(Last updated: 7 Jan 2011)

Trends and opportunities

The market

The US market with a population of over 308 million offers opportunities across a diverse range of food products. The market is heavily regulated and highly competitive, therefore uniqueness, quality and innovation are important features for new market entrants.

In 2010, food service sales in the US topped US$580 billion. Combined with beverages, the food and beverage category approaches the US$1 trillion mark. The US imports approximately 11 per cent of its food.

Natural and organic food

The ageing ‘baby boomer’ population’s demand for nutritious, high-quality food has been the most important food trend in the US in the past decade. According to The Organic Trade Association, in 2009 the natural and organic food segment generated US$24.8 billion in sales, up five per cent from 2008.

The term ‘organic’ has a particular meaning and can only be used if it complies with US regulations. The US Department of Agriculture provides detailed information on the National Organic Program.

Specialty food

The specialty food segment has attracted growing consumer demand and retailer support as the demographics of the US population change. Formerly considered to be the food of the elite, gourmet foods are increasingly being chosen by mainstream consumers. In the past 10 years, specialty food sales have grown approximately seven per cent per annum. In 2008, retail sales of specialty food grew by 17.4 per cent over 2007 to US$60 billion.

It is estimated that 55 per cent of all specialty food sold are sold via supermarkets. Gourmet/specialty food stores sell 30 per cent, and the remaining 15 per cent is sold by delis, department stores, kitchenware stores, gift stores, warehouse clubs, discounters, mail order and the Internet.

Ethnic food

America is increasingly becoming more multicultural. Food that was once confined to ethnic groups are quickly becoming mainstream favourites. At more than 40 million, the Hispanic population is now the country’s largest ethnic group, and is expected to surge to nearly 50 per cent by 2020. Unsurprisingly, Mexican and ‘Nuevo Latino’ foods are very popular. Salsa, for example, is now the largest-selling condiment in the US by dollar value. Other popular ethnic foods include South East Asian, Indian and Middle Eastern. According to Ethnicnewz.org, sales of ethnic foods were US$75 billion in 2007 and are projected to reach US$112 billion by 2015.

Convenience food

Americans work more hours than people from any other developed country. This busy, demanding lifestyle causes many Americans to increasingly turn to ‘grab-and-go’ and ‘ready-to eat’ items. Key trends are pre-packaged, value added, easy-to-prepare food with home-cooked/comfort appeal and a superior taste profile. In 2009, frozen convenience foods experienced sales of $16.8 billion. According to Fresh Convenience Foods in the US the market for fresh convenience foods grew by five per cent in 2009 to reach sales of $22 billion. In 2009, snack foods sales surpassed US$70 billion and are projected to approach US$80 billion by 2014.

Healthy food

The demand for food and beverages that support healthy diets, weight loss and busy lifestyles are ever-expanding. More Americans are choosing to consume healthy, high quality food in moderate quantities. According to Nutraingredients-usa.com, in 2009, sales of healthy foods and beverages topped US$143 billion: “As growth takes meaningful hold, healthy foods should increase its share of the total foods market, reaching 23 per cent penetration by 2017. The trends toward natural and organic food and beverages as safer and healthier consumer choices remain particularly strong.”

Crowded categories

According to Jay Rosengarten, crowded food categories include: teas/coffee, salad dressing, pasta/sauces, olive oil/vinegar, crackers, beans/rice, couscous, cookies/candy and condiments/mustards.

Opportunities

While brand recognition is extremely high within the specialty food category, Austrade believes there are opportunities for Australian producers of both branded and private-label packaged goods to export their goods to the US. Products such as meat, wine, seafood and dairy will contribute significantly to the export dollar figures. Specialty condiments such as sauces and snack foods that consist of Australian native ingredients such as spices or fruit are appealing to the market, as are products that telegraph their uniquely Australian qualities to consumers. Products with health benefits and special certifications will continue to grow in market share.

Tariffs, regulations and customs

The Australia-United States Free Trade Agreement (AUSFTA) came into force on 1 January 2005. The AUSFTA is a landmark agreement that gives Australian businesses expanded access to the world’s largest importer and investor. Significant export opportunities have been created through the reduction of tariffs, the increase of specific quotas, the easing of market restrictions and the streamlining of investment processes.

The AUSFTA opens up important new opportunities for Australian suppliers of food items, in both the agricultural and processed food sectors.

AUSFTA will result in the removal of two-thirds of all US agricultural tariffs (including lamb and horticultural products) and the elimination of a further nine per cent of agricultural tariffs within four years.

Annual beef quota will increase by 20,000 tonnes within three years, reaching a total of 70,000 tonnes after 18 years. For further information please see the fact sheet on meat.

