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There were a number of challenges that the food & beverage industry had to overcome in 2011: Sustainability, reductions in working capital, sluggish consumer spending, growing government regulations and food safety visibility. In a year in which “uncertainty was certain,” companies were focused on cost reduction and organizational improvements. What’s Ahead Food & beverage companies are now cautiously optimistic as they look to 2012. At Tompkins International we see 2012 bringing a number of trends that will emerge – some familiar and some new. Constraints of government regulations: There are a number of changes in US government regulations that food & beverage companies need to understand, prepare for and address in 2012:
All of these government mandated changes can add significant investment in time and money to comply.
Increased merger and acquisition activity: We expect to see an increase in mergers and acquisitions in 2012 within the food & beverage sector. Companies that focused on cost reduction and operational improvements in 2011 have come out of the recession stronger and with available cash. Financing, which was difficult to obtain over the last couple of years, is now readily available. Companies that struggled without focusing on improving their operations are good targets for takeover and likely can be obtained at a reduced price. All of these conditions will drive the number of acquisitions up over the norm of recent years. Private label products will continue to grow: From year to year, private label products have increased as a percentage of total food purchases. With a tightened economy, consumers have come to expect quality at a lower cost. Retailers seeing the trend will continue to push food producers for additional private label products as they react to their consumers’ needs. We see nothing that would slow down the growth of private label food sales in 2012. Demand-Driven Supply Chains (DDSC): Demand-driven supply chains allow for huge potential for better cost reduction and more satisfied customers. By reporting to each link in the supply chain what true and current demand exists in the market, an accurate response via increased inventory or more frequent deliveries keeps supply in tune with demand. These transformations are opening supply chains up to extraordinary benefits and major value creation. Focus on food safety: Food safety will continue as a hot topic in 2012. The need for consumers to feel that their food supply chains are safe will continue to drive food safety initiatives. Retailers and food producers understand the importance of quickly reacting to a recall to ensure their brands are not tarnished and to reduce the financial risk to their businesses. The Produce Traceability Initiative, along with other initiatives, will ensure food & beverage companies have the visibility to limit the risk. In China for China: More and more Western companies with operations in China are moving to serve markets within China itself. The country's emerging consumer market is being driven by a growing middle class that is purchasing food and beverage products. Local and global food and beverage companies are taking advantage of this new market and its huge growth potential. As with last year, 2012 will be a challenging year. The need for food & beverage companies to focus on cost reduction will continue to be important, as they deal with government involvement and commodity price increases. More internal resources will be put towards growth strategies as companies come out of survival mode. Capital and acquisition projects that may have been delayed through a struggling economy or lack of working capital will now be moved forward.
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Commodity costs will continue to rise: Commodity prices increased globally in 2011, and these increases are likely to continue for the next few years. Price increases can be attributed to a number of factors. The demand of food in emerging nations like China, India and Brazil was one factor, as was severe weather conditions and natural disasters that occurred across the globe. An increase in the conversion of the corn crop to ethanol production – which was a third of the crop in 2011 – was another reason. These contributing factors aren’t likely to be left behind in 2012, and companies will continue to feel the effects.