Product and Service
Companies, who have been grouped in Drinkable Kefir sector of food industry, produce Kefir-related dairy products.
Demand for Product and Service
The growth in Drinkable Kefir sector has been driven by the benefits that it provides to people’s health and its diversified application in many types of foods. However, its performance in the past years may give us a hint that new driver may be needed to keep its growth at previous rate in currently intensive competition.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Driven and limited by the factors behind the demands for general dairy products, Kefir sector has its own selling point that it can provide specific benefits to a certain group of dairy consumers.
- After a booming in 2014, the companies in this sector have been experiencing slowing down pace of growth in sales/demands, which is probably the reason that is dragging the price down.
- It seems the demands for premium products and lower end products are stronger than for the product in the middle. Sales plunged unexpectedly for some of branded products in 2018.
Causes behind the trend
- We think the reasons that caused what is happening in the Kefir sector present similar characteristics as those in some of other sectors of food industry and retail industry. It is that consumers in today’s food and beverage market are inclining to purchase either better products or lower costs products. For some reasons such as health awareness or increasingly disposable income, some consumers who previously purchased products with middle quality and middle price turned to choose premium products. At the same time, due to economy factors mainly, some of consumers for middle products chose to consume cheaper products.
Industry Future
Among the fundamental driving powers behind the demand for Kefir products, consumers’ awareness for healthier life and the diversified application of Kefir products in different types of food will continue to play the key roles in boost the demands in this sector.
Uncertainties do exist for short period of time. For example, demands may go down as consumption reached its maximum temporarily. Since the price is usually the key if demands turn to go down those companies who can be more flexible in keep their margins will survive.
Numbers
General Financial Performance of Companies In the Sector
There are many reasons for us to believe that there are rooms for drinkable kefir sector of food industry to grow such as increasing awareness for its benefits to human’s health and its diversified applications as ingredients in food. However, it seems the branded products of companies in this industry encounter bottle neck in the past several years since they have had to lower down the sale prices for their products by the ways such as constant discount and promotions. Since 2017, due to continuingly unfavourable dairy and retail environment and competition from private label, we have seen branded products’ sales of those companies have been down significantly.
Considering that Kefir is an industry in which there are only a few of major competitors, we think that the pressure of downturning sale price came from the slowing down demands and competition of non-brand products. And we also think that, if the slowing down demands continues and the companies have to rely more on discount and promotion to boost the sales, they will have to find a way to improve the efficiency of production such as lowering the raw materials costs. If they fail to do it their margins and cash inflows will suffer due to the decreasing price resulted from shrinking demands.
At the same time, products innovation, especially premium products, may be an alternative to reducing price to deal with low price competition for the companies that try to keep the growth in the current situation since consumers’ preference for premium products, which are able to provide high quality and better taste, has been the major trend in today’s food consumption industry thanks to the new changes in demography, economy, and life styles of young generation.
According our data, the sector’s average enterprise price/sales ratio is currently 0.52( 2018). It is also a signal that gross margin (25% 2018) is at level at which it is more sensitive to the decline in sales and thus requires companies to using its spending on advertising and SG&A more efficiently.
