 billion over the five years to 2012.
Producers also benefited from wide profit margins during the past five years as a result of effective marketing, which solidified companies' brand-name reputation. Branded producers were able to charge high prices for their products' perceived superior quality and grow their pool of brand-loyal customers willing to pay these high prices. For example, major company Frito-Lay advertises that they have healthier products without MSG or less salt, which allows them to charge a premium. Consequently, producers upped their prices without significantly reducing demand. The Snack Food Production industry is moderately concentrated. The top players are Frito-Lay North America, ConAgra Foods Inc., Kraft Foods inc. and General Mills Inc. Concentration has increased because larger players have engaged in acquisitions to expand their product mix and market reach, says Tang. For example, ConAgra Foods completed its acquisition of National Pretzel Company in 2011 and announced its plan to acquire Ralcorp in 2012, one of its largest transactions to date. While the larger companies continued to gain dominance, the small companies at the bottom struggled to survive against their competitors during the recession. The industry's concentration of ownership is expected to increase in the future, engendered by acquisitions, continued product innovation, strong brand loyalty and aggressive marketing initiatives. Although smaller operators are more common in this industry, these smaller companies control a minimal share of revenue.
Producers' ability to charge a high price also allowed them to maintain profitability despite rising input costs. The price of corn, for example, jumped 58.0% in 2011, yet operators were able to raise prices, allowing revenue to grow 1.9% in the same year. Innovative technologies also reduced labor costs, which further boosted profit. In the five years to 2017, the industry is expected to continue growing by increasing its investments in technology and developing new, healthier products. Although certain commodities and downstream markets are generally susceptible to volatility, this industry is able to weather the storm because snack foods are a typical household food purchase. Therefore, revenue is forecast to grow during the five years to 2017. For more information, visit IBISWorld’s Snack Food Production in the US industry report page.
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IBISWorld industry Report Key Topics
This industry comprises manufacturers that produce snack foods, including potato and corn chips, pretzels, popcorn and other similar snacks. This industry does not include cookies and crackers (IBISWorld report 31182), bakery products (31181) or cereal and granola bars (31123). Industry establishments primarily prepare nuts, process grains or seeds, and manufacture chips, popped popcorn and similar snacks.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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