The US food and beverage industry anticipates continued sales growth in 2014 on the heels of strong performances the past two years, according to the second annual "US Food & Beverage Industry Study" from accounting, tax and advisory services firm WeiserMazars.
Average food and beverage sales increased 13% from 2012 to 2013, with 17% growth in average net profits, according to the survey. And despite increases in labor costs and commodity prices (4% each), 2014 will mark a period of growth resulting from a large boost in sales.
WeiserMazars’ annual survey (jointly released with The Food Institute, AFI and Stagnito Business Information) examines how food and beverage firms are adapting to changing consumer trends, proposed government regulations, new companies entering the field, and new product and service offerings. Participants included manufacturers and wholesalers/distributors representing annual sales volumes from $10 million or less to more than $100 million. (See complete results here. )
According to the survey, the most important industry factors influencing sales growth in 2014 will be new customers (39%), followed by improved sales performance (21%) and new products (17%).
“It’s interesting that survey respondents mentioned new customers driving sales growth because it makes for tougher competition in the marketplace—everybody is fighting to get new customers,” Louis Biscotti, partner and national director of WeiserMazars’ Food & Beverage Practice, told FoodNavigator-USA, adding that profit per customer is an even more important metric than sales per customer. “We advise companies to look at the type of customer base they have and even rate them. But most importantly, they need to do a customer profitability analysis, looking at profit per customer specifically. What I mean by that is, let’s say you have a $2 million customer but the distribution costs are eating you up. Guess what? You’re not making a lot of money on that customer.”
Analyze and rate each customer individually
Biscotti noted that food and beverage companies need to be far more granular in their analysis, approaching each customer individually. “They need to analyze each customer and find out what percentage of the customer’s products do we currently deliver and how do we increase that? Then they can build their plan from there,” he said, noting that data analytics should be a key part of that. “Studies have indicated that 50% of companies use data analytics to develop their sales strategy.”
One area that surprised Biscotti in its minimal influence on sales growth (at just 5%) is mergers and acquisitions. “I was very surprised in the survey that acquisitions only accounted for 5% of sales growth. Food and beverage companies’ multiples are at their highest level since 2008; it’s a borrower’s market. There’s tremendous capital available, and private equity companies are investing more and more in the space. People should be really looking at acquisitions as a major driver of sales growth.”
The hourglass effect
Health and wellness remains a strong proposition for new and existing products. Indeed, 31% of survey respondents said healthy and nutritious foods impacted 2013 sales, followed by private label (22%), organic (14%), and locally grown/produced foods (13%). Although only 12% of respondents said ethnic foods drove sales last year, Biscotti noted that the category is one to watch, particularly as 17% of the US population will be Hispanic by 2020. And while it didn’t make the list, snacking—which now accounts for 20% of all meal occasions—will also likely be a key sales driver in coming years, he noted.
Biscotti characterized the current state of the consumer market as “the hourglass effect”. Sales growth in the food and beverage market is being dually driven by cost-conscious and more premium demands—which respectively make up the wider bottom and top sections of the so-called hourglass.
“On the lower end of the hourglass, you have products like private label that appeal to more frugal consumers”—a group comprising the growing Baby Boomer set (with 10,000 hitting age 65 each week), as well as the roughly 50% of Americans who earn less than $45,000 per year. “For these groups, food cost is a major component of every budget, and private label is really driving that category,” he said.
At the top end, the premium platforms such as health and wellness, locally grown and organic are growing in popularity among segments such as Millennials, who are projected to account for 19% of the US population by 2020 (and an even bigger slice of purchasing power).
“These consumers are willing to pay a premium and travel to specialized stores to get those products,” Biscotti said. They're also more educated than ever, "reading labels much more" as a result, he added. "Those consumers are looking for these premium indicators on product packaging. That’s another area that companies can drive sales."
Indeed, according to Biscotti, supermarket sales growth is currently most promising for such products as fresh meat, produce, vitamins, water, coffee, dips, spreads and snacks.
Declining center store = the narrow middle of the hourglass
So what's in the skinny middle section of the hourglass? It's currently inhabited by the likes of canned goods, milk, white bread, carbonated beverages and frozen foods—all declining products found in the center aisle of the store, Biscotti said. "It's where you definitely don't want to be," he added.
He then listed eight characteristics that build value in a food or beverage company: 1. strong brand; 2. high margins; 3. unique products; 4. scalability; 5. sustainability of products ("if it’s a fad, you're going to be in trouble); 6. strong management team; 7. velocity ("how quickly can you increase sales and get to a higher level?"); and finally, 8. taste ("you've got to have good taste, or else the rest of this doesn’t count!").
Employment poised to rise
Elsewhere, more than half (54%) of companies surveyed said they plan to increase employment, which Biscotti said is helped by a fairly stable labor market and strong sales for food and beverage firms.
“What’s happening in the marketplace right now is we have a pretty stable labor force—people aren’t leaving their jobs because they’re afraid to leave jobs,” he said. “But there are still a lot of unemployed people. Because people aren’t jumping jobs and there’s plenty of available talent out there, that, coupled with the increase in sales and growth of companies will drive better employment. It’s a good labor market for food and beverage right now.”
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