Consumers have retained a cost-conscious mentality despite improving economic conditions.
Key takeaways
Technology and process improvements will provide long-run benefits but pose financial challenges.
Businesses that invested in premium and natural products initially saw success but now feel rising cost pressures.
Food and beverage sector trend #1: The rise of AI and data-driven technology
Data-driven strategies spur innovation, efficiencies for food and beverage
Data-driven strategies for food and beverage businesses are critical for survival as lingering elevated costs and promotional activity continue to challenge profitability.
Using AI, first party data to identify inventory trends
The food and beverage industry is grappling with economic uncertainty and persistent inflation, which have led to cost-conscious consumers seeking affordable options. While the Federal Reserve's efforts to curb inflation are making progress, food prices remain elevated. Consumers are turning to private label products and cheaper retail options like dollar stores, even those with higher incomes, to manage costs. Although nominal spending on food has increased, real spending has been declining. Big-box retailers are considering price reductions, impacting suppliers' profitability. Labor and logistics costs have risen, and retailers are resorting to increased promotions to attract frugal consumers, though this strains profit margins.
Amid these challenges, the success of food companies hinges on adapting to shifting consumer preferences and establishing efficient operations. Artificial intelligence (AI) and data-driven strategies can optimize supply chains, forecast demand accurately, and identify trends promptly. AI can also personalize customer engagement, tailoring advertising and pricing. As Gen Z becomes a significant consumer demographic, companies must prepare to leverage AI-driven insights from shared personal data. Embracing innovation is crucial, even though it entails costs, to stay competitive and navigate the demands of price-conscious consumers.
Food and beverage sector trend #2: Economic headwinds pose a challenge
Declining consumer spending amid economic uncertainty
Inflation and economic headwinds continue to shrink consumer spending, particularly in the food and beverage industry, with consumers turning to store brands to save money. Food businesses that have invested in premium and natural products have initially seen success but are now feeling the pressure of rising costs.
Increased labor costs will likely be stickier and regulatory pressure is also mounting throughout the supply chain. Large food and beverage companies are demonstrating a focus on margin rather than market share, leaving an opportunity for smaller brands to gain market share by making a margin sacrifice to play to an increasingly cost-conscious consumer.
Premium offerings begin to show weakness in food and beverage sector
Economic headwinds result in pull-back of consumers' food and beverage spending.
Food and beverage sector faces economic challenges
From pricing challenges to innovation opportunities, what’s ahead for middle market food and beverage companies in 2023?
Adapting to inflation and other economic headwinds
Food and beverage businesses are bracing for challenges like lingering inflation, geopolitical issues, and a looming recession, contrasting with the pandemic's pantry-loading days. Price elasticity understanding will be crucial for executives to safeguard market share and margins as economic slowdown approaches.
Amid improving supply chains, increased shelf competition demands middle market companies to focus on innovation, value-driven consumer behaviors, and cost-effective nutrition. Adapting to changing preferences, fostering loyalty, and leveraging technological advancements will be pivotal in navigating these complex times.
RSM contributors
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Peter CadiganConsumer Products Senior Analyst -
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