Your partner in economic development Intermediate Report - Dra · industry attractiveness by determining the profitability of an industry or sector. By assessing the relative bargaining

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Your partner in economic development

Intermediate Report - Draft April 24, 2018

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Industry Analysis: Main markets and relevant global trends

Food Industry -  Description of the segments -  Analysis of the Attractiveness

Strategic Segmentation

Ranking of Potential Segments and Next Steps

Cosmetics -  Description of the segments -  Analysis of the Attractiveness

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Product Description Dry use Fresh useRosemary Perennial herb and, the leaves, twigs, and

flowering apices are extracted for use Spices, culinary condiment( butter oils…) and essential oil

Spices

Thyme Perennial herb and, the leaves, twigs, and flowering apices are extracted for use

Spices, culinary condiment( butter oils…) and essential oil

Spices

Myrtle Tree of the same family as tea tree and eucalyptus with aromatic flowers and leafs.

Spices (not very common, only used in regions of origin), essential oil, cosmetics (ex.soaps)

Floral supplies

Eucalyptus Tree in the myrtle family, originally from Australia Culinary condiment, Essential oil, wood

Floral supplies

Cedar Indigenous to the Lebanese mountains, the southwest of Turkey, Cyprus, the Atlas Mountains, and the Himalayas, the cedar tree is also found in Asia, Africa, and the Americas. Cedar oil is the essential oil extracted from the leaves and wood.

Essential oil, culinary condiment (dry cedar leafs tea),aromatheraphy (incense) and wood

NA

Lentisque Pistacia lentiscus is a shrub or tree,, with a strong smell of resin, growing in dry and rocky areas in Mediterranean Europe. The part used are the leaves.

Essential oil, resin (in natural perfumery, mastic absolute lentisque is used in, incense perfumes, amber bases, and floral notes), wood

NA

Main uses of the herbs analyzed

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Dry herbs and spices

Source: http://www.fao.org/faostat/en/#data/QC/visualize https://atlas.media.mit.edu/en/profile/hs92/0910/

21%!

21%!10%!6%!

6%!

5%!

4%! 3%! 2%!

Spices and herbs export share of top countries in 2016 (Total 1.89 billion USD)

India!China!Netherlands!Germany!Spain!Turkey!United States!

20%!

12%!

11%!

10%!

9%!8%!

7%!

6%!

5%!5%!4%!

3%!

Spices and herbs import share of top countries in 2016 (Total 1.91 billion USD)

United States!Germany!Netherlands!Japan!United Kingdom!Spain!United Arab Emirates!France!India!Pakistan!Malasya!Singapore!

India has clearly been the top producer of the last 5 years and also the top exporter in 2016 together with China. Imports are mostly distributed between the US and Europe.

6 Source: https://atlas.media.mit.edu/en/profile/hs92/3304/ https://www.statista.com/statistics/297070/growth-rate-of-the-global-cosmetics-market/

24%!

16%!

11%!11%!

8%!

7%!

6%!

6%!6%! 5%!

Beauty products export share of top countries in 2016 (Total 39.9 billion USD)

France!United States!South Korea!Germany!Singapore!United Kingdom!Italy!Japan!China!Hong Kong!

20%!

16%!

15%!

10%!

10%!

7%!

6%!

6%!5%! 5%!

Beauty products import share of top countries in 2016 (Total 37.9 billion USD)

United States!China!Hong Kong!United Kingdom!Germany!Singapore!Canada!France!Japan!Belgium!

Cosmetic products

Annual growth of the global cosmetics market from 2004 to 2017

Global cosmetics market had a positive growth in the last 10 years. In 2016, France and the United Sates were the leading exporters, and China and the United Sates led in imports.

7 Source: https://atlas.media.mit.edu/en/profile/hs92/3301/

18%!

18%!

12%!11%!

10%!

6%!

6%!

6%!

5%!4%! 4%!

Essential oils export share of top countries in 2016 (Total 4.46 billion USD)

India!United States!China!France!Brasil!United Kingdom!Argentina!Germany!Indonesia!Mexico!Italy!

33%!

12%!

11%!9%!

7%!

6%!

5%!

5%!4%!

4%! 4%!

Essential oils import share of top countries in 2016 (Total 4.35 billion USD)

United States!France!Germany!United Kingdom!India!China!Japan!Singapore!Switzerland!Canada!Indonesia!

Essential Oils

In 2016, India and the United Sates were the largest exporters followed closely by China, France and Brazil and the United States clearly led in imports.

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Relevant Global Trends

In recent years, a new type of consumer has emerged: the Global Socially-Conscious Consumer. This phenomena has seen an accelerated growth shaping the purchasing criteria of a vast group of people worldwide.

Source: A Nielsen Report – The Global Socially-Conscious Consumer, 2012

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How is the Global, Socially-Conscious Consumer changing the industry?

Health and Well being Looking for natural products With a focus on maximazing nutrition – “Good for you”

Convenience Looking for easy to cook and ready to eat

products that preserve nutritional, health and tasting qualities

Taste and Variety Looking for culinary experiences

“Premium” products & Indulgence

Environmentally Conscious Green products that are good for the environment and ethical companies

Socially Conscious

Willing to pay more for socially responsible products and interested in the origin of

the products

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How is the Global, Socially-Conscious Consumer changing the industry?

Source: https://www.personadesign.ie/social-responsibility-how-to-build-a-socially-conscious-brand/

The Global, Socially-Conscious Consumer wants to buy products and services that are good for them as individuals as well as for the planet. Not interested in the best products or companies in the world but in the best products or companies for the world.

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Strategic Segments Identification

A strategic segment is a function of both the product and the user or market group that the product serves. The strategic segments are distinct from one another because the relative strength of the ‘Five Forces that shape the competitive strategy’(*) and are different in each case. Therefore the value chain required to support each one is also different. The strategic segmentation is not country-specific but rather provides a global overview of the segments that exist within one industry.

