© 2018 RSM US LLP. All rights reserved.
New products, consumer trends and technologies drive opportunity
In business, it is often said that only the strong survive. But in the modern food and beverage environment, a more accurate take might be that strength comes from agility, and companies that don’t adapt quickly enough to changing trends, tastes and ways of engaging consumers may soon find themselves off the public’s preferred menu. This is especially true for large manufacturers of food and beverage staples that did well during the Great Recession, but who are now losing ground to smaller, more nimble competitors that are meeting consumer demand for more innovation, health and wellness options, and diverse e-commerce channels.
While 46 percent of all companies in the 2017 Monitor survey say they are thriving, a closer look shows a sharp difference between domestic and global operators. In fact, 54 percent of U.S.-based businesses in this industry say they are doing well, versus just 43 percent of respondents from Australia, Canada, China, Japan and Mexico. That rosier outlook may be connected to higher confidence in near-term sales, as 45 percent of U.S. food and beverage leaders believe revenue for their companies will increase by double-digits in the next year. That’s well above the 36 percent of global peers who share that view.
New product ideas, health trends fuel higher sales
The quest for fresh ideas is a top-of-mind reality for middle market food and beverage leaders, as evidenced by the 57 percent of executives in the Monitor survey who say their companies will introduce new products to grow sales in the next 12 months. This approach is often the great equalizer for nonglobal firms to gain visibility and market share. In fact, nearly two-thirds of all new food and beverage sales in 2016 were linked to products created by small or midsize companies.2
When smaller players demonstrate fast growth in a distinct market niche, they become an attractive acquisition target for large companies that want to add strategic components to their existing product portfolio. For example, Colorado-based White Wave Foods, a company specializing in plant-based foods and organic dairy products that went public via a $391 million IPO in 2012, leveraged a 19 percent compound annual growth rate into a $10.4 billion acquisition by French food conglomerate Danone earlier this year. This deal is a solid example of innovation by acquisition, since global food and beverage companies have lost an estimated $20 billion in sales to smaller competitors since 2011.3
If there’s one area where millennials, Generation X and baby boomers can find agreement, it’s on a united desire for food and beverage companies to bring more fresh, healthy and natural choices to market. As evidence of that push, a recent study reported that global food companies reformulated about 180,000 products in 2016 to meet changing preferences for healthy diets. That’s more than twice the reformulations reported by food and beverage companies just one year before.4 That activity helps explain why 52 percent of all respondents in the Monitor survey say that health and wellness trends are having a positive effect on recent sales.
Adapting to new online sales opportunities
Led by younger, digitally savvy consumers, online product research and purchasing is growing at a brisk pace. In the food and beverage industry, the most recent evidence of that trend was Amazon’s $13.7 billion purchase of Whole Foods Market earlier this year. While the success of such a venture can’t be fairly evaluated in the near-term, Amazon’s move reflects broader market research showing that about one-quarter of American consumers buy some food or grocery items online, with projections suggesting that level of engagement could rise to 70 percent by 2027.5 While most of western Europe has online food delivery rates comparable to the United States, increased availability of online technology in Asia, Latin America and the Middle East will enable food and beverage entrepreneurs to promote and grow delivery business in those key emerging markets.
In the Monitor survey, respondents say many traditional channels such as wholesalers (77 percent), retailers (75 percent) and distributors (71 percent) continue to be the most used and effective sales tools. That said, 81 percent of respondents report their companies have implemented―or soon will implement―social media channels to help drive sales growth. Similarly, 76 percent of leaders say e-commerce technologies are (or soon will be) in place to improve the buying experience. The growth of these forms of online engagement clearly demonstrates that food and beverage companies are adapting to shifts in consumer shopping habits and buying preferences.
1Agrawal, A.J., “3 Ways Technology is Changing the Food Industry” (January 23, 2016) Inc.
2“IRI Announces Most Successful Consumer Packaged Goods Brands of 2016” (April 3, 2017), IRI Worldwide
3“CPG Growth Leaders” (March 2017), IRI Worldwide
4Cheng, A., “Food Fight: CPG Firms, Retailers Race to Redesign Products” (March 16, 2017), EMarketer Retail
5Daniels, J., “Online Grocery Sales Set to Surge, Grabbing 20 percent of Market by 2025” (January 30, 2017), CNBC
6Singer, C., “Top 2017 Trends for Food and Beverage Industry Businesses” (January 11, 2017), RSM US LLP