What’s Ahead for the Food and Beverage Industry?
Retailers and others, emerging stronger from disruption, are looking to take advantage of the moment.
5 minute read
The coronavirus pandemic created surging demand for groceries and ongoing inventory challenges that changed, perhaps permanently, the way consumers buy what they eat and drink. After a year like no other, food and beverage producers, processors, distributors and retail businesses must now determine how best to position themselves for the future.
Here, Andreas Sambanis and Robyn Staggs, Bank of America Senior Relationship Managers based in the Chicago area and northwest Arkansas, respectively, discuss some of the most pressing opportunities and challenges facing the industry.
What are the most important trends shaping the food and beverage industry today?
While food and beverage preferences are always evolving, the pandemic sent change into overdrive, with shoppers turning to online food shopping, curbside pickup and delivery services. Companies adjusted and adapted. For example, with their vital restaurant business curtailed, many producers, processors and distributors pivoted to new markets in retail grocery and began supplying increasingly popular subscription meal services.
Now, as in-store shopping and restaurant dining return to normal, consumers who have experienced remote purchasing won’t want to turn back the clock on these newfound conveniences. They’re likely to look for expanded options for a mode of buying that has worked well for them. Another changing consumer preference is sustainability. At a time of greater focus on environmental and social justice issues, consumers are pushing for more detailed information on product sourcing, environmental impact and worker welfare. Tastes are evolving as well. While Italian food continues to be the top international food category, other options, especially Mexican, have surged in popularity.
With so many people dining at home, fruit and vegetable producers, grocery stores, snack manufacturers and beer, wine and liquor stores have been among the top-performing industries during the pandemic, according to Vertical IQ1. Brisk sales have left many companies with higher levels of cash to respond creatively to changing consumer preferences. Fuller coffers may also provide some cushion at a time when rising wages and a recovering economy are making it harder for food and beverage businesses, particularly retail groceries, to hire and pay the workers they need while maintaining their profit margins.
How are individual companies responding to these opportunities and challenges?
To attract and retain remote-minded customers, food and beverage companies have been using online partners to facilitate ordering and delivery and setting aside areas for curbside pickup.
“Rather than rely just on third-party apps that may lead consumers to competitors, some businesses are investing in their own branded apps to reinforce loyalty among their customers.”
Smaller retailers may not be able to compete with larger stores’ overall selection of goods, but many are using their local knowledge as a low-cost but highly effective way to solidify their position as the preferred store for their community. Smaller stores can win over customers by providing a greater variety of specific types of food favored locally, with a degree of flexibility that standardized, big-box retailers can’t achieve. Or they may cater to sustainability-minded customers by offering greater details on sourcing. For example, some companies are enlisting tracking and information technology that they normally use for inventory management to offer customers greater clarity on where and how items are sourced.
Some companies, meanwhile, see excess cash as an opportunity to make acquisitions that give them additional locations. In addition to growing the business, such purchases may also help manage the risk of inflation by transforming cash into real assets. On the other end of those transactions, smaller companies, especially those whose owners are nearing retirement, may find an opportune moment to sell.
As rising wages and a looming worker shortage cut into already slim margins for food and beverage businesses, particularly in the retail area, companies are using enterprise resource planning (ERP) software to help manage inventory with fewer workers. As other kinds of automation also help them slim their workforces, some companies are raising pay for the workers they do hire, and asking them to take on a wider range of roles. And while retail grocers and food and beverage distributors continue to face persistent supply chain disruptions, their efforts over the past year to expand their networks may already be helping, and could lead to long-term advantages. But as supply chains return to normal and larger grocers can again take advantage of bulk purchasing, smaller companies will likely need to prepare for further disruptions. Distributors who have shifted markets and grocery retailers who have been expanding their networks may find themselves adjusting once again.
How can companies prepare for what lies ahead?
For companies emerging from more than a year of dramatic change, now is a good time for a full review of long-term business strategies and goals. Many will start by looking at potential capital expenditures and access to credit as they consider using excess cash or seeking financing to invest in technology, acquire other businesses or forge new partnerships. Conversations with banking partners, insurance specialists and other experts can help ensure that companies are financially ready to compete in a transformed economy.
But owners can also use this time to consider the personal side of business, including estate planning and succession. Family-owned businesses may learn that the next generation is—or isn’t—interested in taking over. In either case, businesses can benefit by asking the questions and adapting to the answers. If the next generation isn’t interested, owners might begin to prepare the company for sale, a process that can take three to five years. Other options include using liquidity to finance the owners’ retirement or considering an ESOP (employee stock ownership plan).
“With the disruptions of the pandemic still on everyone’s mind, this can also be a good time to speak with bank advisors about having financing in place to navigate similar events in the future.”
Meanwhile, an industry that helps keep the country fed through all conditions can take solace in having emerged from this historic period in good shape, and with a promising future ahead.
Andreas Sambanis | Senior Relationship Manager | Bank of America
Robyn Staggs | Senior Relationship Manager | Bank of America
- Food & beverage
- Business continuity
- Markets & economy