(*) Porter, Michael E. (2008). The Five Competitive Forces That Shape Strategy. HBR, Harvard Business Review. Retrieved at March 4, 2016 !

? ? ?

?StrategicSegment

1

StrategicSegment

2

StrategicSegment

3

?StrategicSegment

4

StrategicSegment

5

StrategicSegment

6

?StrategicSegment

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StrategicSegment

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StrategicSegment

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prod

ucts

/ se

rvic

es

users / markets

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Atractiveness Analysis – 5 Forces Michael Porter’s ‘Five Forces’ analytical tool is used to assess industry attractiveness by determining the profitability of an industry or sector. By assessing the relative bargaining power of buyers and suppliers, the intensity of competitive rivalry, the threat of new entrants and the threat of substitutes, the tool provides an insight into which actors appropriate the bulk of the available profits in the value chain.

Rivalry

Thread of new entrants

(barriers of entry)

Bargaining power of the

buyer

Thread of substitute products


supplier

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Atractiveness Analysis – 5 Forces

•  Is there margin in this business? The answer to this question is the result of 3 Forces: –  Threat of new entrants (Barriers of entry) –  Competitive Rivalry –  Threat of Substitutes

Rivalry

Thread of new entrants

(barriers of entry)

Thread of substitute products

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Atractiveness Analysis – 5 Forces

•  Who is mostly capturing the margin? The answer to this question is the result of the other 2 forces: –  Bargaining power of suppliers –  Bargaining power of buyers


buyer


supplier

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Strategic Segments Identification •  Food Industry Herbs & Spices – Segmentation Matrix

Feed Convenience(Readytoeat) Pleasure/Treat

Dry/Stockable(Long-ShelfLife)

A1 A2 A3

Fresh(Short-ShelfLife)

X(1) B2 B3

(1) This segment could correspond to herbs and spices fresh that are available st small local markets, but with no differentiation on quality since the motivation of consumption is just “to feed”. Even in some local markets they are given for free (for example parsley in Spanish fish shops). Since it is clearly a business with no differentiation and with no export possibilities, we don’t consider it in our analysis!!

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Description of the segments •  Food Industry Herbs & Spices

FeedConvenience(Readyto

eat)Pleasure/Treat

Dry/Stockable(Long-Shelf

Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

Dry herbs and spice products which consumption motivation is just to “feed” – this includes all the basic and daily use products, often traded as commodities. In the case of herbs and spices, these are the mainstream dry products available in supermarkets.

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eat)Pleasure/Treat


Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

Segments A2 and B2 are “ready to eat” products which consumption is driven by convenience. Consumers who lack the time to cook or prefer to spend their time in other activities instead of cooking. A3 are meals that contain herbs and have long shelf life, such as frozen pizzas and canned meals. B3 are fresh, for instance salads or fresh meals that include herbs.

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Feed Convenience(ReadytoeatPleasure/Treat)


Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

These are products which consumption is driven by pleasure and indulgence, such as a treat. These are gourmet products that combine different kind of herbs and spices, sometimes including salt. Consumer choice is motivated by quality

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Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

This segment is also driven by indulgence, such as having a moment of pleasure. Consumers are looking for top quality and freshness. Some examples include, fresh herbs, truffles or wild mushrooms such as porcini.

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Analysis of the Attractiveness


eat)Pleasure/Treat


Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

A1: FEED-DRY/STOCKABLE

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Attractiveness: Threads of new entrants and rivalry The share of countries that export herbs and spices in 1996, 2006 and 2016, in value

Source: https://atlas.media.mit.edu/

FEED - DRY&STOCKABLE

2016 – 1.89 Billion US$

2006 – 1 Billion US$ 1996 – 559 Million US$

•  Spices exports have grown from 500M US$ to almost 2B in the last 20 years.

•  The exports market is slowly consolidating with less and less countries participating every year.

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Attractiveness: Threads of new entrants and rivalry

The share of countries that export herbs and spices in 2016

Source: https://atlas.media.mit.edu/en/profile/hs92/0910/ https://www.trademap.org/Country_SelProduct.aspx?nvpm=1|||||0910|||4|1|1|1|1|1|2|1|1

3 countries control more than 50% of the export market value (2.4 US billion) – India, China and Netherlands.

In the 15th century, any country that dominated the market in spices from the Far East - the equivalent of controlling massive oil reserves today - was rich. But…


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India exported 230,000 Tons in 2016 of which more than 20% belonged to only 2 companies. Everest the leading spice company in India exports 30,000 tons per year followed by Mahashian Di Hatti (MDH) that exports 27,600 tons.

Today however, competition in the dry herbs market is between companies, not countries. It is a business of large players.

India’s highest paid consumer product CEO (MDH Indian spice company)

Source: https://economictimes.indiatimes.com/industry/cons-products/fmcg/fmcgs-highest-paid-ceo-is-a-94-year-old-school-drop-out/articleshow/56608104.cms

Attractiveness: Threads of new entrants and rivalry FEED - DRY&STOCKABLE

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Top export countries of spices in 2016

Source: https://www.trademap.org/Country_SelProduct_Graph.aspx?nvpm=1|||||0910|||4|1|1|2|1||2|1|1

Non producing countries like the Netherlands or Germany lead the spice markets. This is due to the trading power that large companies in these countries have gained over time.


28 Source: https://www.trademap.org/Country_SelProductCountry_Graph.aspx?nvpm=1|788||||0910|||4|1|1|2|1|1|2|1|1

§  Tunisia loses market share in some European countries.

§  Italy or France switch their dry herbs supply to countries such as China or India for lower cost efficiency.

§  The essence of dry spices allows for bulk logistics from further countries and proximity is not an asset anymore.

Exported growth of spices value from Tunisia in US$ (%) 2012- 2016

Exported growth of spices value from China in US$ (%) 2012-2016

Low-cost countries such as China, increase their presence in Europe as suppliers in the spice and herbs market.


