Food and Beverage Market Consolidation Is Inevitable, Food and Beverage Market Expert Says
Food and beverage (F&B) producers, that until now have been absorbing higher costs, are set to increase their prices, points out the latest findings of Grant Thornton’s Food and Beverage International Business Report.
In many developed nations, household budgets are being squeezed by high unemployment, flat earnings growth and high inflation. Powerful supermarkets, trying to appeal to cash-strapped consumers, are exerting pressure on producers to keep prices low whilst maintaining their own margins.
Also, with increasing agricultural prices, so far F&B producers have struggled to maintain their profit margins. Unable to continue absorbing rising costs, 41 per cent of F&B businesses now expect to increase their prices Choclates and pralines in all are on display in a supermarket. over the next 12 months, compared to only 12 per cent a year ago.
“Producers Battling to Protect Margins”
According to Jim Menzies, Global F&B Industry Leader at Grant Thornton, “Most producers in this sector will be battling to protect margins. Focusing on cost savings and productivity gains must be a priority. But producers can only absorb so much in the way of increased costs. The levy looks set to be breached. F&B producers are now looking to push higher commodity prices up the chain, where ultimately the cost will be borne by the consumer.”
“Many F&B producers are also looking at mergers and acquisitions (M&As) in a sector that is ripe for consolidation. One in every five businesses is looking at M&A opportunities. A period of consolidation is inevitable. It will help deliver scale for greater efficiencies, and give businesses additional clout and flexibility in price negotiations with big retailers,” adds Menzies.
F&B Businesses Do Not Believe In Rising Profits
The report shows that F&B businesses do not think the inevitable price rises will necessarily translate into a rise in profits. According to the research, 62 per cent of businesses expect revenue to increase over the next year. However, only 43 per cent of businesses surveyed expect improved profits over the next 12 months.
“Despite a squeeze on profitability caused by high commodity prices, emerging consumer trends offer new revenue opportunities for businesses in the global F&B sector,” opines Menzies. “Conditions are tough, but F&B companies are cautiously optimistic about the year ahead. Inflation is rampant in many areas, and commodity prices remain high, but our report suggests that manufacturers and producers are looking to target specific groups of consumers in an attempt to boost their profits,” informs the expert from Grant Thornton.