The food and beverage sector is currently facing multiple challenges which include increasing costs through inflation, problems with supply chains along with changing trends and regulations. Our insight looks at the changing trends within the industry and the opportunities they may bring.
Addressing increasingly health conscious customers is a challenge for the sector. Products with a reduced fat and sugar content along with fewer preservatives and other additives are in demand. In addition to consumer demand governments are keen to target high sugar/fat content and will continue to introduce incentives for alternatives whilst increasing taxes on those products that are high in sugar and fat in an attempt to reduce demand.
This will require continued Research and Development (R&D) into new products to ensure that the products taste and quality is not compromised whilst trying to maintain costs. R&D tax credits could help with cashflow and all projects should be discussed with your advisor to see if they qualify. R&D does not mean men in white coats mixing chemicals, it is much broader and we have helped many businesses in the sector to maximise their R&D tax credit claims on a broad range of projects.
On a similar vein, there is an increase demand for meat alternatives, driven partly by health and partly from an increasing interest in protecting the planet. As well as requiring research and development, which may qualify for tax credits, we might see some grant funding in the future as the government is keen to reduce CO2 emissions.
The use of CO2 in the sector was also highlighted recently by shortages, and I wonder whether there will be shift away from reliance on it and a search for an alternative, again possibly something the government may look at in terms of grants and tax incentives.
The changing tastes and requirements of consumers also leads to new opportunities for businesses to start up and spin off from existing businesses, where they can then be nurtured and access specific funding. Although this brings challenges for cashflow and business planning, there are some good advisors out there along with experts in the sector and forums that can help you on this path. Crowe can help with forecasting, business planning and outsourcing initially to get your business up and running, and can also help with ensuring your systems and controls are fit for purpose from the start. Our Corporate Finance teams continue to be busy with the sale and reconstruction of the businesses along with helping our clients source appropriate financing.
Example - July 2021
Our Kent Corporate Finance team advised Elysian Capital on their acquisition of Deeside Cereals, a £35 million revenue own-label manufacturer of cereal and cereal bar products for UK supermarkets. Elysian simultaneously acquired Wholebake, a leading gluten-free snack manufacturer, with the aim of combining both businesses to utilise spare capacity and drive cross-sell opportunities. We carried out financial due diligence on Deeside Cereals, which focused on the commercial operating metrics of the business, providing an in-depth understanding of the recent performance of the individual products, in terms of volumes, pricing and production capacity to help Elysian and Wholebake management identify opportunities and develop the future strategy for the combined businesses.
Sustainability is also high on the agenda with a focus on waste reduction. I have seen several initiatives aimed at reducing waste and ensuring excess food and drink is put to good use including community-based schemes to help those who are struggling, with the threat of high inflation the demand for these schemes is likely to increase.
Packaging is another area being looked at with a focus on recycling and also the ability to pack, store and transport food and drink as cheaply and a sustainably as possible. This presents yet another opportunity for those conducting R&D in this area to consider whether they qualify for R&D tax credits. The industry is also looking at improving packaging to lengthen shelf lives thereby potentially reducing food waste by, for example, experimenting with different gases and anti-microbial packaging materials. The use of plastic in packaging is likely to attract the continued attention of governments who may use taxes to persuade the sector to find alternatives.
Technology is likely to play a key part in all these areas as well as helping with transparency and traceability, helping consumers gain confidence in what is in the product and where it has come from. Technology will ultimately allow people to access much more data from the packaging via bar codes, QR codes and near field technology.
People have also become more open to ordering online and this opens up opportunities for businesses in the sector to grow through different channels.
Conversely consumers are also looking to food and beverage as a way of ‘destressing’ after the prolonged issues caused by the pandemic. This can take the form of seeking out traditional comfort foods, especially those that are nostalgic and reminds them of happier times, or times when they were growing up. Also linked with the pandemic is pent up demand for those wishing to return to eating out and even food tourism. This will be welcomed by the hospitality sector.
With the likelihood of rising prices through inflation, coupled with shortages of certain products due to supply chain issues, we are likely to see consumers stocking up and therefore seeking out products with longer shelf lives. This will also be a challenge for the sector logistically ensuring that the right amount of product is produced and is in the right location to meet demand.
Therefore, the above trends are likely to be prevalent over the coming months and years and represent both a challenge and a number of opportunities for innovation in the sector.
Our team have been supporting businesses in the food and beverage sector for many years.
If you would like to talk about how Crowe can support your business with it’s ambitions, then please contact Darren Rigden.
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