29 Source: https://atlas.media.mit.edu/en/visualize/tree_map/hs92/export/chn/show/0910/2006/

•  Large manufacturers of spices and herbs switch their supply from country to country to keep their revenues high.

•  China is becoming a lead supplier of dry herbs and spices for Europe (ex: the Netherlands from 5M to 47.5M US$ in 10 years).


Share of countries where China exported spices to in 2006 (182 Million US$) Share of countries where China exported spices to in 2016

(total 396 Million US$)

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Most of the spices in this segment come from cultivated land, so they need seeds, fertilizers and pesticides.

29.30%

21.30%

9.20%

40.20%

Altres Others!

In 20 years the global production of seeds has more than doubled. 59.8% of the world seed production is controlled by 3 companies resulting from several mergers. The 10 largest seed companies represent 75.3% of the market share, making the seed industry a very consolidated one.

Source: https://www.gurusblog.com/archives/arca-noe-monsanto/25/05/2015/

18,064!

29,821!36,165!

40,874!49,802!

0!10,000!20,000!30,000!40,000!50,000!60,000!

1985! 1996! 2009! 2012! 2015!

Evolution of global seed production value in US$ millions

Attractiveness: Bargaining power of suppliers - SEEDS FEED - DRY&STOCKABLE

World market consolidation of seed suppliers in 2015

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The global supply of fertilizers has also grown considerably in the last years. The top 5 companies control 26% of the global market. The market of fertilizers even though has seen its consolidation later in time, it is now rapidly taking over in this direction.

Source: FAO – Food and Agriculture Organization of the United Nations, ETC Group

Evolution of the global supply of fertilizers in Million tones

237!240!

244!

252!

225!230!235!240!245!250!255!

2013! 2014! 2015! 2016!

World market consolidation of fertilizers in 2016

09%

07%

05% 03% 03%

74%

Altres Others!

Attractiveness: Bargaining power of suppliers - FERTILIZERS


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Even though the global supply of pesticides oscillates, it represents the most concentrated market among the 3. According to 2013 statistics, 51% of the production was controlled by 3 companies, and 75% by 6.

Source: US Environmental Protection Agency, ETC Group

39!48! 46! 47!

52! 56! 54! 52!

0!10!20!30!40!50!60!

2007! 2008! 2009! 2010! 2011! 2012! 2013! 2015!

Concentration of pesticides companies (2013)

Evolution of the global pesticide supply in Billion tones (thousand million)

Attractiveness: Bargaining power of suppliers - PESTICIDES FEED - DRY&STOCKABLE

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! Market dominated by publicly traded and “fortune 1000” category like companies: §  Mc Cormick & Company §  Kraft Foods (Altria group) §  MDH Spices §  Catch (DS group) §  Everest Spices §  Knorr (Unilever) §  Nestle §  Agimoto. §  DF World of Spices GmbH

Source: https://www.forbes.com/companies/mccormick/

Consumer packaged retail spices and seasoning are an $11 billion worldwide market and 1 company (McCormick) has 20% market share, four times its next-largest competitor.

Attractiveness: Bargaining power of buyers FEED - DRY&STOCKABLE

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Alternative and niche dry herb markets such as, “organic” produce increasingly captured by mainstream large companies.

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!


The European grocery market will not be significantly larger in 2025 than it is today. What will be different is its composition. After intense international consolidation, there will be fewer large retailers, with those remaining each controlling a greater proportion of the market.

Source: http://www.oliverwyman.com/content/dam/oliver-wyman/global/en/2015/jun/OW_The_Endgame_In_European_Grocery.pdf https://www.statista.com/statistics/648437/grocery-market-forecast-value-europe/

Russia is poised to become the largest European grocery market with a value of 391 billion US dollars, followed by the United Kingdom at 307 billion US dollars.

Forecasted retail value of grocery markets in leading countries in Europe in 2016 and 2021

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•  Barriers of entry are relatively low: dry spices allow for bulk logistics from further countries and proximity is not an asset anymore

•  Worldwide geographic availability and year round supply make product differentiation extremely difficult

•  Rivalry is high, specially coming from lower cost production countries and large players who can provide substantial quantities

•  Switching cost of new herbs suppliers is low, based in cost •  Margin is taken either from the highly concentrated suppliers

(seeds, fertilizers, etc.) or from the buyers: the large spice producers or the highly concentrated distribution.


Segment Attractiveness Conclusion

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•  Barriers of entry are relatively low: dry spices allows for bulk logistics from further countries and proximity is not an asset anymore

•  Worldwide geographic availability and year round supply make product differentiation extremely difficult

•  Rivalry is high, specially coming from lower cost production countries and large players who can provide substantial quantities

•  Switching cost of new herbs suppliers is low, based in cost •  Margin is taken either from the highly concentrated suppliers

(seeds, fertilizers, etc.) or from the buyers: the large spice producers or the highly concentrated distribution.



Segment of “FEED - Dry & Stockable” has low attractiveness for a spice and herb grower

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Analysis of the attractiveness


eat)Pleasure/Treat


Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

A2-B2: READY TO EAT

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•  Large players in the dry herbs and spices market, also compete in the ready-to-eat market.

•  The same activities undertook by producers to sell dry herbs in the A1 segment are undertook by producers in the ready to eat segments.

•  The difference is in the higher up activities of the value chain (processing and packaging).

•  The value addition and transformation from spices and herbs into ready to-eat meals is undertook by the retailers and food manufacturers, same as in the dry spices segment (such as Unilever, Nestle or Kraft foods).

