Sensitivity factors and growth drivers

Sensitivity factors

Parmalat Group operates in the global market of packaged food, which has always been characterized by a low level of susceptibility to economic cycles and was, therefore, not exposed to the risks inherent to fluctuations therein. However, the difficult economic situation of the last year had repercussions in the food market too, affecting sectors identified as ‘core’ for the Parmalat Group, e.g. Milk, Dairy Products and Fruit Beverages.

Today the main risks regarding the evolution of group's activity are:

• Raw materials availability and their cost increase;
• The heavy expansion of Private Labels (products bearing the large-scale retail trade's own brands) in the fresh milk and UHT milk markets;
• The adoption of an aggressive strategy when entering the Functional Milks segment of the market of international and regional dairy competitors.

Growth drivers

The main driving forces in the Packaged Foods market are the growth of the worldwide population and the growth of the economy (in terms of gross domestic product), as well as the increase of pro-capita disposable income. In the most developed countries, Packaged Food markets are now mature and characterized by limited rates of growth in terms of volume with respect to the growth in value generated mainly by the development of new products and by innovative marketing/branding policies.

The other main consumption trends that will shape and condition performance and growth in the global food markets are:

• The aging of the population and the resulting health issues relating to nutrition, the search for appropriate diets and the use of nutrition as a preventive tool. The Parmalat Group is centrally coordinating its operations in various regions of the world to develop a range of functional products that are sufficiently diversified to meet the needs of local populations. In the West, the focus will be on light functional products, while in the developing countries, the Group will be creating and testing the feasibility of projects to deliver proper nutrition (vitamins, proteins, calcium, sugar).
• Attention to diets and nutrition in general in response to the growing problem of obesity. In this area, the Parmalat Group is focusing the innovation strategy that it is pursuing in its core Western markets on light products that contain a balanced percentage of fat, sugar and lactose (e.g., Zymil).
• Meal fragmentation: It has been estimated that by 2008, there will be 16.2 million more annual occasions of food consumption outside meals than in 2003 in the United States and 10 million more in Europe (Source: Datamonitor: “Mealtime Behaviors and Occasions 2004,” August 2004).
• Demand for services, resulting from the fragmentation of meals and the need to rely increasingly on others for the preparation of meals due to lack of time and increased stress.
• Quest for sensorial gratification, as the desire for new experiences and exposure to new cultures leads consumers to seek specialty foods and products that address emotional needs; eating pleasure defined as product sensory richness (creaminess, aroma, color).
• Boom in eating out: in Italy today, eating out accounts for almost 35% of the total food market, and this percentage is projected to rise to 55% by 2014 (Source: Nielsen/Istat).