Outline Research - The German Food Market Segmentation and Strategic Analysis

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1 GIs: Market Potential & Players Strategies in the EU Jean-Louis Rastoin Montpellier SupAgro / UMR Moisa rastoin@supagro.inra.fr Cal-Med Consortium Workshop III Mediterranean Products in a Global Market Place European Mediterranean Institute Barcelona April 26th-27th, 2007

2 Outline Research question: What strategy based on the GIs Market in the EU? 3 key points: - The Food Labeling - Food Market Segmentation - Strategic analysis

3 The Food Labeling

4 EU : multiplicity of labeling Official Quality Signs PDO / PGI GTS PCC (France) National labels (e.g. Label Rouge in France) ISO Norms 9000/14000/22000 Private Signs Commercial Brands Collective Brands Norms (IFS, EurepGap, BRC, GFSI)

5 Registered GIs in the UE in 2006 Total PDO+PGI Fruits, vegetables and cereals ,8% Cheeses ,6% Fresh meat and lights ,0% Oils and fats 94 13,2% Meat-based products 79 11,1% Mineral waters 31 4,4% Other products of animal origin 23 3,2% Bread, pastry, cakes 18 2,5% Other Annex products 18 2,5% Beers 18 2,5% Fish, molluscs and crustaceans 9 1,3% Essential oils 3 0,4% Natural gums and resins 2 0,3% Hay 1 0,1% Total PDO + PGI ,0% Total PDO ,1% Total PGI ,9%

6 EU List of Quality Wines Produced in Specified Regions (QWPSR), 2007 Country / GI Number Share Slovenia * % France % Italy % Spain 103 6% Romania * 52 3% Bulgaria 51 3% Portugal 49 3% Slovakia 47 3% Greece 43 2% S/Total, 9 countries % Other 8 countries 129 7% Total UE % Brasil 1 Vale dos Vinhedos USA 1 Napa Valley * Without Official registration Source : EU - List of quality wines produced in specified regions, 22/03/ (Published pursuant to Article54 (4) of Council Regulation (EC) No 1493/1999)

7 EU Production of quality wines (QWPSR), 2005 World rank (Total prod.) Countries Total (M.hl) 2005 QWPSR (M.hl) QWPSR share Change QWPSR 1 France % 6% 2 Italy % 20% 3 Spain % 13% 8 Germany % 11% 11 Portugal % -21% 18 Austria % 10% 31 Czech Republic % 97% 13 Greece % 19% EU % 11% Sources: FAOSTAT, 01 April 2007 and EUROSTAT, 15 April 2007

8 The rise of EU PDO-PGI PGI registration number Number of PDO + PGI Change Other Annex I products (spices) % Bread, pastry, cakes % Fish, molluscs and crustaceans % Essential oils % Meat-based products % Oils and fats % Fruits, vegetables and cereals % Other products of animal origin (eggs, honey, etc.) % Beers % Fresh meat and lights % Cheeses % Mineral waters % Natural gums and resins 2 2 0% Hay 1 1 0% Total PDO + PGI % Source : EU-DGARD, Agriculture in the EU, Statiscal and economic information 2006 and 2000,

9 Distribution of GIs by EU countries, 2006 Countries / Products Animal origin Vegetal origin Bever ages All products PDO % Total Italia % France % España % Portugal % Elláda % Deutschland % UK % Österreich % Total EU % Med countries % Med/Total 82% 93% 0% 81% Source : EU-DGARD, Agriculture in the EU, Statiscal and economic information 2006, Bruxells, 2007

10 2. Food Market Segmentation

11 Segmentation: The 3 Food Markets MASS MARKET Segment : day-to-day Product : basic, safe Value : price, segmentation NICHE MARKET INNOVATIVE MARKET Segment : Health Product : «Nutraceutics» Value : Technological advance Segment : High quality Product : «authentic» Value : Place of Origin, organoleptic & cultural attributes

