A Positive Outlook for Food & Bev

Food (and More) For Thought

In October, consultancy Grant Thornton LLP released results of its 2013 Global Food and Beverage Benchmarking Survey. The good news for the industry is that the year ahead is likely to deliver improved revenues, profits and employment levels.

Dexter Manning, national leader of the consultancy’s Food & Beverage practice, shared some survey findings and actionable insights with Food Logistics.

The industry has perfected doing more with less.

Although 90 percent of executives expect revenues to increase in the next year, only 56 percent expect full-time employment to go up, which suggests that global food and beverage producers have learned how to make the most of the economic downturn. However, such strategies may cause problems as firms approach maximum capacity. One way to avoid this potential problem is to adopt new technologies and automation processes to reduce companies’ reliance on hiring more workers.

Some observers worry that sector revenues are rising primarily due to inflation, and food and beverage processors will soon have difficulty passing along farm and supply chain price increases to consumers—putting margins at risk.

Actionable insight: Balance investment in growth with strategies to improve efficiency and minimize risk, primarily through automation and information technologies.

Exports are expected to rise—and so are risks.

Looking forward, processors expect to increase exports from an average 22.7 percent of current sales to 26.7 percent over the next two years. This is a substantial increase and requires a corresponding rise in managing the risks associated with exports, including various countries’ product regulations, especially as they pertain to perishable food and beverage items, as well as logistics and transportation costs.

Actionable insight: Perform extensive due diligence before entering new markets, including intensive efforts on the ground to meet and understand new customers and distribution channels.

The appetite for investment fuels growth.

More than three-quarters of executives report that their organizations will increase spending on equipment, new product development and IT in the next 12 months. Some processors are catching up on investments shelved during the recession, while others are focusing on growth through innovation or acquisitions.

Actionable insight: Create detailed growth plans that prioritize your investments by return on investment, and then use this analysis to secure cost-effective financing—whether through traditional banking relationships, creative financing, or partnerships with suppliers and customers.

Plant expansion is a top growth strategy.

Nearly half of food and beverage executives consider expansion via M&A as a viable strategy to strengthen their market positions. “Companies are looking at how they can survive market and regulatory changes,” says Manning. “To do so, they have to get better at what they do best—becoming more strategic and more focused.”

Actionable insight: Become leaner by shedding noncore businesses and activities, and investing more heavily in core product lines and markets. By acquiring key competitors in core businesses, companies can get more leverage in market pricing and save money.

All costs are expected to rise in the next year.

First, the bad news: More than two-thirds of food and beverage executives expect every cost surveyed to increase in the next 12 months. Rising commodity prices are of particular concern, since raw materials account for a median 45 percent of food processors’ sales.

The good news: After years of pricing stagnation, processors may finally be able to pass on some costs to consumers.

Actionable insight: Review your supply chains for both direct and indirect materials to ensure the lowest possible costs for the highest-quality ingredients. As part of this review, the financial health and stability of suppliers should be considered and monitored.

More regulations lead to global concerns.

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