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Risk

Food safety and cybersecurity are core issues

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Unlike the output generated from most other industries, food and beverage products are meant to be consumed. While that simple truth has always represented a bit of a risk for manufacturers and distributors, well-publicized food recalls and contamination incidents―along with a sharp increase in international shipping of perishables such as fruits, vegetables and seafood―have raised public concern over general food safety practices. In a recent poll, more than 70 percent of Americans expressed concerns about the safety of commercially produced food and beverages, with four in 10 saying they made dietary changes due to perceived food safety issues.7 Globally, the World Health Organization estimates that 600 million people are sickened each year due to food-related contamination.8

The assurance of food safety compliance―in areas such as sourcing, processing, packaging, quality control and inventory management―comes with a price. While 40 percent of food and beverage leaders say they are concerned about those costs, a closer look shows big differences of opinion between U.S. and international executives. In fact, 45 percent of non-U.S. food and beverage companies worry about food safety compliance costs, substantially higher than the 30 percent of U.S. executives who share that view. On the other hand, 35 percent of all leaders in the Monitor poll express concerns about the potential reputational damage from a negative food safety event, and a similar percentage worry about the loss of revenue from such an incident.

    

Surprisingly frequent cyberattacks

While retail and financial services businesses have received the brunt of negative media coverage for cyber intrusions, a recent international study revealed that food and beverage companies were among those most likely to be on the receiving end of a malicious data breach. Point-of-service attacks accounted for three-fourths of all intrusion attempts at grocery stores, restaurants and other retail food outposts, where hackers sought to steal credit card information. The remaining cyber incidents on food and beverage companies were defined as attacks on corporate or internal networks.9

In the Monitor survey, one-third of executives say that unauthorized users have accessed internal data or systems, or acknowledge they don’t know if such events may have occurred. In response to potential threats, 39 percent of middle market companies have enhanced their employee security protocols, and a third have either hardened employee password security procedures or hired data security consultants for advice on additional risk management steps.

Worries over currency values, local competition

Both the U.S. and global economies have delivered slow-but-steady growth in recent years. However, political turmoil, flattening productivity and increasingly expensive asset prices in real estate and stock markets have raised the specter of when another recession may occur. In fact, the World Bank reported that last year’s growth in global gross domestic product was the weakest since the Great Recession. In 2017, the bank’s forecast of 1.8 percent growth for advanced global economies is largely dependent on whether the U.S. government can deliver promised tax cuts and public infrastructure investments while avoiding protectionist policies that could roil international trade.10

The potential for economic downturn is clearly on the minds of food and beverage leaders, as 46 percent of those surveyed view it as a potential near-term growth barrier. Those Monitor findings were tightly correlated across both geography and revenue sectors, suggesting that executives are wary about how an economic downturn could cause consumers to scale back the growth in discretionary or upscale food and beverage spending seen in recent years.

Currency fluctuations are viewed as a significant or modest growth risk by 47 percent of all food and beverage companies, with a slightly elevated level of concern among non-U.S. executives, presumably due to the continued strength of the U.S. dollar against most other global currencies. And, 48 percent of food and beverage leaders say the threat of domestic competition is a potential market-related risk over the next 12 months.  

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What this means

Food and beverage companies are highly visible with consumers. For that reason, extra attention to reducing the threat of known risks is vital to help maintain brand integrity and public trust.

Harden systems against intrusions. Despite one-third of food and beverage leaders who say their middle market companies had unauthorized cyber intrusions―or weren’t sure if such an event had occurred―the Monitor survey shows a surprising range of missed risk management opportunities. For example:

  • Just 16 percent of companies created a post-breach response plan after a cyberattack.
  • Only 12 percent authorized system penetration testing to gauge firewall effectiveness.
  • A mere 6 percent invested in forensic analysis of a previous breach.

These are easily correctable lapses that can greatly reduce the risk of cyberattacks and successful system intrusions.  

Plan for business risk. When the Great Recession took place in 2008-09, consumers dramatically hauled back on all but essential spending. In response, food and beverage companies boosted marketing of value products such as grocery staples, store brands and bulk items, which helped stabilize revenue during that time. While health, wellness and other trends have recently fueled revenue growth, leaders need to constantly evaluate broader economic and consumer activity to help manage future product mix and revenue risks. 

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7Ibid
8“WHO’s First Ever Global Estimates of Foodborne Diseases Find Children Under 5 Account for Almost One-Third of Deaths” (December 3, 2015), World Health Organization
9“2016 Trustwave Global Security Report” (2016), Trustwave
10Elliott, L., “Trump and Brexit Put Global Economic Growth at Risk, World Bank Says” (January 10, 2017), The Guardian