Stay­ing fresh in the food and bev­er­age indus­try: Chal­lenges and opportunities

 The food and bev­er­age indus­try is huge, with esti­mates putting it at 10% of glob­al gross domes­tic prod­uct. This puts the turnover for food and bev­er­age com­pa­nies, which encom­pass­es agri­cul­ture and ani­mal hus­bandry to food pro­cess­ing, dis­tri­b­u­tion, retail­ing and food ser­vices (such as restau­rants), at about $5 tril­lion a year. 

Mar­ket demands are chang­ing. Some of the more preva­lent trends include: 

• Increas­ing demand for health and well­ness foods, par­tic­u­lar­ly in the form of immunity-boosting foods and drinks. 
• Growth in the sec­tors for organ­ic, non-genetically mod­i­fied, and veg­e­tar­i­an foods. (On the oth­er hand, there’s a ris­ing demand for meat in India.) 
• Reduc­tions in arti­fi­cial ingre­di­ents in favour of more nat­ur­al ingredients. 

• Reduc­tions in the con­sump­tion of processed meats, which has been linked to can­cer by the World Health Organization. 
• Reduc­tion of salt, sug­ar and hydro­genat­ed trans fats, which in some coun­tries is backed up by legislation. 
• Strength­en­ing push around the world for food and bev­er­age com­pa­nies to reduce the amount of plas­tic pack­ag­ing used. 
• Increas­ing demand for food safe­ty, trans­paren­cy, and sus­tain­abil­i­ty. As con­sumers demand to know more about the foods they eat, food geo­graph­i­cal ori­gins and safe­ty con­cerns are now cost­ing the indus­try bil­lions each year. 
• Increas­ing con­cerns about the income lev­els and sup­port for the pro­duce com­mu­ni­ties and envi­ron­ments, includ­ing issues such as water stewardship. 

• A surge in home deliv­ery ser­vices, catal­ysed by the covid pandemic. 

Whilst food and bev­er­age prod­uct port­fo­lios con­tin­ue to evolve, sourc­ing and pro­cure­ment issues are becom­ing increas­ing­ly impor­tant, man­u­fac­tur­ing assets must con­tin­ue to improve oper­a­tions man­age­ment, and the sell­ing func­tions must stay on top of the Fast-Moving Con­sumer Goods (FMCG) and home deliv­er­ies game. 

There are mul­ti­ple issues to address, here are just a few: 

Inno­va­tion  

With so many dif­fer­ent prod­ucts avail­able for pur­chase across a mul­ti­tude of chan­nels, prod­uct inno­va­tion and dif­fer­en­ti­a­tion will be increas­ing­ly impor­tant to middle-market food and bev­er­age com­pa­nies. For one, plant- and cell-based dis­rup­tion will con­tin­ue to increase. Demand for plant-based milk sub­sti­tutes has rock­et­ed recent­ly, and con­sumers are con­sum­ing more plant-based meat alter­na­tives – they are grow­ing more com­fort­able with the idea of meat com­ing from a lab instead of a farm. Many of the most sig­nif­i­cant inno­va­tions in recent years have come from start-up com­pa­nies. Whilst acquir­ing these com­pa­nies is one option, the need to accel­er­ate new prod­uct devel­op­ment and time to mar­ket is the more like­ly route. 

Cus­tomer Centricity 

With con­sumers becom­ing savvi­er, more informed and demand­ing for change, it’s no sur­prise that cus­tomer cen­tric­i­ty is now at the heart of every food and bev­er­age com­pa­ny. Com­pa­nies can bet­ter meet the demands of their tar­get mar­kets by tap­ping into cus­tomer insights like behav­iour­al seg­men­ta­tion and prod­uct pref­er­ences and cen­tring their inno­va­tion efforts around them. That does­n’t just mean the prod­uct itself, but also the end-to-end cus­tomer expe­ri­ence from shop­ping to eat­ing, to deliv­ery to the doorstep. 

Sourc­ing and procurement 

The 2013 Euro­pean horse meat scan­dal, where pro­duce adver­tised as beef fre­quent­ly con­tained large com­po­nents of oth­er meats such as horse meat and pork, caused con­sumer out­rage. It was one of many trig­gers for increas­ing proac­tiv­i­ty on the part of the consumer. 

Increas­ing­ly in West­ern mar­kets, com­pa­nies are being sued for pur­chas­ing and sell­ing pro­duce sourced from loca­tions that dis­re­gard envi­ron­men­tal, labour and food stan­dards. Get­ting to grips with your sup­ply chain and know­ing all the par­ties involved is no small task, and whilst com­plex, the risks of not doing so are significant. 

Oper­a­tions management 

With ris­ing costs and increased uncer­tain­ty, such as ris­ing stor­age costs, increas­ing labour costs and tight­en­ing work­force reg­u­la­tions, con­sumers and food retail­ers will only absorb only so much of the cost. So, com­pa­nies will have to look to new, inno­v­a­tive solu­tions to help con­trol their costs and still grow. This goes beyond adopt­ing the lat­est dig­i­tal solu­tions. There are still pro­duc­tion loss­es that can be linked to under­man­aged activ­i­ties, such as Mean Time To Repair when an asset suf­fers down­time or ensur­ing load­ing and/or speeds expec­ta­tions are being met. 