Source: https://www.foodnavigator.com/Article/2017/10/20/Competition-in-meal-kits-heats-up-as-Unilever-enters-fray


Since our analysis is considering that the herb growers are at the centre of the 5 Forces, the buyers of dry & stockable (A1) are the same as the ready-to-eat (A2 and B2 segments), so the same market structure and value chain apply -> LOW

ATTRACTIVENESS SEGMENT

READY TO EAT

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•  Food Industry Herbs & Spices



Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

A3: TREAT-DRY/STOCKABLE


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Threads of new entrants – Barriers to Entry TREAT -DRY&STOCKABLE

•  The specialty food industry continues to grow strong. Sales hit $127 billion, a 15 percent jump in total sales between 2014 and 2016.

•  Specialty spices and herbs represent a 3% of the specialty foods market and sales are worth 1,928 million USD.

•  They are traded in smaller volumes and often through different channels, such as the culinary industry

•  Examples of attributes and characteristics that make specialty herbs

are: •  Terroir and place •  Unique blends often adding other premium product like

specialty salts •  Common herbs of extra premium quality with accurate dry

processes

•  Production focuses on activities around product characteristics to achieve better taste and color among other differentiation attributes.

The quality attributes that characterize the specialized herb

segment translate into more “niche” activities at the place of

origin and in return higher barriers to entry.

Source: https://www.cbi.eu/market-information/spices-herbs/trends/ https://www.specialtyfood.com/news/article/state-specialty-food-industry-2017/

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Threads of new entrants and rivalry

•  The main difference between dry herbs and specialized dry herbs is the non commodification nature of the latter.

•  The unique characteristics of the herbs that are achieved through a value adding process, starting from the planting and harvesting techniques, make the origin of the product a defining attribute of purchase decisions. The story of the origin is important to the consumer.

•  The standardization of production from country to country is not common in the specialty market as the consumer is driven by uniqueness and niche qualities.

The lack of standardization as well as the unique qualities required in the specialty market, leave space for greater differentiation and reduce the number of direct competitors.

TREAT -DRY&STOCKABLE

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Attractiveness: Bargaining power of suppliers and buyers •  The type of buyers in the specialty herbs market

varies between large retailers to niche retailers. •  Specialty herbs is a niche market, however, an

expanding one as new flavors and trends emerge.

•  As the popularity of healthy, ethnic cooking home grows, the herbs and spice market keeps expanding to accommodate the seasoning, an example is the popular vegan diet and its unique characters.

•  An example of a large retailer is Dean & DeLuca a multichannel retailer of gourmet and specialty foods, wines and kitchenware.

•  Another example of a smaller company is NOMU, a South African independent and high quality food retailer.

Source: https://www.marketwatch.com/story/sec-filings-dean-deluca-serves-up-69-million-ipo https://www.specialtyfood.com/news/article/state-specialty-food-industry-2017/

The niche qualities and market size, allow smaller businesses to compete. The unique characteristics is what buyers look for involve the producer in the value addition process. This translates into a more balanced and closer relationships between producer and buyer, than in most segments.


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•  Higher barriers to entry due to herbs of greater quality and the importance the activities of planting and harvesting play in achieving higher quality.

•  Knowledge of herb blends and unique characteristics such as origin: volcano salt from Iceland, Flower Salt from Guerande, etc.

•  Less rivalry as product origin becomes a defining attribute for purchase decisions.

•  Niche market through large specialized gourmet stores but also ecommerce opportunities for smaller producers.

Source: https://www.marketwatch.com/story/sec-filings-dean-deluca-serves-up-69-million-ipo


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•  Higher barriers to entry due to increase of quality of the herbs that are achieved starting from the planting and harvesting techniques.

•  Knowledge of herbs blends and also adding other premium products with unique origin: volcano salt from Iceland, Flower Salt from Guerande, etc.

•  Less rivalry since besides the higher quality also the explanation of the product origin is a defining attribute of purchase decisions.

•  Niche market through large specialized gourmet stores or smaller producers that can sell directly online.

Source: https://www.marketwatch.com/story/sec-filings-dean-deluca-serves-up-69-million-ipo

Segment of “TREAT - Dry & Stockable” has medium attractiveness for a spice and herb grower


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Life)

A1 A2 A3

Fresh(Short-Shelf

Life)X B2 B3

B3: FRESH/PLEASURE

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Fresh herbs can be packed as potted herbs as well as freshly cut herbs. • Potted herbs are almost exclusively from local produce due to the presence of soil. • Freshly cut herbs are usually packed in plastic and shipped worldwide in carton boxes.

Threads of new entrants – Barriers to Entry

Fresh herbs import require planning and a team dedicated to the time consuming task of fulfilling food safety standards such as phytosanitary requirements -> Higher Barriers to Entry

FRESH&PLEASURE

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§  Temperature is the single most important factor to quality. §  Optimum postharvest temperature for fresh thyme and rosemary is 32°F/0ºC. §  A shelf life of 3 to 4 weeks can be achieved at this temperature. The higher the

temperature the lower the shelf life. §  Prevention of excess moisture loss is the second most important factor to quality.

!

Quality of fresh herbs can only be achieved and preserved through proper postharvest handling practices:

Source:http://sfp.ucdavis.edu/pubs/SFNews/archives/92071/

FRESH&PLEASURE

Threads of new entrants – Barriers to Entry

Cold logistics from farm to market including sophisticated traceability are required due to the high perishability nature of fresh herbs-> Higher Barriers to Entry

49 Source:http://sfp.ucdavis.edu/pubs/SFNews/archives/92071/

Threads of new entrants and Rivalry

New forms and tools of traceability adapted to the perishable food industry. Innovations like this in the fresh food industry, place suppliers and farmers on a more privileged position in the supply chain as information providers.

FRESH&PLEASURE

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Seasonality and distance reduce the number of competitors in the fresh herb market. Even if greenhouse production allows year round produce the cost and quantities do not compete with on season produce.

