Opportunities are Ripe for LLPs

As globalization continues to propel U.S. food companies’ supply chains further overseas, sourcing, transportation, and coordination of imports and exports is becoming more complex. Likewise, the demands—and opportunities—for lead logistics...


As globalization continues to propel U.S. food companies’ supply chains further overseas, sourcing, transportation, and coordination of imports and exports is becoming more complex.

Likewise, the demands—and opportunities—for lead logistics providers (LLPs) to manage various 3PLs and supply chain activities are growing in lockstep.

“We think this is a primary opportunity for companies to take a long, hard look at world class logistics providers,” says Chris Ferrell, director at the Tompkins Supply Chain Consortium. And, if companies aren’t outsourcing all of their logistics, then it’s advisable to “partner with a logistics provider to bridge the knowledge gap” that’s inherent when companies’ supply chains are expanding globally, he says.

The Tompkins Supply Chain Consortium, which is comprised of over 500 retail, manufacturing, and wholesale/distribution companies, provides supply chain benchmarking and best practices knowledge. It recently partnered with FoodLink, an online network for fresh food retailers, wholesalers, and suppliers, to give FoodLink’s perishable goods suppliers access to the Consortium.

Although many large food companies have already expanded globally and conduct a fair amount of manufacturing and distribution in foreign markets, when compared to other global companies in sectors such as electronics and apparel, for example, the volumes that they’re shipping are rather small in comparison, Ferrell notes.

“In the food space, all except the most knowledgeable have a limited experience relative to similar sized counterparts,” he explains.

 

Looking overseas for growth

A big reason that U.S. food companies are looking overseas for growth is that developed markets, including the U.S., are not expanding as rapidly as emerging markets.

Larger food companies have begun noticing that they’re not getting the growth numbers they’re looking for from their current customers, says Ferrell, “and they’re not going to get it by taking market share away from their current competition either. They realize they need to look to places that represent new opportunities.”

Ferrell calls it the “Westernization” of economies in Asia, and with a growing middle class, increasing levels of disposal income, and a growing appetite for more prepared and packaged foods, the prospects are plentiful, he says.

In fact, H.J. Heinz Company’s second quarter 2011 earnings report showed that emerging markets delivered 15.8 percent organic sales growth and represented 20 percent of total company sales, and substantiated Ferrell’s observations about characteristics of developed markets versus emerging markets.

“Led by our trio of growth engines—emerging markets, global ketchup, and our top 15 brands—reported sales grew more than 8 percent and Heinz delivered organic sales growth for the twenty-sixth consecutive quarter, despite the challenging economic environment in developed markets, especially in Australia and U.S. foodservice. Overall, we saw a combination of continued strength in emerging markets, the UK, and much of Europe, and mixed results in other developed markets, where consumer confidence fell to its lowest level in 30 years,” stated William R. Johnson, the company’s chairman, president, and CEO.

“Our acquisitions in Brazil and China provide new platforms for delivering sustainable growth in a rapidly changing world where billions of consumers in emerging markets are discovering the quality, value and convenience of packaged foods,” the company said in a statement last year.

“In April 2011, we acquired our first major business in Brazil, the world’s fifth most populated country, by purchasing an 80 percent stake in the manufacturer of Quero, a rapidly growing brand of tomato-based sauces, ketchup, condiments, and vegetables with annual sales of approximately $325 million.”

Heinz acquired China’s Foodstar, a leading maker of premium soy sauce and fermented bean curd with annual sales of nearly $100 million, in November 2010.

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