Every year brings challenges for the food and beverage industry, and 2017 did not disappoint.
From the surprises – some pleasant and some not so pleasant – of the Trump presidency to acquisitions to new CEOs at some of the largest companies, change remained a constant in this business.
At least no significant food and beverage company declared bankruptcy this year, to our knowledge. That's remarkable.
In the midst of all this, the biggest companies grappled with how to revive top-line growth. Their sales have been on the decline for two or three years. For most, the answer was to buy emerging companies with squeaky-clean images in promising categories. Some big companies merely made investments in smaller companies: Starting your own venture capital fund became quite the trendy thing to do for many. Outside of the processed/packaged food circle, a popular spot for some of those investments was in meal delivery companies – most of which are still looking to turn their first profit.
Kind of a reverse of that thinking was the blockbuster, $13.7 billion acquisition of Whole Foods by Amazon. Although its full impact hasn't yet been felt, its intersection of organic foods, home delivery and e-commerce has all the major food & beverage companies nervous.
There's always been churn at the top of food companies, but this much structural change seems to have sped up the revolving door. Whether longtime, "traditional" food CEOs were tired of all this change or their companies grew tired of them, there were new top names at:
- Tyson Foods: Tom Hayes replaced Donnie Smith as CEO.
- Coca-Cola: James Quincey took the CEO job from Muhtar Kent, who remains chairman. J. Alexander (Sandy) Douglas, longtime president of Coca-Cola's North American unit, is retiring, to be replaced by James Dinkins.
- General Mills: Jeff Harmening replaced Ken Powell as CEO and will take his chairman job when he retires on Dec. 31.
- Mondelez: Dirk Van de Put replaces retiring Irene Rosenfeld, who created the company out of Kraft Foods.
- McCain Foods: As a result of the above, Max Koeune fills the void left by Van de Put's departure.
- Kellogg: Steve Cahillane replaces John Bryant as CEO.
- Hershey: Michele Buck takes over as CEO from J.P. Bilbrey.
- Weston Foods: Luc Mongeau is named CEO.
- AdvancePierre Foods: Chris Sliva left TreeHouse to become CEO, replacing John Simons…only to assist in selling the company to Tyson.
- Snyder's-Lance: Carl Lee Jr. left suddenly, unexplicably; Brian Driscoll was named CEO after acting in that role for a few months.
- Blue Bell Creameries: After recovering from a nasty 2015 listeria incident, Ricky Dickson became the first non-Kruse family member to lead the company, replacing Paul Kruse.
Aside from that Amazon-Whole Foods deal, there were no real blockbuster mergers or acquisitions during 2017. As noted above, Tyson bought AdvancePierre for $4.2 billion. Danone completed its 2016 acquisition of WhiteWave for $12.5 billion, subsequently renaming its North American business DanoneWave and also selling Stonyfield Farm to Lactalis to satisfy antitrust concerns. Post Holdings, as usual, was acquisitive, paying $1.76 billion for mostly British Weetabix and then $1.5 billion for the manufacturing business of Bob Evans. McCormick won a bidding war for Reckitt-Benckiser's food business, which includes Frank's Red Hot Sauce, French's mustard and Cattlemen's barbecue sauce.
First Campbell Soup, then Nestle USA announced they would leave Grocery Manufacturers Assn. over philosophical differences (both exiting at the end of this year).
In addition to enacting the final chapters of the Food Safety Modernization Act (see section far below), the FDA indicated it may finally create a regulatory definition of "healthy"; at least the agency started taking comments on the subject. The food safety agency also indicated it may revoke the health claim connecting soy with heart health.
In other regulatory news: The Trump Administration and its food agency appointees are delaying the revised Nutrition Facts panel from a mid-2018 effective date to January 2020. USDA rescinded stepped-up School Lunch Program rules that would have required the use of whole grains and fat-free/white-only milk plus a second round of sodium reductions. The Agriculture Dept. also is falling behind in creating the details of a GMO labeling law that was supposed to take effect in 2018. While no official date has been announced, all food companies are aware that implementation will not take effect next summer. FDA announced at least a one-year delay in requiring restaurant menus to display calories.
Product Development: Cleaner, clearer
The product development side of the business also has seen great change, as food companies worked toward using fewer and simpler ingredients and alternatives to conventional sweeteners, animal proteins, sodium, cow's milk and the like.
Carry-overs from previous years include eliminating artificial colors, artificial flavors, high-fructose corn syrup, added sugars and partially hydrogenated oils, to name a few, reflecting the impact of updated regulations and the laser focus on healthier, clean, free-from ingredients and macronutrients.
America is recalibrating its collective eating habits and overall diet. Thus, product development efforts in 2017 reflected consumers' healthier lifestyle trends and demands for transparency and full disclosure. Transparency is now a given if food and beverage companies want to earn trust from consumers. We heard the following phrase so many times, it's memorized: Consumers want to know where their food comes from.
The definition of transparency is evolving, and can be different for manufacturers and consumers. Yet reformulating or developing new products with healthier ingredients and cleaner labels can be a complex process. It often involves removing or replacing highly functional ingredients for specific purposes, to simplify labels and meet more rigorous demands for nutrition, function and taste.
Cleaner, clearer functional ingredients, plant-based proteins, vegan and allergen-free/free-from foods and healthier fats and oils are replacing suspect ingredients. Wellness foods, such as those for bones, the brain, heart and digestive system, and those specifically targeting men, women and children, are also in great demand. However, taste is still king, Texture and mouthfeel also remain important.
