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Economics of Canned Food Industry – Production methods, major brands, and market

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Published on: 21 October 2024

The Economics of Canned Food

The canned food industry represents a major sector of the global food economy. The simplicity and convenience of canned foods have made them a ubiquitous supermarket staple and camping essential. However, behind every can is an extensive production process and a high-volume industry. Let’s take a look at the economics that underpin the canned food business.

Production Methods

Ensuring the quality and safety of canned foods requires specialized thermal processing equipment. Most large manufacturers own their canning facilities equipped with large batch or continuous flow retorts. Retorts are sealed industrial vessels where pallet loads of cans on racks are precisely heated to a high enough temperature to kill any spoilage or pathogenic microbes and seal the can rim to the lid.

There are two main methods used. Water bath canning employs submerging cans in boiling water, and heating them to 212°F for a prescribed duration. This is suitable for high-acid foods like fruits where microbial threats are minimized at relatively low temperatures. Pressure canning uses pressurized steam within a sealed retort chamber, allowing temperatures above 212°F such as 240°F. This added heat penetration is necessary for low-acid foods like meats and vegetables which require higher temperatures to neutralize bacterial threats like Clostridium botulinum.

Before processing, ingredients are carefully washed, trimmed, sliced, or diced as needed. Some fruits are blanched or vegetables are partially cooked to improve texture retention during thermal processing. Foods are then gravity-fed into cans on a filling line running several cans per minute. Lids are mechanically cleaned and sterilized separately before being seamed or crimped tightly onto full cans to form a hermetic seal.

Packed cans are loaded onto retort racks and conveyed into large steam-jacketed vessels. Controls automate the heating and cooling process according to time and temperature specifications to achieve sterilization. Continuous monitoring ensures consistent results for microbial safety. Afterward, cans are spray-rinsed and surface-dried before rapid cooling and packing for distribution. Every stage of production is closely regulated to comply with commercial sterility standards.

Brands and Market Share

A small number of large multinational corporations dominate the global canned food market through several major brands under their ownership. Campbell Soup Company is one of the largest producers, known worldwide for their iconic condensed soups. Other leading brands in their portfolio include Prego pasta sauces, Swanson broths, and Pace Picante sauces.

Conagra Brands has a diverse lineup of canned foods including Healthy Choice meals, Hunt’s tomatoes, Marie Callender’s frozen meals, and Slim Jim beef sticks. General Mills markets canned soup, Vegetarian vegetables, and canned bisques under their eponymous brand. Bonduelle operates as a large produce canner in Europe and the Americas, specializing in corn, beans, peas, and artichokes.

These companies all maintain global operations with strategic geographical footprints. For example, Campbell Soup owns production facilities across North America, Europe, and Asia Pacific. Kraft Heinz operates over 30 factories globally to serve markets like the UK, Brazil, Argentina, and India. Their manufacturing scale and distribution networks allow the efficient supply of canned staples worldwide.

In just the US market, annual canned food retail sales were recently valued at $10.6 billion according to IRI consumer panel data. Ready-to-serve soups represent the largest category at 23% of sales. Canned tomatoes hold the second largest share at 9%, while tuna fish comes in third at 7% driven by health and portability trends. Private label store brands have significantly increased in popularity, now comprising around 20% of total volumes.

Internationally, demand continues growing especially across emerging economies experiencing rising incomes and urbanization. Asia Pacific and Latin America present substantial opportunities for expansion by global brands seeking new customers. With canned foods filling a need for inexpensive, storable nourishment, the category remains a staple in both developed and developing markets.

Profit Margins

Although the costs of key inputs for canned foods like ingredients, labor, energy, and materials continuously fluctuate based on market conditions, the category tends to have more attractive profit margins for manufacturers relative to highly perishable alternatives.

Once canned, products can remain stable on store shelves for many months or even years if unopened, vastly reducing waste from spoilage compared to fresh produce or refrigerated items. The sterilization achieved through rigorous thermal processing also greatly lowers ongoing food safety costs versus minimally processed choices prone to pathogen growth.

The substantial capital required to establish large-scale canning facilities equipped with filling lines, retorts, and packaging equipment represents a high fixed cost. However, with designed daily capacities reaching into the millions of units, optimized production planning allows for efficient absorption of overhead across high production volumes.