For the dairy industry, there are 15-25 per cent reductions for most cheese tariffs and a rise in quota for duty-free dairy products at an average compound of five per cent per annum. For further information please see the fact sheet on dairy.

In seafood, over 50 items are now tariff free with reductions between 3-35 per cent. For further information please see the fact sheet on seafood.

A guide to navigating the AUSFTA tariff schedules is available from the Department of Foreign Affairs and Trade.

Before exporting to the USA:

• Ensure your company’s products meet the standards of the US Consumer Product Safety Commission (CPSC).
  The CPSC's role is to protect American consumers from unreasonable risks of injury and death associated with consumer products. Imported products which fail to meet mandatory standards can be prohibited from entry into the country. Most food and beverage products need to be batched or serial numbered, to enable immediate recall of the product should a defect become apparent.
• Ensure your company’s trademarks have been internationally registered.
  Trademarks registered with the US Trademark Office can offer both American and international rights and protections. A foreign-based applicant must have a domestic representation. The domestic representative does not have to be an attorney, but Austrade recommends Australian companies work through US legal entities.
• Ensure your company’s products meet appropriate US food labelling requirements. See ‘Industry standards’ below for details.
• Ensure your company is sufficiently insured.
  Due to the litigious nature of the American market, Austrade recommends Australian exporters obtain both product liability insurance and directors and officers insurance to protect themselves against personal liability. Australian insurance options for insurance include Chubb, AIG, ACE, QBE and AON. AON and QBE may offer lower amounts of coverage with lower annual premiums. If suitable coverage cannot be obtained in Australia, US-based companies may provide product liability insurance to foreign-based businesses. Insurance coverage brokers can assist companies in identifying insurance providers to ensure low premiums.
• Ensure your company registers with the US Food & Drug Administration (FDA) to comply with the US Bioterrorism Act. In 2002 the US Congress passed the Bioterrorism Act as a part of its ongoing effort to combat terrorism – in this instance, by reducing the ability for international terrorists to carry out terrorist attacks in the US by contaminating imported foods. Owners, operators, or agents in charge of domestic or foreign facilities that manufacture/process, pack, or hold food for human or animal consumption in the US are required to register the facility with the FDA. (The FDA enforces the Federal Food, Drug and Cosmetic Act and related laws to ensure the safety of foods, drugs, cosmetics and medical devices.)
  Foreign facilities that manufacture/process, pack, or hold food also are required to register unless food from that facility undergoes further processing (including packaging) by another foreign facility before the food is exported to the US. In addition, if the subsequent foreign facility performs only a minimal activity, such as putting on a label, both facilities are required to register.
  Prior to registering, Australian companies meeting the preceding criteria must designate a US agent, who must live or maintain a place of business in the US and be physically present in the US for the purposes of registration. The main purpose of a US based agent is as a communication link between the foreign registered facility and FDA. Obvious examples of an agent include a US importer or broker.
  Once an agent has been appointed, Australian companies can complete Form 3537 on the FDA’s website. The process takes about 30 minutes. If registrants do not have access to the Internet, Form 3537 can be requested by calling 301 575 0156 or by sending a request to:
  US Food and Drug Administration
  HFS-681
  5600 Fishers Lane, Rockville MD 20857
• Ensure Prior Notification is given to the FDA before your company’s goods leave Australia.
  Prior to shipping, the US Bioterrorism Act requires that the FDA receive Prior Notification before food is imported into the country. Samples for tradeshows are included within the goods required to give notice. Advance notice of import shipments allows the FDA, with the support of the Bureau of Customs and Border Protection (CBP), to target import inspections more effectively and help protect the nation's food supply. Neglecting this step in the exporting process will prevent them from entering the country. Prior Notification must be received and confirmed electronically by the FDA no more than five days before arrival and, as specified by the mode of transportation below, no fewer than:
  • 2 hours before arrival by land by road
  • 4 hours by arrival by air or by land by rail
  • 8 hours before arrival by water
  • The time consistent with the timeframe established for the mode of transportation for an article of food carried by or otherwise accompanying an individual if it is subject to prior notice.
  In addition, Prior Notification must be received and confirmed electronically by FDA before food is mailed by international mail. The parcel must be accompanied by confirmation of FDA receipt of prior notice.
  Typically, the US importer or the US customs broker they employ should undertake the Prior Notification, as they work with the CBP on a daily basis. Another option is your shipping company or freight forwarder.
• Ensure your company complies with the customs requirements of the Bureau of Customs and Border Protection (CBP).
  Importantly, the CBP levies tariffs on goods entering the country. The Official Harmonized Tariff Schedule provides the applicable tariff rates and statistical categories for all merchandise imported into the US; it is based on the international Harmonized System, the global system of nomenclature that is used to describe most world trade in goods.
  Unfortunately, determining the appropriate tariff code for a product is not always straightforward. Austrade recommends seeking a Binding Ruling from the CBP. This process is free of charge and usually takes less than 30 days.