12 French Food Retail Market Segmentation & Trends Segment Retail sales ( Bil.) Market share Annual average growth rate for the last 10 years Mass Market % 0-1 % Innovative Market 6 5% % "Quality Label" Market 21 16% 5-10 % Total % 1-2 % Source : Rastoin, 2005

13 uality labeling as a driver for economic evelopment (France, 2004) - 1 Products Quality labels (number) Farmers (number) ( Bil.) % Wine and brandies ,6 55% Other PDO ,7 11% Total PDO ,3 66% Red Label 348 1,4 9% PCC 208 2,8 18% Organic food ,2 8% Total ,7 100% Total agri-food firms Source : Agreste, Enquête 2004 sur les produits agroalimentaires sous SOIQO Producers Sales

14 uality labeling as a driver for economic evelopment, 2004 (France) France Revenue (M. ) Products with quality and place of origin labels (PDO, RL, PCC) Total Mean Quality label (number) Average Price ( /kg) Meat ,36 Cheese ,04 Meat preparations ,44 Fruits, vegetables & cereal Other products Butter and creams ,95 Eggs (price/unit) ,16 Total Source : Agreste, Enquête 2004 sur les produits agroalimentaires sous SOIQO

15 The EU Market for GIs Products (excl. Wine) 2004 Countries Bil. Share Italy 3,8 30% France 2,4 19% Spain 1,4 11% Portugal 0,3 2% Greece 0,3 2% 5 Med countries 8,2 64% EU ,7 100% PDO share in total food consumption Med countries 2,3% Other EU countries 1,1% Total food consumption EU-25 ( bil.) 776 Source : nos estimations d'après Eurostat et Insee, 2007

16 Economic Size of «Terroir»Private Labels of Large retailers France - Reflets de France (Carrefour) Nos Régions ont du Talent (Leclerc) Savoir des Saveurs (Système U) Patrimoine Gourmand (Cora) Items (2003) Sales (2002) 305 M M 100 M M NA NA Source: Linéaires N 178, Février 2003 TM (at INPI) with Terroir in France: more than 1000 in 2000

17 3. Suppliers in the EU market : strategic analysis & performances

18 The place of the GIs in firm strategies : Theoretical basis Individual strategies : RBV (Barney, Wernerfelt, Arrègle et Quellin) Collective strategies : «agglomerated» or «federative» strategies (Astley( & Fombrun,, 1983, Bresser & Harl,, 1986) = competing firmes coming closer on common objectives on a territorial basis => Terroir strategies

19 The Terroir Effect Several definition (agronomists, economists, managers, sociologists, anthropologists, geographers, historians, ) «Local products based on a strong territorial identity and reputation, and/or typical products based on specific modes of production and whose quality reputation or any other characteristics are attributable essentially to their geographic origin» (Sylvander,, EU Dolphins project, fina report, 2004)

20 Terroir as an individual strategy support: Resources, competencies, capabilities Basic Distinctive Capabilities R C Specific assets -Tangible -Intangible Knowledge -Technology -Marketing -Management -Finance -Territory -History -Brand -Networks Vertical Horizontal -Know-how -Creativity -Relationship (social capital) Performance Market

21 Terroir in SMEs Strategic and Governance Models: an empirical survey 400 SMEs (Languedoc-Roussillon) Patrimonial / Independent Governance Structure Entrepreneurial / Open Stokholder s equity Managerial / Financial Market access Strategies Basic Differentiation "terroir" Sub-contracting ( +/- ) + + +(9%) Geographic closeness (25%) ( +/- ) - Sub-contracting - ( +/- ) Geographic closeness + + +(38%) ( +/- ) - Focalization (28%) ( +/- ) +: Governance/Strategy adequacy -: Governance/Strategy conflict Source: Couderc J.P., Falque A., Rastoin J.L., Remaud H., 2002, Configurations stratégiques de la petite