Once at fully optimized operation, the marginal costs of producing each additional can are relatively low, estimated at just pennies per unit. This efficacious variable cost structure is further supplemented by the premium pricing structure consumers routinely accept due to the convenience and value-added attributes of canned formats.

With sales channels well-established through major grocery chains and mass merchants, canned food manufacturers enjoy strong purchasing power over ingredients and the ability to pass on moderate price increases to offset periodic commodity input spikes. The resilience of category demand insulates against the need for price discounting.

These factors together mean that while upfront investment is large, top producers consistently achieve net income margins averaging approximately 20% according to industry analysts. Sustained profitability rewards continued product innovation and supply chain optimization to maintain competitive advantage.

Distribution and Retail

Most large canned food manufacturers leverage their fleet vehicles or common carriers like trucking companies to distribute goods from production plants to warehouses and retail outlets across a region. National brands have a physical presence in most major grocery wholesalers and distributors.

On store shelves, canned foods are prominently displayed in the center aisles for mass market appeal. Private label versions may be stocked near name brands at a lower price point. Online retailers like Amazon have also emerged as a growing sales channel, especially for specialty products.

Factors Impacting Prices

In addition to fluctuations in commodity markets for raw food ingredients, several other variable costs influence canned food pricing on an ongoing basis:

Energy – Both thermal processing within large steam-powered retorts as well as transportation of finished goods over long distances rely heavily on fuel costs such as natural gas, oil, and gasoline. Volatility in energy prices directly impacts overhead.

Packaging – Steel for two-piece steel cans and easy-open lids are major packaged inputs. Fluctuations in scrap steel pricing can squeeze packaging suppliers’ margins.

Labor – Labor agreements, minimum wages, and healthcare costs all impact the workforce necessary to operate complex production and factory packaging lines 24/7. Labor is a major fixed expense.

Marketing – Maintaining brand visibility through advertising, promotions, and sponsorship requires substantial ongoing investment to drive premium perceptions and justify higher pricing.

Tariffs – For globally integrated companies importing between international subsidiaries and export partners, changes in tariff policies swiftly change product costs.

Regulations – Additional mandates for labeling, ingredients, or packaging bring compliance costs. For example, BPA-lining replacements increased cans’ materials bill.

Supply chain disruptions – Rare but possible events such as equipment failures, power/water outages, floods, or fire damage can severely crimp throughput and surge ingredient costs if purchase contracts are voided.

While scale provides some insulation, these factors together can squeeze industry margins if multiple inputs rise concurrently. However, established manufacturers leverage brand power and production efficiency to maintain competitive profit levels through difficult periods and pass on measured price increases over time if necessary.

Conclusion

In summary, the canned food industry exemplifies an optimized large-scale packaged goods market that has sustained strong profitability for generations. The extensive infrastructure of canning facilities, high-throughput production lines, global logistics networks, and distribution channels represent immense fixed assets and scale. However, these also create an efficient cost structure that few perishable alternatives can match.

The self-preserving property of canned formats virtually eliminates waste from spoilage. Combined with the validated food safety provided by retort thermal processing, this shelf stability affords a natural cost advantage over fresh and refrigerated options. Successfully balancing nutrition, taste, and convenience at an affordable price point, canned staples satisfy the time-starved demands of modern life.

Brand leadership and category management expertise and commands powerful purchasing influence. This strengthens control over ingredient costs and pricing resilience during periods of commodity volatility. Consistent profit margins reward continued product innovation to drive incremental growth.

Underpinning the industry’s century-long economic achievement is the enduring popularity of canned soups, tuna, corn, beans, and thousands of other dependable pantry items. Such ubiquitous daily staples form the very backbone of household cuisine the world over. For those in developing nations experiencing rising living standards, canned formats also play a growing role in global food security and a stable, diversified food supply.

Given humanity’s need for convenience without compromising sustenance, the practical, shelf-stable advantages of canned foods ensure their necessary role for decades to come. As such, canning operations will remain firmly established as a lynchpin industry sustaining global nutrition, workforce employment, and economic welfare far into the future.

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