2020 business trends for food and beverage companies

Jan 26, 2020

What are the top issues and opportunities trending for food and beverage companies in 2020? Our senior industry analysts shared their insights on several emerging topics in the industry.

Changing consumer preferences

While bold flavors and meal-replacing snacks are still at the forefront for food preferences, health and wellness, particularly in the form of immunity-boosting foods, are also on consumers’ minds. Consumers are looking for nutrition-packed foods. In addition, cannabis and cannabidiol or CBD-infused foods will be sought out by consumers seeking purported anti-inflammatory and anti-anxiety benefits. Plant-based meats in the form of burgers and chicken nuggets will also continue to rise in favor with consumers (see below for more on this topic), as well as dairy milk substitutes from almonds, soy beans, cashews, coconuts and more. Likewise, an increase in demand for healthier, quality frozen food products to accommodate changing lifestyles, particularly for the maturing millennial generation who are now balancing building a healthy family and career. In addition, the demand for transparency will continue to grow. Generation Z consumers, more than other generations, are “clean eaters” and have a strong interest in not only what a product is but how it is made and by whom. Transparency into how food is made and where will be key for food businesses. With today’s instant access to information, if consumers can’t understand or find out where and how a product is made and what’s in it, they’ll be more inclined to leave it behind in search of alternative products made by companies that have a genuine commitment to sustainability and improving the environment.

Plant- and cell-based disruption

Innovation will likely drive continued momentum of plant-based foods. Consumers are growing more comfortable consuming meat products that come from labs instead of farms, particularly after companies like Beyond Meat and Impossible Foods generated awareness with mass fast-food partnerships. This should allow new innovations into plant- and cell-based pork, chicken and fish to achieve even faster adoption. The growth in these categories will be accelerated by falling costs attributed to increased competition, improved manufacturing processes and lower logistics costs associated with wider adoption.  By some estimates, plant- and cell-based meats will achieve price parity with their animal counterparts within the decade. As Pat Brown, CEO of Impossible Foods, put it, “Unlike the cow, we get better at making meat every single day.” In addition, the dairy industry, which is already struggling, will continue to be disrupted as lab-produced dairy products like butter, cheese and yogurt can now be produced more easily through precision fermentation instead of traditional methods.  

Food safety, transparency and sustainability

As consumers demand to know more about the foods they eat, food safety is now costing the food and beverage industry billions each year. It will be more important than ever for the industry to pinpoint safety issues immediately; technologies like blockchain will continue to gain traction driven by both compliance demands from Walmart and consumers’ interest in transparency. Even companies that are not required to be on blockchain technologies will increase their awareness and knowledge about blockchain’s benefits across the entire food chain—from the grower to the manufacturer, distributors and beyond. Likewise, food companies will need to be mindful of waste reduction as consumers demand sustainable, transparent production and packaging in the products they purchase. Regenerative, upcycling, biodiverse and organic farming and food production will also continue to rise per consumer demand; speed-to-market, quality control and safety must all be a part of this process.

Rising costs and increased uncertainty

Food and beverage companies are facing growing uncertainty in the marketplace. Some food companies may look for smaller warehouses to manage supplies, but rising storage costs may be prohibitive. Other uncertainties include increased labor costs and tightening workforce challenges. Some companies are also facing issues with on-time delivery due to the ongoing truck driver shortage. Consumers and food retailers will absorb only so much of the cost so companies will have to look to new, innovative solutions to help control their costs and still grow.

Innovation and differentiation

With so many different products available for purchase in a multitude of channels—from in-store, farmer’s markets, online, social media and more—product innovation and differentiation will be important to middle market food and beverage companies. Large companies are already looking to emerging technologies for help with this. Creative solutions that meet consumer preferences around sustainability, like edible packaging, for instance, will be on the rise. Likewise, innovative ways to automate repetitive processes will also provide opportunities for businesses to improve production, back-office processes, supply management, fulfillment and delivery. In addition, using acquired consumer and business data for better business decision-making will be key as well as implementing a comprehensive digital strategy. Companies can look for funding help with many of these innovative efforts via credits and incentives like the federal research and development tax credit where qualifying businesses can realize a net benefit based on a percent of qualified annual research expenditures.

Mergers and acquisitions

On-trend food and beverage companies are still attractive to both private equity (PE) firms and large brands, however, it’s likely mergers and acquisitions size will be further reduced compared to 2019 activity. With valuations still very high, debt-heavy strategic buyers may be reluctant to make large, high-profile acquisitions. Many companies will look to spread their investments across smaller brand acquisitions to round out product and geographic portfolios versus investing in their own research and development to help save time and money, as well as reach new consumers. PE firms that have operated in the consumer brands space will need to adjust their strategy as well to look for deals further down market. Companies will even undertake acquisitions in segments that have better prospects such as salty snack food, snack bars, cookies and ready-to-eat meals, even if they’re outside their traditional business. 

RSM contributors

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