So far in 2018, the Food & Beverage industry continues to show signs of growth, paired with a strong sense of transformation throughout all industry subsectors.
Howard Dorman, Practice Leader for the Food & Beverage Sector spoke with leading experts to gain an understanding of what’s going on and what is ahead.
The group included:
- Bob Bauer, President of the American Food Industries (AFI). The AFI is a trade association of more than 1,000 companies worldwide involved in importing a wide variety of food products into the U.S. and Canada. Their specialties range from Food Import Issues to Food Safety.
- Brian Todd, President of The Food Institute. For close to 90 years, the Food Institute has been the best source for food industry executives delivering actionable information regarding current, timely and relevant information about the food industry
- Richard McArdle, Executive Director at the Rutgers Food Innovation Center. Richard is a thought leader in the food and agriculture industry and an authority on product development and commercialization.
The three of you represent very important, but different, sectors of the F & B community. Our study showed optimism and an expected increase in sales and profitability over the short term. At the same time, our respondents felt the top concerns are rising commodity and other costs, food safety and quality assurance, and the ability to develop new products. What do each of you view as challenges in F & B over the next 12-18 months?
Bob: Uncertainty due to government actions is causing a lot of concern because companies don’t know what their true cost of doing business is or may be. Tariffs and removal of countries from long-standing trade programs are two issues that come to mind. Some announcements come with little advance warning and most don’t allow time to develop suitable replacement producers (if they exist) of the products in question.
Brian: The low inflation in commodity prices, including deflation in some categories, should aid food and beverage manufacturers in their efforts to increase profitability in the short term, as the positive economy hopefully helps lift sales. Further down the pike, however, commodity prices will likely rise and managing those increases will be vital to maintaining profitability.
Being aware of the new omnichannel marketplace will also be an important factor so companies and products are relevant to a variety of consumers who use multiple channels to buy their food products. Food and beverage processors will have to be fluent in this new language, actually multiple languages, dealing with new means of distribution and sales.
It will also be vital to be aware of any regulatory changes, such as those being implemented through the Food Safety Modernization Act.
Richard: With strong overall economic growth, low unemployment and rising wages, both retail and foodservice operations should do well for both topline (food businesses have the ability to pass on inflation in higher prices in good economic times) and bottom line, and I see commodity prices being tempered by surpluses and the current trade/tariff issues. I think most large food companies will finally see respectable increases in topline in the next year, and cost-cutting programs will have similar impact on profitability.
For retail products, the competition at the retailer level (store and on-line) will continue to accelerate. I see increased consolidation of retailers and retailer space, and expansion of online selling (whether shipped, or store to door). This competition may force some price/margin concessions from large manufacturers.
I see the biggest issue in the short term as the talent war. After a long period of recovery, demand for skilled employees is outstripping supply and there is a significant issue for many businesses around getting skilled workers for manufacturing jobs, and top talent for management, especially since management, finance, marketing, and sales tend to move and compete across industries.
Everyone talks about disruption. I would rather refer to it as innovation. What is causing it and with the crystal ball you have on your desk, what is something you see coming down the pike?
Richard: F&B in the US is a saturated market, although beginning to fragment – especially because of the connectivity and direct sourcing models provided by mobile/internet. So the F&B industry will continue to segment, by age and income (as in the past), but now also by geography. More local, regional and small/direct ship companies will gain a foothold in the market.
My prediction for innovation (in 5-10 years) is that the selling and distribution models will change, not so much the food. This will include much more direct selling from small/regional players, an increase in out-of-home food purchases, an increase in premium segment offerings and especially, direct delivery of prepared meals. This won’t be the result of one technical innovation or company’s actions, but a slow change in how consumers obtain their meals and meal components.
Brian: I believe we are in the midst of the most innovative and disruptive period the food industry has ever experienced. Consumers have the ability to access any type of product from virtually anywhere on the globe without leaving their home.
And I think down the road we have to deal with a bifurcated consumer population who will demand convenience, but also wants products and meals that meet their own specifications. This will go beyond the refrigerated prepared food cases supermarkets offer now and simply ordering meal kits online. At some point, the process will become more personalized for each consumer so they can have exactly what they want in the format they want: to prepare themselves, partially prepared, fully prepared, frozen, etc.
That’s a deep dive into the crystal ball, however that will take a melding of technology, food safety, and logistics.
Bob: A combination of the ongoing trends of better-for-you, sustainability and convenience will drive disruption/innovation. Having said that, the latter two often are at odds with one another and the first is often asked for by consumers for some products, though they’re willing to make exceptions for long-standing favorites.
With all of this optimism in our study, what can companies improve on to continue the success they are having?
Bob: Since much of AFI’s work focuses on compliance, I’ll go there. Companies need to spend the resources to ensure they are in compliance with regulations. One food safety issue, for example, can set a company back several years, or perhaps even cause its demise, and one regulatory issue can wipe out the profit made on many other successful entries or production cycles.
Richard: “Digitize” and automate all possible processes. Growth (competitive advantage) and profit will come from the value adds of efficiency and convenience, to creating, manufacturing, marketing and delivering the food and beverage products. While there will be some disruption in the types of foods people consume, the highest value will be in taking advantage of the efficiencies and speed available in robotics, IOT, AI, and automation.
Brian: Don’t be complacent and to be ready to change as needed to meet the demands of the consumer and the marketplace. Also embrace innovation, but make sure the numbers work to keep a positive bottom line.
Information is key in that effort, from your own people to being informed about the industry…your customers, your competitors and your partners.