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How many eggs in how

many baskets?

Business models for food & beverage

exporting and the role of NZTE

Dieter Adam

April 2013

v2

Overview

• Some thoughts on how we connect with our F&B export

markets

• A glimpse on what and how NZTE’s Customers are doing

• A path to better practice

• A plug for NZTE

2

The goals & the hurdles

• Government has set a economic growth target of raising

export to 40% of GDP by 2025

• F&B exports have to double at least to help achieve that

• Extrapolation of current trends leaves multi-billion $ gap

• Many things have to change to achieve that

• Among these are currently prevalent business models

and processes for exporting F&B products

• Focus here on how to improve these, and how NZTE

can assist

3

Explanatory notes

• Focus on high-value / high-margin F&B exports

– Focus on retail-ready products – doesn’t mean other chan-nels (ingredients, HRI) can’t be high-value/high-margin

• Terminology:

– Supply chain describes the flow of goods from grower to processor to retailer to end consumer (and many steps in between)

– Value chain describes the additional value created at different steps of the supply chain – and who captures that value

– The flow of information up and down the supply chain is often associated with value chain analyses

4

18/04/2013 5

Some thoughts on how we connect with our export markets

Buying food is a matter of trust

• People have always been care-ful about what they put in their mouth – if they can afford to

• Recent food scandals have eroded consumer confidence in many markets

• The bigger the distance, the greater the perceived risk:

– Lack of known brand (company x country)

• Brand is a substitute for the hand-shake over the counter

– Complex supply chains

– Physical distance

6

Consumer confidence comes from …

• Proximity / short & simple supply chains (Farmers’ market)

• Or from trusted – Manufacturers (Nestle)

– Countries (Switzerland) or geographic regions (Parma)

– Retailers (Waitrose) – including house brands

– Third-party assurance schemes (e.g. Marine Stuartship Council)

Consumers seek assurances on a wide variety of

attributes (food safety, animal welfare, gluten-free …)

• Weights on individual attributes vary, depending on markets and market segments

• Ultimately consumers make a single decision to purchase

– Not always easy to identify weighting of components

7

Not only Tesco and not only now …

• All (British) supermarkets have been striving to simplify

their supply chains and use local suppliers where possible

for years

• Sainsbury’s supply chain programme since 2004, import-

ant part of turn-around under new CEO (Justin King)

• Multiple drivers, all related:

– Remove cost but cutting out middle person

– Direct control over farmer/grower practices (supply contracts)

– Grow consumer confidence

– Part of USP – it’s a race

• "Our fresh chicken has been 100% British since 2003” Sainsbury’s response to the TESCO ad

11

How does New Zealand fare?

• Proximity / short & simple supply chains (Farmers’

market)

• Or from trusted

– Manufacturers (Nestle)

– Countries (Switzerland) or geographic regions (Parma)

– Retailers (Waitrose) – including house brands

– Third-party assurance schemes (e.g. Marine Stuartship

Council)

12

How do we stack up in export markets?

• Trusted manufacturers? (B2C)

– Zespri, and Fonterra Brands in some markets

– Little else with high profile?

• Country?

– Remarkably robust end consumer perception (“clean & green”)

– High levels of trust in govt. agencies & processes – some of which are

falling well behind end consumer expectations

– Mixed feedback from Customers (Lack of reliability in quantity and quality)

• Proximity? No - but

– Food miles debate has shown the problems, but also that these can be

overcome

– Hypothesis: Proximity – the handshake – is an intuitive manifestation of

being trustworthy

– NZ’s ‘trust factor’ can mitigate the lack of physical proximity

– Remote position also signals ‘unspoilt’ and “far away from the troubles

that are upon us” – a big part of the ‘clean & green’ perception

13

Short & simple supply chains?

