The world GDP is over $80 trillion, and more than $15 trillion of that is spent on food. Sugar purchases alone account for over $1 trillion of this GDP. The percentage of food revenues spent on hoses and couplings is very small compared to that spent on municipal water treatment. It is even less than what is spent on mining, refining, and most other industrial sectors related to food production.1 It is however, still quite large.
By Robert McIlvaine, President & Founder, The McIlvaine Company
The hose and coupling market for processing equipment is valued at well over $500 million per year. When discrete applications are included and a broader definition of hoses and/or couplings products is used, the market is worth closer to $1,200 million.
The Food Market in Relation to Hoses and Couplings
The food and beverage market includes not only hoses and couplings, which are used directly in the creation process, but also the materials required in the use of utilities such as water, electricity, and waste treatment. Many food processing companies even generate their own electricity and utilize small processors to generate steam. The treatment of wastewater on site, for example, rather than discharging it to a public treatment plant, is common. In fact, in several small towns the food processing company also supplies municipal wastewater treatment for the residents.
Some of the world’s largest hose and coupling suppliers look at the food market and ask themselves: ‘Where can we sell the same hoses we supply to other industries?’ This is a relevant question because it can lead to the most profitable orders. Much of the success that arises from this approach is from buying small companies who have found highly profitable niches.
The rationale is that if the market for an existing grade is expanded, the cost of production will be less, and the margins and earnings before interest, taxes, and amortization (EBITA) can be increased. However, some companies have taken a different approach; they ask: ‘What are the customer needs? Can we supply a product with lower total cost of ownership than our competitors?’
Some of the companies who have taken this customer-first approach have generated greater EBITA than the industry as a whole. Their approach is to thoroughly understand all the processes and the cost of ownership and then develop solutions which deliver lower costs than the competition.
Some of the questions that should be asked are:
• How big is the market?
• How fast is the market growing?
• How important are hoses and couplings in this market?
• What are the specific hose and coupling uses in general, critical, severe, and unique service?
To understand this process more thoroughly, different market avenues are explored.
Different Market Avenues
The markets for hose and couplings are determined based on the size and growth of each segment and the amount per unit of product spent on hose and couplings.
Beverages
Beer is the largest beverage market. Hoses and couplings represent a relatively large percentage compared to industry revenues. Wine and spirits are also substantial markets for critical and severe service hoses and couplings. There is substantial opportunity to provide innovative designs with lower total cost of ownership. One criterion is preservation of product quality, see Figure 4.
Food
The poultry, meat, seafood industry is the largest food market for the hose industry. In relationship to the total industry hoses and couplings sales are, however, very small. There are also a number of slurry applications that require severe service hoses and couplings.
Food Grade Specifications
Within the food and beverage industry, there are several general requirements which must be met regardless of the application.
In the United States, food-grade hoses must be designed and built to the specifications outlined by the Food and Drug Administration (FDA). This ensures they provide a clean and safe transfer of food materials. While these components come in numerous variations, differing with regard to size, pressure rating, and temperature rating, to suit different customer needs, they also have some common characteristics.
The selection of materials for hoses must take into account potential contamination of the food product. A study by Saint-Gobain has observed that chemicals from non-food contact layers of the hose could potentially migrate into the food through the food contact layer.
If it is known that there is the potential for an indirect migration of contaminants that will pose an adversehealth effect to the consumer, the risk must be mitigated. To address the risk, Saint-Gobain has developed a tiered approach to be able to assess the migration of chemicals from the non-food contact layers by considering both the toxicity profile of the substance and its migration level at the customer use conditions.
In regard to hoses specifically, this process entails that the hose be cleaned and designed accordingly. For example, Continental’s LACTOPAL is resistant to commonly used cleaning and disinfection products. The LACTOPAL food hose ensures hygienically clean transport of the liquid raw materials and semi-finished products in the various stages of ice cream production.
Final Thoughts
After determining how a specific hose or coupling can provide the lowest total cost of ownership in an application, the best prospects can be identified. The analysis of each application of hoses or couplings, and each process that requires it, can become the foundation of the business strategy, rather than a peripheral tool. The identification of the purchasers can therefore be an asset to expanding the hose and coupling market in the food and beverage industry.
ABOUT THE AUTHOR
Bob McIlvaine founded the McIlvaine Company in 1974 and oversees the work of 30 analysts and researchers. He has a BA degree from Princeton University.