While the global financial crisis has hit many industries it has hardly made a dent in the Gluten Free market. Over the last five years the American GF market has averaged an e-demand (Google searches) growth of 42%, and even between May 08 and May 09 it has grown by 37% ! While its ‘Celiac Searches / mth’ rating remains below the Australian benchmark, there is no doubt that the American GF market is growing stronger than almost any other market in America!
Gluten Free Global market forecast 2009
Previous research looked at the current state of Gluten free markets across the world. The Gluten Free Matrix was developed that showed how a country's wealth (GDP per person) was a very good predictor the general e-demand of gluten free products (Google searches).
This research showed that there was a logarithmic relationship for most countries, that is high wealth correlated with high Gluten free demand. It also defined market characteristics for special case outliers such as European countries (Hypo markets Germany, France etc) and over-performing hyper markets China and Russia.
New Google data releases now allows us to view trends for the Gluten Free Market between 2004 and 2009. By comparing current market states in absolute terms with the long term gluten demand trend, we are better able to understand the dynamics of gluten free markets.
This article compares four of the highest performing GF markets of: USA, Canada, UK and Australia.
These countries form a very good base for comparison as they are highly developed, high level of English speaking population (meaning no Google translation error bias), high internet penetration and high Google share (low weighting errors).
Long term trends all show a spike in demand (searches) during December for each country. It would appear that increased advertising and gluten free gift buying are the cause. A demand trough in the middle of the year occurs for the northern hemisphere countries of US, Canada and UK. Interestingly Australia (southern hemisphere) experiences a slight peak during this season. It appears that winter also causes a momentary surge in demand probably as people explore places to buy breads and visit restaurants etc.
US Summary
The four year trend shows an unparalleled upward growth trend that is best fitted by an exponential trend line. Over five years the gluten free demand market has grown 230%.
Australia Summary
From previous analysis it was uncovered that of the developed nations, that Australia was the global leader in gluten free e demand with a Celiac search per month value of 4.2 searches. However unlike USA or Canada its yearly seasonal trend is seen to constantly rise rather than ramp up at the end of the year.
Long term it is seen that while the growth is stronger than the UK, it is much less than US or Canada. Over five years the Australian e-demand grew 56%.
Canada Summary
This country's Yearly seasonal trend (Jan to Dec) is VERY similar to the US. However it typically starts ramping up growth for the whole of the second half of the year. Similarly its long term trend has a very high growth too. Canada's five year growth of 97% was second only to the US.
UK Summary
The UK yearly trend is has no particular pattern. If anything it appears that there is a slightly jittery trough in the centre of the year with a slight rise at least in December of each year. The long term trend for the UK gluten free demand is VERY flat.
FOUR COUNTRY'S Seasonal (Jan to Dec) trend comparison
Yearly Seasonal Linear gradients
YEAR USA Australia Canada UK
2005 0.0303 0.0124 0.0192 0.0072
2006 0.0647 0.0147 0.0252 0.0082
2007 0.0915 0.0253 0.0562 0.0093
2008 0.0917 0.0219 0.0577 0.0098
The table above compares the seasonal trends of the four countries of interest (Jan to Dec). It shows the closeness of yearly growth patterns for the geographically close US and Canada. It also shows the almost linear growth of Australia throughout the year and the growth trough midyear experienced by the UK. As discussed, these trends are influenced by peaks during Christmas and winter in each country.
You can see that while the seasonal growth trend is increasing, it is doing so at a slowing rate (big difference between 2006 and 2007, smaller between 2007 and 2008). This most likely suggests either the onset of market maturity (or an inflexion point) and/ or the negative effect of the global financial crisis.
LONG TERM GF MARKET TRENDS
As this market is still closer to introduction than maturity, the demand is still very much in the growth phase. The table below shows how this long term growth compares between different countries. Many different equation trend lines can be fitted to the data, however I have chosen to compare linear trend lines and their R2 regression coefficient and the exponential R2 coefficients.
Trend 2004 – 2009
Metric US Australia Canada UK
Linear gradient 0.0117 0.0029 0.0065 0.0007
Linear R2 0.8842 0.7095 0.8672 0.206
Exponential R2 0.9327 0.718 0.898 0.2043
Celiac Sch / mth 2.7 4.2 3.3 2.2
GDP/ person $48,000 $39,300 $40,200 $34,800
Very basically, an R2 value of 1.0 indicates that the regression trend line perfectly fits the data. While a value of 0 shows no correlation between data and a trend line.
I have used the linear trend lines to compare each country's trend as the slope of a line is an easy concept for anyone to understand. The bigger the slope, the bigger the linear gradient coefficient in the table. The table shows that the US slope is about four times greater than Australia (between 2004 and 2009). Which means based on this concept alone, that if the US was to continue this trend it will easily overtake Australia as the global leader for gluten free demand per celiac (Celiac Searches / month).
The Linear R2 value for the US is also the highest of any country. This means that its data fairly closely approximates a straight line, and there is little volatility in the data (spiking). While you can see that the yearly seasonal trend (Jan - dec) in the US is the most pronounced of any country, each year also closely approximates the previous yearly trend meaning that there are relatively few outliers (spikes of very low or high demand) away from the seasonal trend.
The exponential trend line for the US has an R2 value that is even higher than its linear trend line R2 value. This means that an exponential trend is an even better fit for the US data than a linear trend line, and that growth over the four years generally has been occurring at an increasing rate. However from the comparison of seasonal trend data, it is shown that the gradient of the latest year has increased the least over the past four years. The US growth is still strong but less than it was three and four years ago.
