The 2019 outlook for the food and beverage sector remains cautiously optimistic; however, macroeconomic trends and public policy headwinds make it increasingly important for middle market companies to pay close attention to consumer preferences, while leveraging technology to drive process improvements and optimization.
Margin pressures remain front and center due to increases in transportation expenses, wages and tariffs. Vendors absorbed unanticipated costs in 2018, but we expect costs next year to transfer further down the supply chain. With unemployment hovering at record lows, tightening labor markets have reduced the supply of available truck drivers, increasing transportation costs and adding to distribution challenges such as on-time deliveries. The recent decline in oil prices and futures should provide some margin relief.
Consumer tastes remain a moving target. But big data, analytics and artificial intelligence offer more transparency for companies to target consumers in 2019. We expect to see continued growth in healthy foods and organics; at the same time, however, on-the-go offerings remain popular amid demand for products that reduce meal preparation time such as packaged foods. Consumers are more conscious of lowering their intakes of sugar rather than sodium, with demand for salty snacks increasing as high-sugar products such as confectioneries and soda, declining. For the first time, sales of bottled water surpassed soda due to the unexpected popularity of sparkling water. We expect to see more momentum and product diversification in 2019. The beer industry, for example, is developing alcoholic sparkling water and seeing an uptick in hard cider sales as an alternative to high-carb beer.
Technology played a large role in 2018, and will have an even greater impact in 2019. Although rising interest rates may slow down capital expenditures, it will be increasingly important for companies to strategize and prioritize technological investments to enhance and optimize cost efficiencies. Given the tight labor market and rising wages, we’ve seen more investment in robotics, process automation and enterprise resource planning.
Meanwhile, food safety will become increasingly important next year, as blockchain technology is deployed to improve traceability and transparency of an end-to-end supply chain. Tracing the origin of a product used to take weeks; now it takes a matter of seconds. Given the recent E coli outbreak in romaine lettuce, the FDA is set to place more emphasis on traceability of products to prevent further recalls.
Technology continues to be a differentiator. Businesses that understand their consumers, spend wisely and manage expenses will be well-positioned in 2019.