Dis­tri­b­u­tion, whole­sale, and retail 

For mod­ern trade out­lets, there is increas­ing trans­paren­cy on sup­ply and demand. How­ev­er, this infor­ma­tion is often not avail­able to the man­u­fac­tur­ers, and most of the world’s retail­ing are still in more con­ven­tion­al chan­nels. This means the abil­i­ty to keep track of what is on the shelves of the out­lets is a cru­cial com­pet­i­tive advantage. 

In the sit­u­a­tions where third par­ty dis­trib­u­tors inter­act with the out­lets, the FMCG com­pa­ny tends to lose touch with its retail base – the FMCG com­pa­ny starts to treat the dis­trib­u­tors as their end cus­tomers, not the retail­ers or cus­tomers. This is a very risky posi­tion as the dis­trib­u­tors gain a great deal of pow­er over the dis­tri­b­u­tion chan­nels. Whilst tech­no­log­i­cal solu­tions are avail­able to sup­port improved vis­i­bil­i­ty, near­ly all of them still require feet on the streets to super­vise effec­tive dis­tri­b­u­tion and mer­chan­dis­ing. Even when in place, adher­ence to best prac­tices can often be lack­ing. Still, dis­tri­b­u­tion chan­nels are com­press­ing. Man­u­fac­tur­ers are now deal­ing direct­ly with retail­ers, some­times even direct­ly with con­sumers through ecom­merce. In the West, to an extent, dis­trib­u­tors have been put out of business. 

Digi­ti­sa­tion 

As in oth­er sec­tors, food and bev­er­age busi­ness­es are look­ing for help in adopt­ing new tech­nolo­gies to improve their process­es and com­pet­i­tive­ness. Digi­ti­sa­tion in the food and bev­er­age indus­try is hav­ing a rad­i­cal effect at every stage in the val­ue chain, from sourc­ing, through pro­duc­tion and onwards into dis­tri­b­u­tion and sales: 

• Inter­net of Things (IoT). In 2018, there were sev­en bil­lion con­nect­ed devices. Two years lat­er in 2020, there are 20 bil­lion, exceed­ing all fore­casts. With 5G and satel­lite Inter­net access by Star­link and its com­peti­tors, the new IoT stan­dards could mean, in the­o­ry, that one can sense and track almost any­thing any­where on the sur­face of the plan­et. Giv­en that track­ing and trac­ing is one of the most impor­tant aspects of any food and bev­er­age com­pa­ny – increas­ing­ly on the sup­ply side – demand for IoT solu­tions will con­tin­ue to increase. 

• Meet­ing ever stricter reg­u­la­tions and stan­dards. It should come as no sur­prise that the indus­try is one of the most tight­ly reg­u­lat­ed. Using tech­nol­o­gy for the HACCP process (haz­ard analy­sis and crit­i­cal con­trol points) and main­tain­ing data­bas­es helps organ­i­sa­tions to mon­i­tor their val­ue chains with total vis­i­bil­i­ty and ensure com­pli­ance with food safe­ty standards. 
• ​​​​​​​Automa­tion. It is dif­fi­cult to dis­cuss where digi­ti­sa­tion in the Food and Bev­er­age indus­try is going with­out men­tion­ing automa­tion. For exam­ple, take process mon­i­tor­ing and pre­dic­tive main­te­nance: cheap remote IoT sen­sors can replace expen­sive hard-wired instru­men­ta­tion and sens­ing equip­ment in just any process. Con­se­quent­ly, the abil­i­ty to scale up pre­dic­tive main­te­nance eas­i­ly and sig­nif­i­cant­ly and thus reduce slow­downs and down­times is increased. 
• Using data bet­ter. Many busi­ness­es today do not ful­ly exploit the moun­tains of data they cur­rent­ly have to improve their oper­a­tions. Com­pa­nies are increas­ing­ly using soft­ware to estab­lish a trans­par­ent view of their val­ue chain, from sourc­ing to man­u­fac­tur­ing to dis­tri­b­u­tion. This makes decision-making a lot eas­i­er as busi­ness­es are bet­ter able to iden­ti­fy issues they couldn’t previously. 

The ques­tion is not whether food and bev­er­age com­pa­nies need fur­ther dig­i­tal trans­for­ma­tion, but whether they can imple­ment it suc­cess­ful­ly. A high per­cent­age of dig­i­tal trans­for­ma­tion efforts fail. Food and bev­er­age busi­ness­es that want to meet the demands of their con­sumers and leapfrog over their com­peti­tors can­not afford to be one of the fail­ures. To imple­ment suc­cess­ful­ly, com­pa­nies must ensure that the dig­i­tal trans­for­ma­tion con­tributes to com­pa­ny goals and strategy. 

Con­clu­sion 

In sum­ma­ry, the food and bev­er­age indus­try is fac­ing some unique chal­lenges in addi­tion to those in com­mon with oth­er indus­tries, with digi­ti­sa­tion on a fast upward trend that is unlike­ly to abate soon. On top of all this, more recent­ly, due to the pan­dem­ic, the sec­tor must also grap­ple with depressed agri­cul­tur­al out­put and dis­rupt­ed sup­ply chains. 

To sur­vive in a mar­ket with accel­er­at­ing change, exec­u­tives must make trans­for­ma­tion a pre­rog­a­tive and ensure that change ini­tia­tives suc­ceed. This doesn’t just mean change ini­tia­tives that bring about short-term gains. Instead, it’s crit­i­cal to embed a cul­ture of con­tin­u­ous change so that change becomes part of the com­pa­ny cul­ture rather than some­thing that hap­pens when a cri­sis loom.