Guest Columns

Perspective:
Export Expertise

Exploring pizza cheese potential in a more competitive world

Merle McNeil

Merle McNeil is director, market research and analysis, U.S. Dairy Export Council. She contributes this column exclusively for Cheese Market News®.

Last week, at Key Banc Capital Markets presentations in Boston and New York, pizza powerhouse Papa John’s International said it expects to add 130-200 international stores annually for the “next several years.” It already operates more than 1,500 units in 41 nations outside the United States and calls the international market a “significant growth opportunity for many years to come.”

Pizza chains bigger and smaller alike, U.S.- and foreign-based, espouse similarly optimistic views of overseas pizza demand growth, each with its own multi-nation expansion plan. The pizza sector is one reason why despite a prolonged global dairy market imbalance and the dawn of an era of intensified export competition, we not only expect a return to stronger overall dairy trade growth but also view the United States as well positioned to secure a hefty slice of the pie.

• Lingering oversupply

Let’s take a step back for a moment. For over a year, the industry has had to deal with the aftermath of the European Union’s decision to remove milk production quotas, a plateau in Chinese dairy imports, reduced purchasing power in oil-producing nations, the Russian trade embargo, and a stronger dollar, among other headwinds to export growth. The combination has sharply intensified global competition among a handful of large exporters aggressively seeking buyers to take up abundant supplies.

We have seen the fallout in U.S. cheese exports. After rising more than six-fold from 2004 to 2014, U.S. cheese shipments fell 14 percent to 698 million pounds in 2015 and were down 22 percent through the first four months of this year.

While those tougher competitive conditions appear likely to hold through the near-term, USDEC’s recent market report, “U.S. Dairy Export Prospects: Looking out to 2020,” determines strong global cheese trade opportunities also will persist over the midterm. The report conservatively projects a compound annual growth rate of 3.2 percent in international cheese trade from 2014-2020, resulting in demand for an additional 1 billion pounds of cheese exports per year.

Now, a new USDEC research study delves specifically into one of the key sectors that will help drive that growth: Pizza. The study analyzes the pizza sector in 23 nations, finding that rising demand will increase their overall pizza cheese consumption by 220 million pounds from 2015-2020 — a compound annual growth rate of nearly 6 percent.

When you hear stories like Papa John’s it’s easy to understand why. Emerging markets and certain developed countries alike present fertile ground for pizza chain growth. Just look at per capita consumption.

Estimated U.S. per capita consumption of cheese on pizza is more than 8 pounds per year. Even in Japan — the most advanced pizza market USDEC analyzed from both an economic and pizza penetration standpoint — annual per capita pizza cheese consumption is only 4.9 pounds. Most other nations in the study ranged from a quarter-pound to 3 pounds.

In addition, most of the 23 nations analyzed in the report are largely or fully dependent on imports to meet their pizza cheese needs — a situation that will not change for years, if ever.

• Advantages and disadvantages

U.S. cheesemakers are a natural to play in this market. No other major nation in the world consumes more pizza than the United States. We are pizza experts, increasingly recognized for our strong pizza focus, ample capacity, supply consistency and depth of pizza cheese knowledge.

There are, however, challenges to capitalize on the world’s growing appetite for pizza. U.S. suppliers currently face a pricing challenge to maximize pizza cheese export growth, as suppliers from Oceania and the EU are pricing very aggressively in the face of the global oversupply. Given longer-term market trends and the economics of dairy trade, U.S. prices are bound to grow more competitive, but they are hindering U.S. growth at present.

And despite our pizza expertise, growing the business, particularly during a period of heightened competition, requires acute attention to customer needs. The 23 nations USDEC analyzed present a long and varied list of pizza cheese preferences, from color to stretch to sodium content to halal certification. And most would welcome innovation assistance, particularly with up-and-coming pizza trends, like artisan pizza and “healthier” pizzas that better align with growing consumer wellness concerns.

U.S. suppliers who continue to immerse themselves in the markets, learn the varying preferences, produce to the preferred specifications and build supplier relationships will have a better shot at sales now and be better positioned when prices turn more favorable.

U.S. cheesemakers are not starting from scratch. They are already holding their own in the market despite the intensely competitive circumstances. Last year when overall U.S. cheese exports declined, U.S. shipments of grated cheese (most of which is used on pizza) rose 19 percent. This year, with U.S. cheese exports down again, grated cheese sales continue to grow, up 6 percent through April. Grated cheese does not capture the universe of all pizza cheese, but U.S. performance there is a good sign.

Pizza cheese demand is there. The demand is unquestionable. It is up to U.S. suppliers now to capitalize on it.

CMN

Note: The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the producer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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