A Real Economy publication

Food and beverage industry outlook

Jun 28, 2024

Food and beverage industry outlook: Key takeaways

Food and beverage businesses face profitability challenges due to elevated input costs, consumer price sensitivity and the high cost of capital.

Priorities include a robust data strategy, operational transparency and advanced functional analytics to meet growing regulatory and reporting responsibilities.

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Driving up sales volume will be key to offsetting an environment of lower pricing that spills into 2024.

Food and beverage sector trend #1: Compliance catalyst for change and growth for food and beverage companies

Food and beverage industry facing multitude of challenges

In 2023, middle market food and beverage businesses faced significant profitability challenges due to persistent high input costs, consumer sensitivity to price increases, and the high cost of capital. While hopes for relief through interest rate cuts exist, sticky inflation has kept the Federal Reserve patient with its rate hikes. Despite these hurdles, businesses are encouraged to invest in infrastructure for long-term value through cost efficiency and growth.

Key investments include enhancing customer engagement platforms, streamlining supply chain operations, and automating business processes. Additionally, the increasing regulatory and reporting requirements emphasize the need for robust data strategies, operational transparency, and advanced analytics. Escalating labor costs and supply shortages, such as those affecting cocoa, milk, and eggs, further strain the sector. Concurrently, consumers are increasingly focused on value, often opting for alternatives over accepting price hikes.

Compliance requirements are intensifying, with new mandates from the FDA and SEC, including climate-related disclosures and food safety documentation. Implementing comprehensive data strategies can transform compliance from a burden into an opportunity for growth, improving efficiency and stakeholder confidence. Embracing these changes can position businesses as industry leaders ready to seize future opportunities.

Food and beverage sector trend #2: Infrastructure investments are key for growth

Adapting to shifting consumer trends

The landscape for middle market food and beverage companies has dramatically shifted since the pre-pandemic era, with rising costs, inflation, and changing consumer preferences presenting significant challenges. Despite these obstacles, infrastructure investment remains crucial for driving sales growth and operational efficiency in 2024. While companies were able to pass some increased costs onto consumers during the pandemic, rising price elasticity now poses a challenge, necessitating a focus on volume growth through enhanced promotional activity and digital presence.

Consumer spending growth has moderated due to inflation, impacting both on-premises and off-premises food consumption. Discretionary spending, including dining out, is being scrutinized more closely by households, leading to reduced demand for food and beverage products. Additionally, supply chain disruptions caused by climate-related issues and geopolitical tensions further complicate forecasting and operational efficiency.

To counter these challenges, companies are investing in automation and data strategies to optimize supply chains, forecast demand accurately, and engage customers more effectively. 

RSM contributors

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