Source: Made by author, multiple sources

Threads of new entrants and Rivalry Product/Topexport

countries Harvestcalendar

January February March April May June July August September October November DecemberRosemary Tunisia Morocco Turkey China Thyme Spain Morocco Turkey France Tunisia Myrtle Tunisia Morocco India

FRESH&PLEASURE

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•  Fresh herbs can be dependent on a concentrated supplier market of pesticides and fertilizers as in the case of dry herbs.

•  There is however a tendency towards natural and “free from” products in the fresh herbs market.

•  Increasingly “free from” and natural foods are marketed as organic certified produce.

•  The suppliers for the organic market are the regional and national regulation agencies that provide the certification to enter the market.

Natural herbs that contain no pesticides can be sold at a premium price under certified terms such as the organic certification scheme. However the growing demand for fresh and natural ingredients is increasingly oriented towards the organic market and will move beyond niche markets in the oncoming years.

Bargaining Power of the Suppliers FRESH&PLEASURE

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Buyers are interested in long-term partnerships with fresh herb producers

Seasonality

Bargaining Power of the Buyers FRESH&PLEASURE

53 Source:https://www.cbi.eu/sites/default/files/market_information/researches/product-factsheet-europe-fresh-herbs-2016_final_approved.pdf

Large supermarket chains are increasingly involved in sourcing fresh herbs, but most of the supply from oversees is still handled by specialized importers.

§  Leading EU importers of spices and herbs are Germany, The Netherlands, the UK, France and Spain.

§  The EU is a net importer of spices and herbs. A large part consists of spices and herbs which have been imported without transformation and, following processing and/or repackaging, are re-exported to other EU and overseas markets.

§  The final sale is highly concentrated in the hands of supermarket. Direct sourcing is not very common and specialized importers come into play.


54 Source:https://www.cbi.eu/sites/default/files/market_information/researches/product-factsheet-europe-fresh-herbs-2016_final_approved.pdf https://www.naturespride.eu/products/rosemary

Importers vary from more specialized with a brand to those that work under supermarket brands.

§  The role of specialized importers is to facilitate entry to markets (such as large retail stores like “Whole Foods”).

§  The type of importers varies from niche, those looking for trust relationships with the suppliers, to large importers.

§  An example of the former is “Natures Pride”, a Dutch importer that specializes in fresh and high quality produce in the European retail market. One example is their premium rosemary from Israel and Ethiopia.


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•  Independent grocers, delicatessens, specialty shops and organic stores (butchers, bakers, spice shops, Indonesian food shops etc.) have a small share.

•  However, within the organic market, health food stores, natural food stores and specialized organic stores do play a much larger role.

•  The two largest European markets for organic food - Germany and France - increased by almost 5% and 10% respectively.

•  Independent retailers account for approximately 15% of UK sales totaling almost £300m.

Source: https://www.bordbia.ie/industry/manufacturers/insight/publications/bbreports/RecentMarketingReports/UK-Organic-Market-Report-2016.pdf

The independent sector is the most exciting and buoyant segment of the fresh organic market


56 Source:https://www.cbi.eu/sites/default/files/market_information/researches/product-factsheet-europe-fresh-herbs-2016_final_approved.pdf

In the fresh herb market, the switching costs to a new supplier are higher for the buyer compared to the dry segment. This is due to the dynamics that characterize the supply chain and guarantee the constant supply of freshness and quality to retail markets (less amounts and more often) – Relationships are based in trust

Long term relationships

Frequency of supply (smaller lots more often)

Comunication and constant information

exchanges

Non commodification

Integrated cold suplly chain and logistics


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•  Barriers of entry are higher: cold logistics from farm to market and sophisticated traceability are required due to the high perishability

•  Less rivalry: seasonality and distance reduces the number of competitors in the fresh herbs market

•  Even if the specialized importers and retailers are big companies and have greater power than herb growers, their switching cost to a new supplier (herb grower) is higher. This is because they need to commit to supply less quantities, higher fresh quality.

Segment Attractiveness Conclusion FRESH&PLEASURE

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•  Barriers of entry are higher: cold logistics from the farm to the market and sophisticated traceability are required due to the high perishability

•  Less rivalry: seasonality and distance reduces the number of competitors in the fresh herbs market

•  Even that the specialized importers and the retailers are also few and large compared to the herbs growers, the switching cost of them to a new supplier (herb grower) is higher, ‘cause they need to commit to supply less quantities, higher quality, fresh and often


Segment of “Fresh & Indulgence” has higher attractiveness for a herbs grower

FRESH&PLEASURE

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Strategic Segments Identification •  Cosmetics – Segmentation Matrix

ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2

Product+Service

B1 B2

61

Description of the segments

ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2

Product+Service B1 B2

Traditional cosmetics made by artificial and chemical ingredients mixed with some natural essential extracts. There are different strategic options once competing in this segment: -  By cost: mass market products including those without any differentiation -  By differentiation that can come from:

-  Brand: luxury products targeted to high income consumers

-  Functional: non-medicinal products, that fall in between medicinal products

and cosmetics, designed for a specific purpose. For instance those to minimize a personal care problem such as acne or dandruff.

-  Professional: products and brands marketed only for professionals

62

ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


This segment includes all the traditional products explained in the last segment (A1) but adding a service. This service could be in the form of for example a beauty salon or a spa center, where products are used by professionals to offer a customized service to the client.


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ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


The word “natural” displayed on cosmetics refers to the origin of raw materials or the composition of a product while “Organic” or “bio” usually means that the raw materials for the product were produced according to specific rules and regulations, therefore was certified in this sense by a certifying body. The target is a consumer that is conscious about the health and also the environment. These are usually sold in specialized stores, company-owned retail stores, organic supermarkets and online.


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ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


The consumer at this segment is looking for an experience with natural cosmetics, that can be as in segment B1, those such as beauty salons or SPA centers. Furthermore in this segment there are other types of experiences that combine other rather “natural”disciplines dedicated to the health and wellbeing like yoga spa studios or aromatherapy centers.