• By international comparison, we have simple supply chains

domestically …

• … which are sometimes painfully disconnected (e.g. meat,

manuka honey, apples)

• … and we hand over control at the moment the goods are

loaded into a container at the factory

14

New Zealand has a relatively simple domestic food &

beverage supply chain

Simplified model of domestic New Zealand food & beverage supply chain

(Model; 2013)

Source: Coriolis 15

Manufacturing

Logistics

Retail Outlet

Foodservice Outlet

Consumer Wholesaling & Distribution

(Single layer)

Sales & Marketing

Money

Shelf-ready Food & Beverage Products

New Zealand exports have a more complex and

convoluted food & beverage supply chain Simplified model of export food & beverage supply chain

(Model; 2013)

Source: Coriolis 16

Manufacturing

Export Logistics &

Documentation

Shipping


Representative Broker Agent

Distributor

Retail Outlet

Foodservice Outlet


(Multiple

layers) Export Sales &

Marketing

In-Market Sales &

Marketing

Import Logistics &

Documentation

Money

New Zealand exports have a more complex and

convoluted food & beverage supply chain Simplified model of export food & beverage supply chain

(Model; 2013)

Source: Coriolis 17

Manufacturing

Export Sales & Marketing

Money

Export Logistics &

Documentation

Shipping



Distributor

Retail Outlet

Foodservice Outlet


(Multiple

layers)

In-Market Sales &

Marketing

Import Logistics &

Documentation

Extra hands to be controlled – and fed 18


Distributor

Wholesaling & Distribution

(Multiple layers)

In-Market Sales & Marketing

Import Logistics & Documentation

The real tyranny of distance …

… is from, not to markets

“Market development and brand strategies covering all chan-

nels to market should be based on a closer understanding of

consumers’ future requirements, preferences and expectat-

ions of New Zealand as a sustainable supplier of fresh, safe

and healthy food and quality fibre”

Quote from the Stanford Bootcamp August 2012 – Outcome Summary

19

By simplifying export supply chains … 20

Export Logistics &

Documentation

Shipping



Distributor

Retail Outlet

Foodservice Outlet


(Multiple

layers)

In-Market Sales &

Marketing

Import Logistics &

Documentation

We can …

• Improve control over

– how our A&P investment is being spent, or

– how and where products are being presented and

promoted, for example

• Reduce cost

• Get our finger on, or at least much closer to, the pulse of end

consumers

• All of this comes at a cost and requires investment of much

more of our own resource in each market …

21

18/04/2013 22

A glimpse on what and how NZTE’s Customers are doing

Results from an analysis of NZTE’s major Customer base

• 73 F&B exporters for which we have 5-year export revenue data

• Two very large exporters excluded as outliers

23

R² = 0.0038

-100%

-50%

0%

50%

100%

150%

200%

- 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000

‘Normalising’ effect

2012 export revenue [,000]

vs 2008-2012 CAGR

No correlation between number of markets and total

export revenue … 24

R² = 0.0297

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

0 5 10 15 20 25 30 35 40 45 50

2012 export revenue [,000]

vs No of export markets

What does that mean?

Total Export Value No. of markets

Total 2012 Exports Category Average Median Average Median

>$10m 2,974 2,027 8.7 7

$10m to $20m 14,607 13,767 12.1 8.5

$20m to $100m 51,179 45,076 14.5 11.5

>$100m 265,738 247,400 16.9 16

25

→ Larger exporters sell more in each of their markets than smaller exporters

• Largest exporters sell 10x as much as smallest, but only ~ twice as many

markets

What does that mean for resource allocation? 26

Total 2012 Exports Category

No. in category (%)

Median sales per market $[,000]

Marketing budget per market $[,000]*

>$10m 23 (32%) 290 14.5

$10m to $20m 16 (23%) 1,620 81.0

$20m to $100m 20 (28%) 3,920 196.0

>$100m 12 (17%) 15,463 773.1

* based on 5% of total sales invested in market development

→ Are smaller exporters spreading themselves too thin?

Pack, ship & forget … the f.o.b. method

• A lot of F&B exporters largely abandon control over the fate of their

goods at f.o.b.

“A trade term requiring the seller to deliver goods on board a

vessel designated by the buyer. The seller fulfils its obligations to

deliver when the goods have passed over the ship's rail.”

• Control is handed over to agents to whom your goods are one of many

• Minimal financial contribution to A&P in market (if any)

• Minimal market feedback received (if any)

– and if so, mostly filtered through several brains

• In-market presence confined to short stays, focused on meeting and

dining with importer/distributor two- to three times per year

27

Polemic? Yes – but unfair?