Industry standards

In the case of food, cosmetics and drugs, the FDA has mandatory requirements as to the information that must appear on the label of a packaged food item.

Depending on the seriousness of the violation, some products are required to be immediately withdrawn from the marketplace while others are allowed to be corrected at the next reprint. The required label information must be in English. Austrade recommends all food products exported to the US from Australia use American terms and spellings for words, ie. pepper/capsicum, eggplant/aubergine, color/colour, flavor/flavour.

The principal display panel (PDP) or ‘face’ of the product must contain certain information in a specific order or location and be of a specific type size. Typically, the PDP displays the product’s brand name at the top of the front panel. Providing a brand name on the label is voluntary.

The five key requirements of the FDA are:

1. The product identity is the truthful common name of the product that is contained in the package.
   This is required to be located in the middle portion of the PDP’s front label. The product identity must be dominant and stand out from all other print and pictures on the package. Bold and contrasting type is the norm. Minimum type is 1/16".
2. The net weight of the product must be listed as the minimum net weight, not the average net weight.
   Net weight is minus the tare weight. Packaging, trays, pads, wrap, etc. are subtracted from the weight of the product. The figure must be located in the lower 30 per cent of the PDP. No other type can be placed adjacent or below the net weight. It is often placed in the very lower right corner of the front label. The net weight or volume must be in both the imperial (US) and metric scale, ie. NET WT 12 OZ (340g).
   Minimum type for the net weight is 1/16". If the PDP is 5-20 inches, at least 1/8" type must be used and if the PDP is 25-100 inches, at least 3/16" type must be used. Count can be used if the product’s individual components are easy to identify, eg. 6 cookies. However, most items can not be sold by count alone and must include weight. The information label is usually located to the right of the PDP. On a box, the label is on the right side of the package, and on a jar, the label is directly to the right of the PDP. Specific label placement allows American consumers to easily find the information they are seeking.
3. All foods that are packaged must have a nutrition fact statement panel.
   There are exemptions for low-volume manufacturers, including those from Australia. Businesses must employ fewer than 100 full-time employees and make fewer than 100,000 units sold within the US. An exemption notice must be filed yearly with the FDA. Firms with fewer than 10 employees do not need to file for the exemption.
   The nutritional information panel must meet specific formatting requirements. Depending on the product and package size, the format could be 'full', 'simplified' or 'shortened'. Each food type has a particular mandated serving size and nutrient breakdown. Given the complexity of information required in the panel, Austrade recommends working with consulting firms that specialise in this area.
4. The ingredient statement is located below the nutrition facts and above the manufacturer or distributor name and address.
   The ingredients including food colourings and chemical preservatives must be listed in descending order of predominance by weight or volume. If less than 2% by weight, the ingredient can be listed at the end with a statement that states: "contains 2% or less of XXX". The ingredient must be listed by its specific name.
   An ingredient containing two or more ingredients may be declared by its common name but must list in parenthesis all the ingredients that are in that particular item (eg. 'ketchup used to make BBQ sauce' – all ingredients on the ketchup label must be listed in the same exact order on the BBQ sauce label).
5. The place of business is listed on the lower portion of the information panel.
   The terms 'manufactured by' or 'distributed by' must be stated. The name, address and zip code of the manufacturer or distributor must be listed. A telephone number or email address may be listed here but it is not required. US customs laws require packaged food produced outside of the US to be marked with the English name of the country of origin.
   The Bureau of Customs and Border Protection will not accept goods marked as originating from a state in Australia. If the article (or the container when the container must be marked) is not properly marked at the time of importation, a marking duty equal to 10 per cent of the customs value of the article can be assessed.
   Many products have further requirements. For example, a quality assurance date (a meaningful sell by/use by/open by date) is required of food items that have a shelf life of 90 days or less. Frozen foods, meat and poultry items, fresh fruits and vegetables are exempted. Safe handling instructions are required on the label of all packaged partially cooked meat and poultry products.

Additional labelling

While not a legal requirement, many American retailers insist that the products they sell bear a uniform product code (UPC) to enable them to order, track, trace, deliver and pay for goods across the supply chain. Usually bar code numbers are the responsibility of whoever owns the brand.

Austrade recommends Australian manufacturers contact GS1 Australia (Formerly EAN Australia) – an organisation that locally administers the bar coding registration requirements in the US.