The non-GMO labeling issue remained a critical one for food in 2017. According to Mintel's Global New Products Database, non-GMO label claims have grown the most of all label claims, with 15.7 percent of new products launched in 2015 making non-GMO claims versus 10.2 percent in 2014 and 2.8 percent in 2012.
Other factors have entered into the picture:
- With a separate added sugar listing and other changes on the updated Nutrition Facts panels, there's increased pressure to reduce added sugars and perhaps to reformulate certain products before the extended compliance deadline of January 2020. Along with stevia and monk fruit, a host of more natural and organic sweeteners are being developed to maintain the right sweet taste plus functional performance, some with calories and some without, such as agave, lucuma, monatin, sweet potato, allulose and coconut sugar.
- Exotic herbs, ethnic ingredients, condiments, spices and bolder flavors are gaining traction in new products as international and regional and global cuisines become more prevalent.
- Reducing salt in many foods is challenging but necessary. Replacing sodium in meat, soups, sauces and other products must be done carefully; in many cases, "natural" products such as vinegars, spices and herbs help enhance flavors.
- We're snacking more, and more often. Both semi-indulgent and healthful snacks (including new jerky and meat snacks) and mini meals are occurring across the day, and require portability, convenience and sustenance to keep us on the go. That's a tall order for formulators, but they're making strides replacing unhealthy fat, sodium and sugar while boosting whole grains, fiber, fruits and vegetables, healthy fats and "good" carbohydrates.
- Health concerns about artificial ingredients and preservatives are driving the use of simpler, preservative-free colors and flavors. Colorant and flavor suppliers are tapping fruits, vegetables and other natural sources for ingredients.
- Pulses are still popular, thanks to their support of weight and blood sugar management and heart health. Low-fat and packed with protein, fiber, vitamins and minerals, they're grabbing the spotlight in main courses, smoothies, sides and snacks.
- Plant-based diets and interest in plant protein ingredients are sprouting new product launches.
- Product developers are tapping into trends like customization, vegan offerings, artisanal, provenance, locally sourced and authentically made.
- Interaction on social media platforms, including Twitter, Facebook, Instagram, Pinterest, etc., is critical to stay in the game and keep tabs on the competition. More consumers are actively engaged in social media, so the spread of information (and misinformation) will only grow in volume and speed; food companies need to prepare their brands to react accordingly and efficiently.
As consumers change the way they eat and engage with food, food companies will likely enjoy a tremendous upside to promoting premium benefits and healthful, value-added ingredients to attract purchases.
Plant Ops: FSMA's final act
Sanitary design has emerged as a major, and quite possibly, the main consideration when purchasing new or replacement equipment for food and beverage production facilities.
Translating words into actions has profound implications, and that’s where the food industry found itself beginning in September 2016.
That’s when the preventive controls for human food under the Food Safety Modernization Act went into effect for companies with 500 or more employees. An even larger wave in terms of the number of food and beverage processors were required to comply with FSMA beginning in September 2017. Only organizations with less than $2.5 million in annual sales are beyond the preventive controls rules now, and those firms must comply by September 2018.
FSMA became the law of the food land in January 2011, though it took more than four years for FDA to promulgate the preventive controls regulations. Translating external rules into internal actions has, understandably, caused a last-minute scramble. As one company leader put it, “Technically, it’s in place; practically, we’re working on it.”
Altering work practices is the biggest change, and that has triggered extensive training, beginning with certification programs for staffers designated as preventive controls qualified individuals (PCQI) within the organization. It also has put sanitary design of equipment front and center in capital-project considerations.
Sanitary design standards for food processing equipment date back almost a century, although most were advisory-only and not a serious consideration for equipment manufacturers outside the dairy segment – that is, until 2002, when the American Meat Institute adopted 10 guidance principles.
While that locked up the dairy, meat and poultry segments, OEMs outside those food categories increasingly considered cleanability when designing equipment. End-user demands for equipment engineered to be cleanable to a microbiological level took on urgency with passage of FSMA. Processors now can specify various levels of sanitary design when purchasing new machinery, weighing need, cleaning and sanitizing downtime and other factors.
The quickening pace of automation puts even greater importance on machine designs that lessen food-safety risks. Some manufacturers are making a conscious effort to replace manual functions with machines, less for labor-cost savings than as a food safety consideration. They have identified humans as a contamination vector. Machines with robotic motion are rising to prominence in part because of their ability to emulate human motion, at least the less intricate motions.
FSMA forces manufacturers to reassess their processes in terms of microbiological risk, as well as chemical, allergenic and other contaminants. That in turn has created demand for additional interventions, in particular technologies that are compatible with consumer demand for minimal processing. Thus, high-pressure processing (HPP) moved to the fore in the past year.
There has been a rapid expansion of HPP presses throughout North America. For start-ups, early-stage and smaller manufacturers, HPP and other nonthermal technologies are cost-prohibitive. As a result, tolling centers are being established, spreading from a few geographically dispersed locations to virtually every region.
A key objective in crafting FSMA regulations was the involvement of senior management in food defense. Instead of after-the-fact remedies—notably recalls—ownership must do all in its power to prevent products with compromised safety from leaving the plant and, to some extent, entering the facility in the first place.
Executing the safety plan largely falls to the plant operations team. Capital budgets are finite, and staff training is the logical starting point for FSMA compliance, but as they purchase new and replacement equipment and components, operations personnel are keeping food safety considerations top of mind.