• On a recent visit to Singapore, Indonesia, Malaysia and Thai-land I encountered two F&B exporters who had a ‘significant presence on the ground’

– Dedicated agent or wholly-owned subsidiary

• Situation is changing in some sectors and markets

– More and more wine companies are employing their own representatives in China

• Local laws, regulations and practices often require the use of local agents

– The formation of wholly-owned subsidies is not always possible

• f.o.b. method is not ‘wrong’ – it’ s a low-risk, low return approach

– but it won’t get the country to double F&B exports by 2025

28

18/04/2013 29

A path to better practice

More investment in fewer markets = more risk

• Needs well-informed, data-driven decision on market selection

– Needs a more sophisticated definition of ‘market’ than just a

country (China, India, USA …)

– Concentrate on geographic sub-set and/or other stratifica-

tion (age, gender, income, etc.)

– Beyond analysis of market size in the relevant category,

need cold-hearted analysis of competitive positioning

• Needs careful choice of choice of channels and channel

partners

– May interact with market definition (e.g. web sales)

– In many markets – not just in Asia – in pays to have well-

connected friends

30

More investment in fewer markets = more risk

• May require product modification to suit local consumer

preferences (example from high-end Jakarta supermarket)

31

250g, same price per g as competition

Smaller portions sell much better

Competition offer at max.

100g

More help from NZTE with market selection

• NZTE is currently expanding its Path-to-Market programme

– So far only available for Australia

• Have now developed a more comprehensive too set for Customer Managers, seeking to analyse

– market size, trends and forces • Use NZTE in-house market research team, off-the-shelf reports or

tailor-made reports, facilitated by NZTE staff in-market

– customer and end consumer needs & delights in potential target markets

– competitive position of own product(s) / USP

• Help with choice of channels, channel partners & methods of promotion

– supported by Trade Commissioners and BDMs in market

32

Reduce investment by sharing resources

• NZTE is currently running a project to facilitate a collaborative

approach to logistics, marketing, sales and distribution in South-

East Asian markets

– Focus on Singapore, Malaysia and Indonesia at this stage

• Project is currently exploring whether there is a ‘Coalition of the

Willing’

– Portfolio approach – complementary product range

– Definition of approach and areas of collaboration will be up

to participating Customers

– NZTE’s primary role as catalyst and facilitator

– Current pilot: 12 Customers involved in in-store demonstra-

tion/pop-up stores in Cold Storage in Singapore

33

18/04/2013 34

A plug for NZTE

NZTE: Who are we?

• Crown entity, with private board

• 2000 customers

• 550 people (50% offshore)

• 36 international offices

• NZ$150 million budget (+$33mill grants)

• Purpose: International Growth

Providing Services in NZ

Providing service in market

35

NZTE’s strategic framework

Digital knowledge platform

Our people

Business Growth Agenda

Unleash NZ’s international

potential…

Multi-customer high

impact projects Right services at right

time, in right place Focus 500 +

Foundation customers

Delivered with NZ Inc. (Country + Regional plans, Telling NZ Story, Collaborative work plans)

36

We’re sharpening our focus

*Figures are rounded to the nearest billion and are for exports of goods only.

**NZTE customer numbers include service companies

Source: Statistics New Zealand (generalised)

12,000

Export goods earnings, year to June 2011*

$36 billion

$5 billion

$3 billion

Companies $5-$25m

Companies < $5m

460

260 Companies

earning >$25m

Number of New Zealand exporters

Focus 500

2000 NZTE

CUSTOMERS

37

NZTE customer contribution to the 40% target 38

$7.0* $7.2 $7.4 $7.8 $8.2 $8.7 $9.3 $9.8 $10.5 $11.1 $11.8 $12.6 $13.4 $14.2 $15.1

$21 $21 $22 $24

$26 $27

$29 $31

$33 $36

$38 $41

$44 $47

$50 $58 $59 $60 $62 $63 $67

$70 $74

$79

$83

$88

$93

$98

$104

$110

$-

$20.0

$40.0

$60.0

$80.0

$100.0

$120.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Exp

ort

s ($

bill

ion

s)

Growing exports to 40% GDP Estimated contribution of NZTE's F500 and Foundation customers

Foundation customers $(b) growth is half way between F500 and total NZ

F500 $(b) grows to 7% by 2014 then maintains

Total NZ exports $(b) 2.1% to 2015 then 5.7% from 2016

*Rough estimate of the value of the Foundation portfolio

NZTE customers = 48% of total

exports


exports (GIC target year)


exports

NZTE’s International Network… going east over time 39

Our cause…

…not an institution

We work for a cause…

40

18/04/2013 41

Questions?

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