65






66


ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


A1: CHEMICAL PRODUCTS

67


Source: https://atlas.media.mit.edu/, https://www.loreal-finance.com/en/annual-report-2016/cosmetics-market

CHEMICAL PRODUCTS

In the conventional Beauty products market exports are worth $40 billion and the demand has seen a fast growth in recent years with leading regions like Asia largely expanding every year. Countries like South Korea have strongly entered the market as exporters to Japan as well as other countries in the region.

Imports Evolution of Japan from France and South Korea

(in value Million US$)

0 50

100 150 200 250 300 350 400 450

2000 2006 2010 2016

France

South Korea

35!

0.97!

64.03!

Japan imports share year 2000

35!

12!

53!

Japan imports share 2016

France!South Korea!Rest of World!

68



CHEMICAL PRODUCTS

However South Korea is not only exporting to other Asian countries but to other regions as in the case of the United States. South Korea is at the forefront of research and innovation into new cosmetic products. The leading position of South Korea as well as other Asian countries has threatened Europe's role as a key exporter in the cosmetics market.

Imports Evolution of United States from France and South Korea

(in value Million US$)

0 100 200 300 400 500 600 700 800 900

2000 2006 2010 2016

France

South Korea

19!1.7!

79.3!

US imports share year 2000

17!

7.1!

75.9!

US imports share 2016

France!South Korea!Rest of World!

69



CHEMICAL PRODUCTS

China and India are large exporters of chemical cosmetics ingredients and together in 10 years their market share moved from 14.3% to 24%.What we learn from the increasing presence of low-cost countries in the market is that, even if companies and cosmetics manufacturers compete through innovation, speed to market and marketing, their focus is also on reducing operational and input costs.

Countries exporting Essential oils, resinoids and terpenic by-products

11!

18!

2.7!

3.2!6!8.3!

50.8!

Exports 2005

France

US

Italy

Spain

China

India

Rest World

7.7!12!

3!3.1!

14!

11!

49.2!

Exports 2015

France

US

Italy

Spain

China

India

Rest World

70

Attractiveness analysis – cosmetic ingredients

Source: https://www.futuremarketinsights.com/reports/cosmetic-ingredients-market

CHEMICAL PRODUCTS

§  Skin care and make up are the two most lucrative markets for chemical ingredients manufacturers. Together, they account more than ¼ of total cosmetic ingredients market.

§  Cosmetics ingredients market is consolidated and dominated by large chemical manufacturers, that dominate the food industry as well.

§  Some of these companies are BASF, The Dow Chemical Co., Ashland Inc., Rhodia or DuPont.

§  The large scale and increasing regulations that govern the chemical ingredients business, require a global presence and high investments to comply with the stringent quality norms.

In chemical cosmetics, plant based ingredients are not differentiated from the rest of ingredients and the same strategy is undertook to source them. Large players in this segment are only interested in cost and volume.

71

Attractiveness: Bargaining Power of buyers

Source:https://www.statista.com/statistics/273236/brand-value-of-the-leading-personal-care-brands-worldwide/ http://res.cloudinary.com/yumyoshojin/image/upload/v1/pdf/the-beauty-economy-2016.pdf

CHEMICAL PRODUCTS

Companies that compete in this segment are big players that compete in almost every segment of the beauty industry. It’s a business of scale and market growth is captured by the top companies in the industry.

Brand value of leading cosmetics brands worldwide in 2017 (million USD)

Sales concentrated in

large sales points.

72 Source: https://atlas.media.mit.edu/

CHEMICAL PRODUCTS


•  Growth of consumers and cosmetics companies from Asia, like South Korea, are speeding up the product innovation, as well as making the plant based ingredients be part of the cost reduction of inputs they seek.

•  Rivalry is based in cost and volume, no room for any other differentiation and low-cost countries like China and India are increasingly growing as suppliers.

•  Margin captured by large cosmetics companies that control the market.

•  Switching cost to a new supplier of plant based ingredients is very low.


CHEMICAL PRODUCTS


•  Growth of consumers and cosmetics companies from Asia, like South Korea, are speeding up the product innovation, and making the plant based ingredients be part of the cost reduction of inputs they seek.

•  Rivalry is based in cost and large amounts, no room for any other differentiation, countries like China and India have increased their share.

•  Margin captured by large cosmetics companies that control the market.

•  Switching cost to a new supplier of plant based ingredients is very low.

Segment of “Chemical Products” has low attractiveness for a herb grower

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ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


B1: CHEMICAL COSMETICS+SERVICE


75

Analysis of Attractiveness

Source: https://www.globalwellnessinstitute.org/press-room/statistics-and-facts/

CHEMICAL + SERVICE

§  Less standardized business §  Tailored final product through

experience §  Face to face relationship

§  Local and independent companies are more common

§  BUT… !!

Selling a service vs a product (SPAs)

“The spa industry is a dynamic market that grew from 93 to 99 billion USD between 2013 and

2015.”

In the chemicals beauty service, the SPA market is dominated by the same players that dominate the chemical beauty products (A1). Large scale companies with global presence and rather standardized services compete in this business. Therefore, tailorisation and locality are not viable and the entry of small businesses is not attractive.

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ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


A2: NATURAL PRODUCTS

77

Analysis of attractiveness

Source: https://www.cbi.eu/market-information/natural-ingredients-cosmetics/trends/ https://www.statista.com/statistics/714294/cosmetics-natural-organic-product-consumer-preference-us-by-income/

NATURAL PRODUCTS

§  Use of food ingredients in personal care becomes a trend. §  Growing importance for marketing stories and the story

behind the cosmetic products, where ingredients have an important role, places plant producers in a more privileged position.

§  Traditional, specific local production processes and provenance increase the role of the producer and their integration in the value chain.

§  Growing interest in “ethical consumerism” has also translated to rising demand for natural, chemical-free products. An example are essential oils of herbs and plants that have gained importance in the beauty and personal care industry.

