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Small Business Loans 5 min read

Challenges Facing The Food And Beverage Industry In 2019

Access Finance
31 January 2019
Written by Access Finance
Handsome concentrated bearded waiter swiping credit card through the computer terminal in cafe

The food and beverage industry looks set for an exciting year in 2019. Consumer demands continue to change and innovation continues apace, presenting opportunities for businesses to respond, adapt, and succeed.

This article looks at key industry trends, and explores the challenges they present.

Last year we spotlighted the environment, Brexit, and health concerns as the main challenges facing the industry. This year all three remain on our list, along with a couple of new additions.

Many challenges we have identified revolve around the central themes of keeping up with a more educated and well-informed market, accommodating alternative diets, and keeping these developments affordable.

Health and wellness will continue to drive innovation

Consumers consider their health to be a factor when choosing foods, especially people in Generation X and Millennials, according to research by Food Dive. This translates to increased demand for ingredients like omega oils and probiotics, which imply health benefits even if the actual mechanisms are not fully understood by consumers.

Professional research into the health benefits of ingredients continues alongside this shifting consumer perception. Food Drink & Franchise World report that “as more scientific evidence mounts up in favour of gut-friendly foods, probiotics like kimchi, miso, kefir, and kombucha are set to become commonplace on our grocery shelves”.

Brands will respond to combined consumer and research pressure with updated products, and by incorporating new ingredients into their existing range. Expect to see omegas, probiotics, and other gut-friendly foods in new products as well as reformulations. Also look for healthier ingredients incorporated into familiar products like bread and pizza bases, where they provide a small health boost in a familiar context.

The challenge here is to tap into consumer demand for food that offers them the chance to look after their bones, brains, and body while they eat.

Traceable to origin

Consumers are also increasingly concerned about the provenance of their food, manifesting as higher demand for information about where their ingredients come from.

At one end of this spectrum are hyper-local supply chains: going back to our roots and using ingredients grown in the same country, county, or even neighbourhood. The appeal here is reduced air miles, and a general sense of participation in a greener route from field to fork.

At the other end of the spectrum are technological solutions like blockchain, whose use allows precision-tracking of every ingredient in a supply chain. This is a way for established global supply chains to keep up with the demands of increasingly discerning consumers.

Buzzwords for ingredients are another consumer-friendly way to address concerns about provenance. McDonalds' commitment to use only cage-free eggs by 2025 is an example of this, and can be interpreted as a bellwether for the willingness of big names in the industry to respond to consumer demands.

The challenge here is to be aware of consumer demands for clear information on the provenance of their food, and to make changes accordingly.

Meat-free continues to expand market share

"Almond milk and veggie burgers aren’t just for hippies anymore", say Bloomberg.

As a result of the shifting consumer mindset mentioned previously, increasing attention is being paid to the environmental and ethical aspects of animal products. This is reflected in buying habits: plant-based food sales were up 20% in 2018; and non-dairy milk sales are up by 9% versus a 6% drop for cows' milk.

It is more frequent nowadays for consumers to choose to eat less meat despite not identifying as strict vegetarians or vegans. As a result, brands are making attempts to reconcile these preferences with traditional products that are incompatible with such diets in their original formulation. Vegan-friendly baking kits are a prime example.

It also leads to more demand for - and choices of - meat substitutes. Or, as Will Schafer, the vice president of marketing at Beyond Meat has said: “consumers are looking for something that gives them the experience of meat without downsides.”

Again, this consideration is factoring into decision-making at the upper levels of the food and beverage industry. Paul Grimwood, chairman and CEO of Nestlé USA, said that “one of Nestlé’s strategic priorities is to build out our portfolio of vegetarian and flexitarian choices in line with modern health trends”.

The challenge here is keeping abreast of changing customer preferences for meat-free products, and incorporating this into business models.

Legalised it

Expect to see cannabinoid oil (CBD) in food and beverages thanks to it being recently legalised in the US. Although the oil has been legal in the UK for a while, the change in legal status in the USA is likely to lead to brand mergers and product innovation.

There are plenty of examples of this happening already. Molson Coors have joined with Hydropothecary Corp to release a cannabis-infused non-alcoholic drink for Canadian markets. Constellation Brands, a large drinks producer, bought a 9.9% stake in Canopy Growth Corporation, a Canadian cannabis producer. Blue Moon have announced a de-alcoholised cannabis-infused beer called Grainwave. We think this will continue.

There are health benefits attributed to CBD oil, but it also has strong novelty value and cultural capital thanks to its close relation to the smoked alternative. The challenge here will be taking advantage of the innovation, and tapping into the new seam of product development opportunities.

Brexit

"We won’t be able to get certain foods like bananas or tomatoes but it’s not like we won’t be able to eat." This quote from a Leave-backing former cabinet minister is not particularly reassuring rhetoric.

It comes from an article outlining how the amount of vegetables Britain imports rises to around 80% in April thanks to seasonality of crops, and drawing the conclusion that with Brexit scheduled for the end of March there is a significant chance of disruption to supply chains.

As well as potential seasonal interference, further disruption is likely to arise from changing tariffs and their implications on supply chains. Depending on how we leave the EU, different import agreements would be met. EU tariffs on non-EU WTO members are significantly higher than on other EU states, and with no deal the UK would revert back to WTO status. The potential tariff impact of this remains the same as we stated last year: 30% for sugar and confectionary, 20% on drinks and tobacco, 10% on fruit and veg. This could increase costs and reduce predictability throughout established supply chains.

The challenge here then is weathering the Brexit storm, regardless of how things play out. Responding to an increasingly ambiguous and desperate negotiation process in a meaningful way is a difficult necessity for business owners.

Last year we said that "the environmentally curve is a good one to be ahead of". This is a sentiment we stand by. A food and beverage industry that is healthier for consumers and the planet is a motivating vision to work toward. Political uncertainty will muddy the waters, but innovation and development will continue nonetheless.

Alternative finance remains a reliable way for your business to meet and overcome challenges facing the industry. Whether you want to fund product research and development, invest in new technology to modernise your supply chain, or anything else, we can work with you to find the right solution for your vision.

Get in touch. We look forward to helping you to succeed.

Originally published 31-Jan-2019 14:22:00, updated January 31 2019

Topics: Small Business Loans

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