Survey: Food and beverage firms bullish on sales and profits despite challenges
Recently surveyed food and beverage companies are optimistic about 2017 sales and profits, with most anticipating significant sales increases for the second consecutive year, according to a report from Mazars. Better 2017 sales were anticipated by 83% of the participants, the report noted, while 74% expected increased net profits.
The food and beverage companies surveyed indicated confidence that their sales will increase 21% this year compared to 2016, and they projected their net profits will rise by 16%. Respondents — drawn from more than 200 companies across the food and beverage industry — predicted growth based on current industry trends favoring both private label and healthy/nutritious foods.
Most survey participants were manufacturers and wholesalers/distributors, but the group also included restaurateurs and retailers/supermarkets.
While the food and beverage firms participating in the Mazars survey were optimistic about this year's sales and profits, they can't ignore ongoing disruption in the industry caused by mergers and acquisitions, consumers flexing their purchasing options, declining U.S. food prices, expected increases in the costs of goods and expenses to cover food safety requirements.
Louis Biscotti, global food and beverage practice leader for Mazar USA, and Brian Todd, president and CEO of The Food Institute, presented the survey results during a Sept. 7 webcast. They agreed mergers and acquisitions have become more important to large firms that have seen sales slump in recent years. Many companies are on the lookout for opportunities to buy into, and specialize in, a smaller segment of the market where they have a chance to expand.
Todd said the institute had tallied a 17% jump in M&A activity during the first half of this year.
"The big news this year is the Whole Foods/Amazon deal, which dominated the news, but it's certainly one deal out of many out there," he said. "Over the past five or six years, we've seen more activity in that area than anywhere else."
He cited Unilever's purchase of tea maker Pukka Herbs, Nestle's acquisition of plant-based foods manufacturer Sweet Earth, Tyson's purchase of AdvancePierre Foods, Post's acquisition of Weetabix, JAB Holdings buying Panera Bread Co. and Hershey's purchase of snack brand Krave Pure Foods.
"What I've seen as well is that larger companies used to only look at companies doing $100 million in sales or more in terms of acquisitions. Now they're looking at smaller firms," Biscotti noted.
Declining food prices also are a concern for food and beverage firms. Erratic weather patterns pose another challenge. "With agriculture, it's what Mother Nature has in store for us and that can change on a dime," he said. "Hurricane Harvey could have impacts on beef prices. With Hurricane Irma, we don't know exactly where that goes."
Online shopping and social media are other areas where food and beverage companies are keeping a wait-and-see attitude. Todd and Biscotti expect increased investment in developing new products, demand for healthier, all-natural and organic foods and beverages, and continued interest in more locally grown produce.
A final area of interest is the increased federal regulations mandated for the food and beverage industry by the Food Safety Modernization Act.
"With FSMA, companies are putting more on that front, and justifiably so, although the U.S. has had the safest food supply in the world," Todd said. "It's costly and we've only scratched the surface on that. Companies will be getting food safety people on staff and tracing food back to the source, which is what FDA will be requiring."
Despite the generally optimistic tone of the survey results, food and beverage companies can plan only so far when it comes to income and expenses. They have little to no control over other developments, which creates an inevitable degree of uncertainty.
As Biscotti put it, "The disruption in the marketplace is the greatest I've seen in my 30 years in the industry."