“I always believed eventually there would be no difference between cosmetics and food. And that would be because of consumer intelligence,” Horst Rechelbacher, founder of Aveda Corporation.

Share of consumers who prefer to purchase natural or organic cosmetics products as of May 2017, by household

income

Companies like “Kreyol Essence” from Haiti or “Doterra”, founded in the last 10 years ground their business in sustainably sourced essential oils.

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Source: https://www.cas.org/blog/how-are-changes-consumer-preferences-natural-products-driving-market-disruption https://www.nutraceuticalsworld.com/issues/beauty-i-amp-o/view_features/evolution-in-natural-beauty

NATURAL PRODUCTS

•  Natural cosmetics market is less regulated, more diversified and less consolidated. Patent applications emphasizing natural products are coming from a much more diverse pool of global players.

•  However, the term “natural” has become a mainstay

marketing pitch that many argue has lost some value in a maturing segment.

•  Natural products need to offer demonstrated efficacy and must perform as well as traditional lines.

Concentration of patent applications for moisturizers (1985-2017)

“While consumers continue to demand natural products, natural alone will not provide continuity in use,” Alisa Marie Beyer, president, The Benchmarking Company, Washington, D.C.

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Source: https://atlas.media.mit.edu/

NATURAL PRODUCTS

The share of countries that export Essential Oils 2006 vs. 2016

Incresing competiton from large producing countries has led to fierce cost competition

among countries.

Countries like India and China have entered the market of essential oils, growing exports in 2016 and taking over of big players such as France.

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Source: http://www.natrue.org/fileadmin/natrue/downloads/Presentations/Sahota_Global-NOCs_Market-Update-_-Future-Evolution.pdf https://www.statista.com/statistics/750779/natural-organic-beauty-market-worldwide/

NATURAL PRODUCTS

Growing certifications and institutionalisation of

natural cosmetics

Estes Lauder buys Aveeda a leading

company in natural cosmetics

Forecasted market size of natural and organic beauty industry in 2016 and 2024 (billion USD)

The niche market of natural beauty products is becoming standard and has gone mainstream. As the natural personal care industry evolves, standing apart from the competition requires additional tools, especially given the flood of new products to market.

81


Source: https://www.cbi.eu/market-information/natural-ingredients-cosmetics/trends/ http://organic-market.info/news-in-brief-and-reports-article/vivaness-german-natural-cosmetics-market-by-far-the-biggest-in-europe.html http://organic-market.info/news-in-brief-and-reports-article/germany-natural-and-organic-cosmetics-exceeding-the-billion-mark.html http://www.intracen.org/uploadedFiles/intracenorg/Content/Exporters/Market_Data_and_Information/Market_information/Market_Insider/Essential_Oils/Monthly%20Report%20April%20%202016.pdf http://www.gcimagazine.com/marketstrends/regions/asiapacific/The-ASEAN-Organic-Cosmetics-Market-Is-Set-for-a-Boom-394836721.html

NATURAL PRODUCTS

•  Specialized importers are the main traders for many natural ingredients in Europe and can manage low volumes from SMEs.

•  These specialized importers are looking for long term relationships, however they want to avoid supply shortage at any cost and small producers that work with wild-collected ingredients for instance need to pay attention to this.

•  European processors are also increasingly importing their own natural ingredients directly from producer.

•  Currently, franchise outlet is expected to come out as the most dominating distribution modes. The Body Shop, Burt’s Bee,

•  Estee Lauder, The Hain Celestial Group, Yves Rocher, Amway, Aveda Corp., Kiehl’s, Natura Cosméticos S.A., and L'Occitane en Provence are some of the major players.

Thailand accounted for about 30% of the total ASEAN organic cosmetics market in 2015. Top channels in the region are beauty specialist salons and pharmacy/ drugstores, comprising about 57%share of all sales.

In Europe, the second largest market in the world for natural beauty product, Germany remains the leading country , with turnover of 1.2 billion euros. In 2017 the market was dominated by drugstores and supermarkets with a share of 42%, followed by wholefoods and specialist health food specialized retail with a 22.3% share and lastly e-commerce with a 6%.

The natural cosmetics market is still diverse and non consolidated in terms of sales points and the size of the agents involved in the trade.



•  Barriers of entry are higher than in chemical cosmetics segment thanks to the use of natural ingredients based on plants and herbs.

•  However, the large players like L’Oreal and Estee Lauder have entered the market buying successful companies, although they keep as a total separate brand and business.

•  The niche market of natural beauty products is becoming standard. •  The Switching cost of buyers to another natural ingredient producer is

higher since they are looking for longer term relationships, however they want to avoid supply shortage. So it can be challenging for small producers that work with wild-collected ingredients.

NATURAL PRODUCTS



•  Barriers of entry are higher than chemical cosmetics thanks to the use of natural ingredients based on plants and herbs.

•  However, the large players like L’Oreal and Estee Lauder have entered in the market buying successful companies, although they keep as a total separate brand and business.

•  Niche market of natural beauty products is becoming a standard. •  Switching cost for specialized buyers to another natural

ingredient producer is higher since they are looking for long term relationships, however they want to avoid supply shortage. So it can be challenging for small producers that work with wild-collected ingredients.

NATURAL PRODUCTS

Segment of “Natural Products” has medium attractiveness for a herbs grower

84


ChemicalCosmeNcs

NaturalCosmeNcs

Product A1 A2


B2: NATURAL+ SERVICE

85


Source: http://markets.businessinsider.com/news/stocks/global-aromatherapy-market-to-2024-growing-trend-of-essential-oils-adoption-1005552269 http://www.asmt.net/blog-post/massage-therapist-industry-growing-rapid-rate http://www.perfumerflavorist.com/fragrance/trends/Global-Essential-Oil-Market-Grows-Through-2023--463652933.html https://www.globalwellnessinstitute.org/press-room/statistics-and-facts/

NATURAL + SERVICE

The global wellness industry grew 10.6%

from 2013-2015: from a $3.36 trillion to $3.72

trillion market.

