The march to consolidation will produce casualties and victors in varying degrees. Julian Hunt identifies the defining factors Are you a national brander, an efficiency seeker or a niche supplier? Your answer to that question could provide important clues to whether your company will benefit from the wave of consolidation that is sweeping through the food manufacturing sector. In short: will your business prosper, merely survive, or die? Bruce Traill, professor of agriculture and food economics at the University of Reading, has identified the strategic groups of suppliers operating in Europe ­ and his research updates earlier thinking and definitions (see box). "There is a tendency to think of food manufacturers as one of two types: either as small firms providing valuable employment and income to rural areas where they are predominantly located; or giant multinationals," he says. "The former group is seen as struggling to survive the pressures from the ever more powerful food retailers, as well as the R&D and advertising budgets, and the buying and selling might of the multinationals. Newspaper reports of global merger and acquisition activity among food manufacturers and retailers reinforce the impression of a continuous march to concentration. "In fact, small and medium sized enterprises accounted for more than 90% of all EU food manufacturers in 1980, and this proportion has remained more or less unchanged. If any group has gained, it is the medium sized firm." Well, that's the good news. But Traill's research also highlights which groups of manufacturers ­ out of the six he has identified ­ are most at risk from consolidation and globalisation. The level of risk will depend on how exposed individual companies are to changing consumer demands (whether it be for organic foods or higher food safety); new technologies such as GMOs and functional foods; and the globalisation of retailers, which threatens to completely change the competitive environment. But generally, Traill believes that companies defined as International Product and Process Innovators will be among those best placed to benefit from the trends because they can cope with market changes, such as the rising consumption of international brands or global sourcing by retailers. "Innovation and R&D are vital to this group, unlike the Efficiency Seekers which seem to rely on economies of scale and risk being marginalised in fast moving global markets that increasingly emphasise quality food attributes," Traill says. "Given that retailing, and particularly sourcing by retailers, will remain predominantly national for the foreseeable future, National Own Label Suppliers are protected, but they should begin to look further afield for their long-term survival prospects because they will face growing competition from international specialists. "This is even more true of National Branders whose long-term future looks bleak. They will need to grow internationally or consolidate as niche market suppliers. "Branded and unbranded Local Companies/market suppliers are the surprise success story. They appear to represent most firms in the industry and their local orientation, reputation and contacts protect them from the forces of globalisation and consolidation. They are unlikely to thrive, but appear well equipped for survival." In other words, these small firms have been around for a long time and are, therefore, unlikely to disappear overnight ­ even though the trends are against them. The future would appear brighter for the final group of suppliers, which Traill thinks will prosper in the new global economy. "Niche Market Suppliers, without relying on traditional branding or R&D skills, find themselves in an area of strong demand growth and generally have privileged access to limited supplies of high quality raw material ­ which protects them. If the supply of raw materials can be grown, these firms are well positioned for expansion." {{MANAGEMENT FEATURE }}