90% of food and beverage industry leaders expect sales growth, but will economic policy make a difference?
- For the third year straight, most food and beverage companies anticipate a significant increase in sales this year, according to the Mazars USA 2018 Food & Beverage Industry Study. Nine out of 10 survey respondents expect growth in sales this year, while 84% expect higher profit and 69% expect an increase in employment.
- The factors industry leaders said are most likely to influence sales growth include new customers, improved sales performance and new products. The top food trends predicted to drive sales growth are private label, healthy and nutritious, and organic.
- Those surveyed said their top internal business concern is increasing sales. Their largest external concerns include rising commodity costs, food safety and traceability, and quality assurance.
As food and beverage manufacturers struggle with slowing demand and rapidly changing consumer tastes, innovation — both through VC investment and acquisitions — is a major part of their 2018 business plans as a way to jump-start growth and give their companies a bigger stake in popular trends.
After the new corporate tax cuts went into effect on June 1, many companies in the food space with significant U.S. operations have had more cash supplies and are making additional investments. The Mazars survey indicated that 24% of companies say they are putting the extra cash toward investing in product innovation and new markets. This could include M&A, and many more deals could be waiting in the wings.
The major motivation behind product innovation is to grab a slice of the health and wellness space. Survey respondents ranked healthy and nutritious food as the top 2018 food trend, followed by private label and organic foods. There have already been a slew of new health and wellness products released this year. From mung-bean-based JUST Egg to Yoplait's low-sugar and high-protein YQ, companies are pulling out the stops to get consumers' attention. However, with hundreds of new products a year appearing on grocery store shelves, it will take a lot of investment on the part of manufacturers to ensure that their new products stand out and succeed in the long term.
At the same time, Trump era economic policy is consequential to many CPG companies. Despite increased cash flow for investment in innovation, food and beverage manufacturers using imported steel and aluminum may have to consider price increases or shifting to different types of packaging. But glass, cardboard and aseptic methods have their own costs and production considerations, so companies may need a financial analysis to figure out the best and most cost-effective way to proceed.
Similarly, U.S. manufacturers could be impacted even further by retaliatory tariffs from nations like China, Mexico and Canada, which could place U.S. bourbon distillers, pork producers, fresh produce growers and maple syrup farms at a distinct disadvantage. While the Trump administration has announced $12 billion in emergency aid for farmers, some in the business would prefer to have larger global markets.
Coupled with the sales slumps that companies are seeing across the spectrum, reality does not paint as rosy a picture as the survey predicts. If costs do go up and they are passed along to consumers, company profits may increase, but at what price? Consumers may opt to forego certain indulgent products in favor of a cheaper or less-packaged version that aligns with their beliefs and health needs.
Despite the tumult in companies stemming from White House policies, stock markets on the whole have not suffered. The overall growth in the economy may continue to produce surprises, and consumer demand and profits may grow in parallel with the expectations of the food and beverage industry.