New Ideas

Retail innovation needed to increase demand

Published in the September 2009 Issue Published online: Sep 07, 2009 Marleke de Rijke, VP of Rabobank International Food & Agribusiness Research
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IN TODAY'S ECONOMY, more people are eating at home, and among the items consumed are frozen french fries. However, it's not just in U.S. homes where french fry consumption is happening-global consumption has increased, as have sales at fast food restaurants, which haven't been as affected by the global recession.

What does all of this mean?

It could indicate something of a renaissance in the arena of frozen french fries and sales on the retail level. However, for the industry to move forward, it will be key to use the recession as a time to focus on retail innovation (convenience products) that will help keep consumers after the recession is over.

While marketing activities and a focus on versatility, tastiness and healthiness of the potato has improved the sector's image, demand-and thus sales-for processed potatoes is driven by convenience.

The increase in the number of single-person and double-income households, combined with the increased desire to have more spare time, has resulted in a 50 percent increase in convenience food purchases over the past 10 years. For example, frozen potatoes that are chopped for faster cooking target the majority of consumers, who now spend 30 minutes a day cooking dinner, down from 45 minutes just a few years ago.

Globally, in countries such as China and India, population growth is a key demand driver for potatoes. In India for instance, the population will grow 18 million people per year until 2030, and much of that growth will be among the middle class, which has more disposable income. Although currently at a slower pace, income growth in emerging countries has also resulted in a larger share of every dollar being spent on value-added (convenience) products.

Additionally, the rapid pace at which the number of fast food restaurants in Asia is growing will continue to accelerate demand for frozen french fries in this region. As it is in the United States, 90 percent of frozen french fries are consumed in fast food dining establishments such as McDonalds and Burger King.

With trade opportunities, and innovative products in the United States, the frozen french fry industry could be positioned for growth as the recession fades.

However, with some predictions that the recession won't end until 2010, there are some economic hurdles to overcome before that growth can occur. A stable U.S. dollar for the past few years helped exports of U.S. frozen french fries grow, but the current volatile value combined with demand decreases brought on by the recession has stalled growth.

In addition, while Mexico purchases 75 percent of its frozen potatoes from the United States, they recently placed a 20 percent tariff on frozen potatoes (and some other U.S. products), which, if not reversed, could result in a loss of more than $80 million in frozen potato exports. This could also lead Canada, the world's second largest exporter of frozen potatoes, to gain additional market share. (The United States is the fourth largest exporter.)

So, how do producers overcome these hurdles to experience the french fry renaissance?

It comes down to producers focusing on:

  • Quality: The U.S. has a strong position in frozen french fry exports due to a high-quality infrastructure, which is strongly desirable for exporting quality potatoes and potato products around the world.
  • Relationships:Competition among producers globally isn't getting any easier, consumers are increasingly demanding to know the origin of their food and the ability to create products based on first-hand knowledge.
  • Product development: Most importantly, as mentioned earlier, convenience is key, and continuing to develop new products will keep U.S. producers ahead of the game.

The recession isn't a time to wait, it's a time to innovate.

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