22 SMEs Brands and Performances in Languedoc Roussillon Region (1998) Label AV/Employee AV/Sales (K. ) (%) Terroir (Brand or PDO/PGI) Owner s Name Brand Other Total 400 SME Source : Aurier P., Couderc J.P., (2000), DADP, Inra, Montpellier

23 Milk Price Differentiation, 2004, France Sample : 670 Dairy farms representing (RICA/FADN) Index Label PDO PCC Other QS Without QS Source: Desbois and Nefussi, 2007

24 Dairy Farms EBITBA, France, Index Label PDO PCC Other QS Without QS Source : Desbois et Nefussi, 2007

25 Dairy Farm, Return on investment, France PDO PCC Other QS Without QS Source : Desbois et Nefussi, 2007

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27 Parameters / Rationales Characteristics Agri-Food Strategic Models Individual strategies Collective Strategies (Firms rationale) Territorial rationale Sectoral rationale One enterprise Several enterprises & Institutions in a given geographic area Several enterprises in the same sector Dynamic Competitive market Spatial co-operation Vertical co-operation Objective Profit maximization, market value Create value for the territory Supply Chain growth (product orientation) Production model Specialized Diversified Specialized Intensification level High Low (sustainability) High/Low Code of practice Integrated Negotiated Negotiated Player s organization Patrimony Autonomous Regional coordination Vertical coordination Portfolio & Brands (Goodwill) Territory (geography & history) Product Flexibility High Impossible Regular Source : adapted from Sylvander B, (2004), Final Report, Dolphins Project, EU-FPR 5th, Inra-Urequa, Le Mans, p. 26

28 Relevance of Terroir labeling in Players Strategies Different Territorial Anchorage, depending on : Customer s perception GI notoriety Perceived Terroir specialization Customer 1 Customer 2 Customer 3 Terroir 1 (PDO) entreprise Terroir 2 (PGI) Terroir 3 (Country)

29 Concluding remarks Very High GI and Quality Labeling density in the EU (risk related to Consumers getting confused) The market share of GIs in the EU Food Market is low except in Med Countries An important growth potential for SMEs Terroir based strategies (Economic performances and Sustainable Development requirements) Uncertainty on institutional framework (WTO dispute, EU policy)

30 Distribution of GIs by countries, excluding the EU in 2004 Country Frequency Percent 1 USA 42 22,0% 2 India 16 8,4% 3 Ethiopia 14 7,3% 4 China 12 6,3% 5 Togo 9 4,7% 6 Turkey 7 3,7% 7 Mexico 6 3,1% 8 Peru 6 3,1% 9 South Africa 6 3,1% 10 Japan 5 2,6% 11 Morocco 4 2,1% 12 Argentina 3 1,6% 13 Cameroon 3 1,6% 14 Ghana 3 1,6% 15 Korea 3 1,6% Total Top ,8% Total 49 countries ,0% GIANT Database, Jim Lee and Tamara Dorabawila, American University, 2004

31 Key Factors for defining Consumer s Behaviour Consumption pattern - festive eating - Cooking, recipes Accessibility - marketing channel - willingness to pay Terroir product Packaging -material - colors - design Local references Tradition & Region Know- How Production pattern - natural, safe - pesticides free

32 Source: Benkhira-Fort F., 2005, EFFETS PRINCIPAUX ET DE CONGRUENCE DE LA RÉGION D ORIGINE, DU PRODUIT ET DE LA MARQUE SUR L ÉVALUATION DES PRODUITS : UNE APPLICATION AUX PRODUITS ALIMENTAIRES DE TERROIR», PhD Thesis, Université de Montpellier II - CREGO What Terroir Labeling for enterprises? GI and Label Complementarity (Brandade de Nîmes Raymond Geoffroy) GI alone (Pélardon des Cévennes, Cassoulet de Castelnaudary) GI in the product label (Porc du Pays d Oc, Grisettes de Montpellier, Cap Camargue) GI in the corporate label (Vignerons Catalans, Provence Régime)