2019 Food and Beverage Industry Outlook

From cultured meat to cannabis and trade wars to labeling changes, 2019 will brings new challenges for food and beverage processors.

By Dave Fusaro, Editor in Chief

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The final USDA-sanctioned symbols are less Pollyanna-like than the smiley-face and sunshine prototypes floated by the agency early last year. It will be interesting to see if the bioengineered declaration or the call-out of added sugars hurts the sales of any food or beverage product. We’ll be doing mid-year stories on both of those to see.

Cannabis and lab-grown meat

Did you ever think we’d be considering both of those things?

Ready or not, meat is being grown in petri dishes by an increasing number of biotech firms around the globe. And rather than beat ’em, a number of animal protein companies have joined them, in the sense that names like Tyson and Cargill are making equity investments in “cultured meat” companies.

The issue is serious enough and far enough along that USDA and FDA held joint public hearings in November. They decided FDA will oversee cell collection, cell banks and cell growth and differentiation – strong suits for an agency that also oversees drugs. A transition from FDA to USDA oversight will occur during the cell harvest stage. USDA will then oversee the production and labeling of food products derived from the cells of livestock and poultry.

“This regulatory framework will leverage both the FDA’s experience regulating cell-culture technology and living biosystems and the USDA’s expertise in regulating livestock and poultry products for human consumption,” they said.

While we’re on the subject of meat in air quotes, plant-based alternatives appear likely to continue their inroads. The Impossible Burger is showing up on many restaurant menus, often being touted in tabletop tents; even White Castle offers it as a substitute for a Slider.

According to Euromonitor, the analogue meat market grew by 22 percent last year, compared with 2 percent for processed meats. So it’s no surprise that Tyson Foods also spent some money investing in Beyond Meat.

One of these days, the federales may have to come up with similar regulations for cannabis. Slowly, one state here and one state there have legalized recreational use, but the issue really came to the fore when Canada legalized marijuana and its derivatives nationally back on Oct. 17. That set off a steady flow of venture capital from some very respectable companies, most of them in the U.S., into Canadian pot companies.

Here in the U.S., nine states and the District of Columbia already have legalized cannabis’ recreational use. More are considering it. 30 states and DC have legalized it for medical use.

An A.T. Kearney survey says 41 percent of Americans are willing to try recreational cannabis in appropriate foods (such as candy) if it becomes legal. More were interested in foods with cannabis derivatives than in alcoholic or nonalcoholic drinks with the stuff.

Although Canada legalized recreational use back in October, it wasn’t until Dec. 21, 2018, that the government of Canada issued draft regulations for edibles. “Predictions are that this will be a very contentious issue for politicians and the public, as concerns about children having access to THC-infused candies, chocolate and beverages are heightened,” says David Acheson, a former associate commissioner for foods in the FDA and founder and CEO of consultancy The Acheson Group (achesongroup.com).

The leafy green dominoes are likely to fall around the world in 2019. “This global business will explode in 2019,” Acheson continues. “Many countries in Europe and Asia as well as Australia are now opening up for medical use of cannabis. Companies who are getting into these markets early are positioned to expand rapidly. Edibles will be a huge part of this trend and the safety of these products will be under scrutiny, especially if there are food safety or dosage issues with these products.”

Edibles so far seem dominated by small, regional upstarts. The big companies investing in this category are from the beverage category, with heavy representation from beer and alcohol makers. Molson Coors, Constellation Brands and Diageo have invested in or partnered with Canadian marijuana companies to create beverages with about the same mood-altering power as a couple of beers or martinis.

Just before Christmas, AB InBev joined the fray, announcing a partnership with Tilray, a Canadian producer and distributor of cannabis, to research non-alcoholic beverages containing tetrahydrocannabinol (THC) and/or cannabidiol (CBD). The former component gets you high, the latter does not but apparently has some medicinal properties. Each company will kick in US$50 million.

“As consumers in Canada explore THC and CBD-infused products … we look forward to learning more about these beverages and this category in the months ahead,” says Kyle Norrington, president of Labatt Breweries of Canada, the AB InBev subsidiary that is leading the project.

Coca-Cola Co. reportedly is interested in developing a non-intoxicating beverage that would alleviate pain. Several venture capital funds are in or eyeing deals.

It may take a while for national legalization to happen in the U.S., but that seems more likely with each passing day.

Finding the path back to growth

Now more than in recent memory, the big food and beverage companies are under pressure to deliver organic, volume-based topline growth – not just better bottom lines.

Sales at many of the largest companies have been pretty flat since 2014. When sales declined over the next two years, aggressive cost-cutting saved many bottom lines. That strategy appears to have run its course.

The first solution was to make some portfolio-stretching, even audacious, acquisitions. Think ConAgra’s reckless pursuit of Ralcorp’s private label business, Snyder’s-Lance’s purchase of Diamond Foods, Post Holding’s buy of MOM (Malt-O-Meal) Brands, Unilever buying SlimFast. None of those deals worked out. Part of the reason was the ridiculously high multiples paid for firms that were innovative, nichey, but marginally profitable, if at all.

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