Australia has the highest ‘celiac search value per month' of any country (4.2 compared to US 2.7). This suggests that per head of population that Australia is the most mature gluten free market of the countries analyzed. It's yearly season trend (2008 gradient = 0.0219) was much less pronounced than the US, (2008 gradient = 0.0917). Its four year trend was also less: Australia linear gradient = 0.0029 compared to the US = 0.0117.
When these four countries are plotted on the GFP Matrix - Adjusted Celiac searches/ mth V ‘GDP per person' it is seen that Australia sits slightly below the logarithmic trend line, while the US sits very high above it - suggesting that the US should potentially have at least double the number of searches per celiac that it currently does - excluding limiting factors discussed below.
The relatively low linear gradient for Australia may be of concern (market reaching maturity early or stalling), however the R2 value for the exponential trend line is closer to 1.0 than the linear R2 suggesting that the market is still mildly increasing above a linear trend.
Affect of Global Financial Crisis (GFC)
The long term growth trend information above suggests that the US and Canada should have the highest current (last year) growth rates followed by Australia then UK. However as the GFC was considered to have ground zero in the US, it is expected that this country could be the heaviest hit, and have reduced its gluten free demand the most.
Note Google data is available on a weekly basis, The data below is the average data for the month selected. Twelve months of averaged data was used to calculate the Linear Growth forecast shown as the last row in the table below.
Table: Last year growth rates (May08- May 09) – normalized
Month US Australia Canada UK
May-08 1.00 1.00 1.00 1.00
Aug-08 1.08 0.98 1.05 1.09
Nov-08 1.36 0.97 1.19 1.19
Feb-09 1.20 0.87 1.13 1.17
May-09 1.29 1.18 1.51 1.33
Forecast 1.37 1.08 1.39 1.27
Over the last four years the ANNUAL linear growth for the gluten free demand market for each country was: US (42%), Canada (18%), Australia (10%) and UK (zero). However as shown above, between May 08 and May 09 the American GF e-demand has only increased 37% compared to Canada at 39%, Australia 8% and UK 27%. That is, over the last year, Canada and UK GF market e-demand greatly over performed while US and Australia slightly underperformed.
FACTORS LIMITING GF MARKET GROWTH
The US is forecast to become the highest demand per head of population market out of the high volume developed countries - ‘if all things are equal', but they are not. In fact, as the US GF market gets closer towards maturity (plateau), the points of difference in the economy are likely to make a much larger impact in the market, than they do during the current high growth phase. This will retard growth and increase the time to maturity. Some of the most dominant growth limiting factors in US are:
The US has as much lower level of diagnosis than Australia (Australia diagnosis level = 20%). This seemingly provides a great opportunity for growth however one ‘institutional' reason that diagnosis is so low in the US is that it does not have ‘free healthcare', while Australia does (Medicare). Free healthcare in Australia provides a greater access of healthcare to a larger percentage of the population, which is likely to facilitate higher diagnosis levels.
The US has higher levels of Hispanic and African American populations than the other countries analyzed. These races are believed to have lower genetic disposition to celiac disease than European races, which will limit their dietary need for gluten free.
The GFP Matrix plots ‘celiac search volumes' against ‘GDP per person' country values. However this simplistic wealth measure suggest that the wealth distribution of a country amongst its citizens is approximately the same between each of the developed countries under analysis. One US source, the ‘ Survey of Consumer Finances' suggests that in 2004 that the top 1% of US families owned 34.3% of the country's wealth while the bottom 40% of families owned less than 1% of the wealth. If this is so, then it is likely that the proportion of people who are likely to be checked for celiac disease will be lower in the US than other developed countries.
If this poorer group of people are miraculously diagnosed, they are also less likely to afford the higher cost of GF food and be able to locate the sporadic distribution of gluten free products (in poorer areas). The disproportionate wealth distribution within the US is likely to be a major limiting factor in GF market growth when compared to other developed countries.
From the previous four year history there is little doubt that US g-free demand per celiac will overtake Australia's demand per celiac. To reduce the effects of the Global Finance Crisis, and for easy comparison of US and Australia GF markets, LINEAR trend lines were plotted for each country starting in December 2008 and using start celiac search values of US = 2.7 and Australia = 4.2. Using this data it is forecast that both countries will have an equal number of ‘celiac searchers per month' in 63 weeks. However with the crisis, and other economic factors discussed, it is likely that this cross over will occur more likely in two years or more.
CONCLUSIONS
For anyone connected to the gluten free market: supplier or consumer, knowing what stage the market is in is important. A newly formed market often has only a few suppliers who have high costs and high margins. As a market moves towards maturity and plateaus, most easy entry markets like GF tend to have many competitors, many products and thinner margins. This is obviously much better for the consumer.
Adherence to the GFP Matrix logarithmic relation between 'Celiac searches' and ‘GDP per person' scales was predicated on ‘all other things being equal' in the economies. The ‘Global financial Crisis' of 2008 onwards has shown that the US e-demand for gluten free products has only slowed slightly.
Australia has been said to be one of the strongest developed country economies during the global financial crisis (mostly avoiding recession). It's gf market only slightly decreasing from May08 to May09. As internet penetration is near 80% in Australia, this low market growth is most likely due to a continued low celiac diagnosis by GP's. While Medicare provides bulk billing (free healthcare) with many GP's, the diverse symptoms and often complex diagnostic techniques mean that many GP's miss diagnosing celiac disease.
With relatively low diagnosis levels even in the developed countries analyzed above, the demand part of the economics equation is likely to remain artificially low. This will restrict suppliers entering the market for a while to come and keep prices high. Besides this factor, the higher cost of manufacturing for gluten food replacements will always keep gf foods at a higher cost level.
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