Global aromatherapy market is projected to

reach USD 8,213.1 million by 2024 from

USD 4,352.1 million in 2016.!

Employment of massage therapists is projected to grow 22 percent from 2014 to

2024, much faster than the average for

all occupations. !

November 2017: Organic Aromas launches several products in response

to increasing demand for aromatherapy.

May 2016: doTERRA expands in North America with two new

distribution centers and opens a distillery in Bulgaria.!

In the natural beauty service, the SPA market is composed of players of diverse sizes that provide experiences with natural beauty products. As we have seen in the natural beauty products segment (A2) analysis, the market is not dominated by large players and more niche and specialized production still persists. Therefore, tailorization and locality are viable and the entry of small businesses is more attractive.

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Source: https://www.globalwellnessinstitute.org/press-room/statistics-and-facts/

NATURAL + SERVICE

Niche products - Ingredients with origin

- Tailored formulas

Speciliased distribution - Small volumes

- Local or multi local businesses

Sale -Creation of the experience

- Peoples expertise and face to face relationship

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Source: https://oseamalibu.com/

NATURAL + SERVICE

Founded in California, more than 30 years in the market but still a multi local business.

Less than 10 employees.

Lower investments in marketing, and higher in tailored formulas and products.

“We invest 6$ in product ingredients, where most of the companies invest 1$.”

They started selling at Sephora (cosmetics retail stores chain), but they figured out that it was impossible to serve the quantities needed. They decided to focus only in SPAs close to the sea where they get more profit.

88


Source: https://faceplace.com/pages/our-history

NATURAL + SERVICE

Founded 45 years ago, In Hollywood

25-50 employees

Maintains it’s multi locality strategy

They have started to operate in New York, because they wanted to

be present in the East coast but they don’t want to expand further. They think that otherwise their niche branding image would be lost and this is key to their business.



•  It is similar to the analysis done for natural products (A2), however this niche market is more affordable for small producers of natural cosmetics.

•  The complexity of cosmetics can go as far as they want, but there is room to start with only essential oils thanks to the diverse types of centers: SPAs, yoga studios, aromatherapy centers, etc.

•  Switching cost for those centers to a new supplier of essential oils or natural cosmetics is higher, because they believe in the impact the quality of ingredients has in the overall experience, often using the story behind the natural products to differentiate from the rest.

NATURAL + SERVICE



•  It is similar to the analysis done for natural products (A2), however is a niche market that is affordable for small producers of natural cosmetics.

•  The complexity of cosmetics can go as far as wanted, but there is room to start with only essential oils thanks to the diverse types of centers: SPAs, yoga studios, aromatherapy centers, etc.

•  Switching cost for those centers to a new supplier of essential oils or natural cosmetics is higher, ‘cause they trust the quality of them and they use the story behind the natural products to differentiate from the rest.

NATURAL + SERVICE

Segment of “Natural Service” has higher attractiveness for a herb grower

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92

Food Industry: Ranking of potential segments

Feed Pleasure/Treat Convenience(Readytoeat)

Dry/Stockable(Long-ShelfLife)

LOW

ATTRACTIVENESS

MEDIUMATTRACTIVENESS

LOW

ATTRACTIVENESS

Fresh(Short-ShelfLife)

X

HIGHATTRACTIVENESS

LOWATTRACTIVENESS

93

Cosmetics: Ranking of potential segments

ChemicalCosmeNcs

NaturalCosmeNcs

Product

LOWATTRACTIVENESS

MEDIUMATTRACTIVENESS

Product+Service

LOWATTRACTIVENESS

HIGHATTTRACTIVENESS

94

Summary of the analysis and findings

•  The segments in which currently the herb producers in Tunisia compete are (*): –  Feed - Dry/Stockable

–  Chemical Cosmetics

•  However, the most attractive ones are: –  Fresh/Pleasure

–  Natural cosmetics + service (SPAs)

Source: (*) Based on the reports and information from Tunisia analyzed so far.

95

Next Steps

•  For the Fresh/Pleasure, the herbs that can be used as culinary condiments could be sold fresh in nearby countries and/or through the Netherlands (European hub for fresh agro products).

•  For the Natural Cosmetics/SPAs, the rural artisans could start selling Essential Oils, without having to make complex formulations and cosmetics. Only distillation and packaging. They could start selling to Hotels and SPA Resorts in Tunisia, linked to the tourism industry. This could be a first step before exporting to SPAs and before starting the production of more complex natural cosmetics (shampoos, creams, etc.). Also when starting exporting they could begin with nearby countries with closer relationship like Arab countries or France.

96

Next Steps

•  In both options, knowing the exact key success factors for each segment will be the following task to do as part of this projects next phase.

•  In the case of Fresh/Pleasure segment the buyers to interview will be most likely from the Netherlands.

•  In the case of Natural cosmetics/SPAs, the interviews will be most likely to SPAs that use these products in New York/San Francisco or somewhere in Europe if we are able to identify them.

97

Next Steps

•  The decision to choose one or the other (fresh/pleasure or natural cosmetics/SPAs) will also depend in the current status of the local value chain and which herbs are prioritized, if they can be used as culinary condiments or only in cosmetics.

•  The next steps for the segment selected will be: –  Identify the buyers and interview them to know the purchase criteria of

the herbs. –  With this information, identify the key success factors to compete in this

segment and draw the ideal value chain with all the activities needed –  Compare the current value chain with the ideal one in order to identify

the areas of improvement to make the change in North West Tunisia.

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Your partner in economic development Intermediate Report - Dra · industry attractiveness by determining the profitability of an industry or sector. By assessing the relative bargaining