Marketing your products and services

Market entry

The US food and beverage market offers enormous opportunity. It is large, competitive and heavily regulated. Australian exporters need to consider the following:

• Quality packaging and service are needed at all times
• Your supply capabilities as successful minimum orders may be large by Australian standards
• Financial position and your company’s ability to invest in the market including ongoing promotional activities
• Growth targets for five and 10-year periods as the market is conservative and access will take time
• Geographic and demographic characteristics of target market – consider focusing first on one region and appoint a distributor who is strong in that particular region
• Select the right agent or distributor as good market representation is essential and it is difficult to succeed by trying to short circuit the distribution chain
• Sample size products are likely to be needed to attract potential distributors

General points to consider:

• Emphasise the key discerning and unique selling features of your product. An Australian product will only succeed if it is differentiated while being competitive.
• Undertake market research to ensure you have the necessary knowledge and understanding of the sector. Ideally, visit the market when you have a strong export plan in place to gain additional first-hand market information.
• Market your products at trade shows, such as the Boston International Seafood Show, International Fancy Food Show or Confections Show.

Suppliers to the retail grocery industry are likely to find themselves negotiating over slotting fees, advertising costs, introductory allowances, in-store demonstration costs, couponing and customer savings cards. Slotting fees are one-time payments a supplier makes to a retailer as a condition for the initial placement of the supplier's product on the retailers shelves. Australian exporters may also be approached regarding ‘pay to stay’ fees, which is the payment made to retailers to maintain shelf presence for continuing products. (Slotting fees is sometimes the term used to cover both).

Private labelling continues to be a growing feature of the market. The consumers' views of private labelling have changed and companies now see their private labels as a reflection of the quality of the company. To access the private label sector often requires supply of significant volumes at set quality standard. While private labels are not expected to eliminate top brand labels, second tier branded goods are potentially vulnerable to store brands.

Distribution channels

Unlike Australia’s ‘to-market’ system, where food typically flows from producer to consumer along a fairly standardised path, the American system is highly variable and complicated. Food from overseas can flow from producer to a retailer that imports goods directly, but this is rare. The following is a synopsis of the key functions and services of each point in the distribution chain:

Importer

• Responsible for clearing product through US Customs
• May or may not take ownership of the product depending on level of service required
• Will warehouse and inventory the product and manage the movement to distributor’s warehouse or direct to retailer’s warehouse
• May also manage sale and ownership transfer to the distributor depending on level of service required
• Fees vary depending on level of service and handling required, but typically range from a 10 per cent to 20 per cent margin

Food distributor

• Buy and take possession of the products
• Use margin, not mark-up, to define price and profit
• Average margins are 28–35 per cent, which is on top of the cost of the delivery of goods to their warehouse
• Re-sell and deliver products to retailers in specific geographic regions
• Usually sell from catalogues supplemented by monthly or seasonal flyers
• Make calls on retailers, arrange demonstrations, distribute point-of-sale material and educate store staff
• Meet with buyers regularly and work on movement data, space management, price change notification, electronic billing and direct product profit analysis, setting store shelves, preparing shelf diagrams (plan-ograms), merchandising advice and seasonal displays

Broker

• Typically work on behalf of the producer or US importer to promote and sell goods to distributors and retailers
• In some cases, the importer also acts as the broker
• Brokers are particularly necessary in large markets or when working with large distributors as they help push retail sales
• Do not take possession or ownership of the goods
• Typical broker commission is 5–10 per cent
• Responsible for knowing the marketing strategies that work in each store/chain
• Check-in on stores to see if products are being sold properly

Links and industry contacts

Food–related resources

Food Service – www.foodservice.com
International Dairy Deli Bakery Association – www.iddba.org
National Grocers Association – www.nationalgrocers.org
National Organic Program – www.ams.usda.gov/nop/indexIE.htm
National Restaurant Association – www.restaurant.org
The Olive Source – www.oliveoilsource.com

Government, business and trade resources for the USA

US Food and Drug Administration – www.fda.gov
US Department of Agriculture – www.usda.gov
Food and Safety Inspection Service – www.fsis.usda.gov
US Department of Commerce – www.doc.gov

Media

Food Processing Magazine – www.foodprocessing.com

Contact details

The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency.

Through Austrade’s network of offices in over 50 countries, we assist Australian companies to succeed in international business, attract productive foreign direct investment into Australia and promote Australia's education sector internationally.

For more information on how Austrade can assist you, contact us on:

Australia ph: 13 28 78 | Email: info@austrade.gov.au

A list of Austrade offices (in alphabetical order of country) is also available.