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CST Consulting has gathered over 200 operating profit margin figures for branded offerings to inform our estimates of profitability in 85 US Food and Beverage categories.

And, ground-breaking statistical analysis conclusively identifying WHY some categories have significantly higher profitability for branded offerings than others

HOW companies, private equity firms, and commercial lenders can out-perform their competitors with this study includes:

It is clear with this study WHY McDonalds has targeted their entry into retail grocery with coffee with their McCafe brand.

We can also see WHY Coke can be expected to rapidly enter the US retail grocery business with their own ready-to drink coffees (or even more likely, acquired brands or partnerships), following their $5 billion acquisition last year in Europe of the Costa coffee company

It is less clear if the Pepsi-Starbucks ready-to-drink coffee alliance in the US will be maintained in light of the Nestle-Starbucks grocery marketing arrangement: if not, Pepsi will need its own “play” in the category

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This one-of-a-kind study is based on fundamental economics to understand the challenges facing retailers and restaurants as they respond to consumers’ need for convenience in an increasingly digital economy. We use precise data to inform our market size and growth projections, identify what approaches are most likely to succeed, and understand the strategic drivers of market participants.  Studies from other firms focus on a description of WHAT is occurring, and are unable to take a perspective on WHY the industry is evolving.

The study makes clear:

Large grocery retailers are at risk of seeing up to 15% of groceries purchased over the internet by 2025, and they are building next day delivery systems to fulfill orders taken over their own portals.

Amazon with an estimated 65 million “Amazon Prime” members in the US (and 100 million worldwide) are in the center of the target households with convenience needs, with average family income over $100,000.

A nationwide delivery network also facilitated by internet-ordering portals, is being built by firms such as UberEats and GrubHub. It now covers 30% of all restaurants, and coverage is projected to grow to 50% by 2025.

Economies of scale and low labor costs per unit are the winning formula

The Hispanic opportunity is driven by growth. We expect Hispanics to grow from 17% to 21% of the U.S. population by 2030 and 28% by 2060. Understanding the rate of assimilation of Hispanics (fairly rapid), their language preferences for media and advertising (evolving more slowly), the degree to which they prefer different in-store marketing tools, their category preferences, and receptivity to private label brands are crucial for retailers and food manufacturers alike.

Many of the major food manufacturers have been responsive to the cross-over appeal of Hispanic-style foods to non-Hispanics, and have made a series of acquisitions over the past 30 years, including B&G Foods/Ortega, Campbells/Pace, ConAgra/Frontera, as well as the joint venture between Hormel and Herdez known as Megamex. A smaller number of Hispanic companies with roots in Mexico such as Gruma/Mission and Goya with roots in Puerto Rico have rapidly expanded with facilities in the U.S. and have concentrated on “authentic” items.

The study provides depth on:

The United States Private Label (PL) market for foods and beverages represents an estimated 20% of all retail grocery sales, and is expected to grow at a modest rate of a half percentage point of share per annum for the next several decades. Our study makes clear the drivers of this growth, variation by +64 categories, the approaches taken by the 12 major retail chains, and the profitability of PL manufacturers by category.

The drivers of PL growth are shown to be rising concentration of share among major chains (e.g. Walmart, Kroger, Albertsons) and share gains by discounters (Aldi, Lidl, etc.)

The share of PL by category varies from under 5% for snacks up to 60% for milk, and correlates with whether items in the category are standardized or have significant flavor/texture differences.

The PL branding architecture for each major retail chain is explored, from Walmart with one dominant PL brand, to Ahold with banner-specific offerings (Food Lion, Giant, Hannaford) supplemented by Nature’s Promise across all banners, to Albertson’s with five major PL brands across its banner stores, and very little PL offered under the banner names themselves. Aldi with 8 different major PL brands (and very little national brand presence) within a store has focused on benefits.

Operating profit margins for PL manufacturers vary by category, and while lower than national brands, follow the same pattern: lowest for commodities like milk/dairy (sub 5%) and higher for snacks with different flavor profiles (+14%) and distinctive sauces/salsas (17%).