What Will 2021 Have in Store for Food & Beverage?

Free Webinar: Food and Beverage Industry Outlook for 2021

January 28 2p.m. ET
Food Processing's Pan Demetrakakes and Dave Fusaro will look at the trends, twists and turns that will likely shape the food & beverage industry in 2021—such as changing consumer behavior, the prospects for an economic recovery, immunity-enhancing ingredients and plant-based products, how cultured meat has advanced and what our annual Manufacturing Outlook Survey reveals for manufacturing plants. And of course what food buying will be like after the pandemic.

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Dave: You know, those videos of farmers dumping milk and the conditions in meat plants that circulated on the internet, and on your evening news on TV as well, probably motivated at least some people to try plant-based proteins in both the milk category and in the meat category. And if those images were burned into their psyche, a lot of those people who tried non-animal protein sources will probably stick with them in 2021.

Erin: Plant-based protein is going to be definitely something interesting to watch in this coming year. Pan, I wanted to touch back on something about when you were talking about retail, that's an element that we don't cover a lot on food per se, but it's something that obviously food processors deal with constantly is the retail partners. Has the pandemic brought any changes in the relationship between processors and food retailers, at least from what you're seeing, and are any of those likely to endure?

Pan: Before I answer that, let me give a little bit of background as I see it. The relationship between food processors and the retail trade customers is always going to be fraught for one simple reason, they both want the best price. The processors want the highest price and their trade customers want the lowest price. It's never going to change.

However, there's always been a debate in the industry over exactly how much information and sharing and cooperation is appropriate between the processor community and food retailers. And that debate has only gotten more intense as we plow further into the digital age for this reason. Grocers have a wealth of information and data about their shoppers that they gather through digital means, loyalty programs, just generally tracking consumer purchase patterns. And there's been a debate for a long time over how much they can and should share with processors to shape further, you know, future strategy.

And then, on top of that, there's the question of how much processors can and should spend on trade expenses, such as slotting fees and promotions. Generally speaking, the more willing processors are to spend money on those things, the less demanding their trade customers become on price. And according to what I've been told, the industry had been moving toward a greater cooperation in that regard.

Now along comes the pandemic, and grocers have a lot of trouble getting the stuff that their customers suddenly are demanding. And the lesson that a lot of them are taking away is that it's good to be in bed with the big boys. It's good to have large processors as your suppliers because those people are in the best position to find what you need and to make the adjustments that need to be made to make sure that you have in your stores what your customers want.

We saw that with companies like Kraft Heinz and Mondelez and PepsiCo cutting back on marginal SKUs so that they could devote more resources to pumping out the mainstream products that were suddenly in greater demand. So, I'm guessing that at least some of the major food retailers, the major grocers are grateful that their major suppliers were able to come through like that. And the bottom line, as I see it, is that this can only help the nature of cooperation between retailers and processors in many respects going forward after the pandemic is over.

Dave: One interesting thing that didn't happen during the pandemic that has happened in previous economic downturns was a movement toward private label, store-brand products. It's interesting that, you know, when the economy starts crashing, most people tend to gravitate toward cheaper stuff, but it didn't happen this time. They seemed to take comfort in the familiarity of buying real Oreos made by Nabisco or Mondelez, and cereals that were made by Kellogg or General Mills and not going to private-label products just out of saving a few dollars.

Erin: Yeah. That is a great observation. I mean, and who could have predicted, you know, that sort of purchasing behavior. Speaking of purchasing behavior and, you know, maybe some of the business decisions behind things, Dave, you cover a lot of the business side of food and beverage. Can you talk to me and talk to the audience about what kind of business trends you're seeing?

Dave: Well, for one, the big food companies, as I said earlier, they've had a difficult time over the last five years in growing top-line sales. They managed to do some things internally to save money and their profitability has been okay, but their top-line sales have been going down. They did phenomenally well during the pandemic. Most of them had familiar products, famous brands, and as a result, you know, they did just fine. They had great fiscal years or years during 2020.

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The little ones seem to suffer a little bit. If they didn't have a reliability in your supply chain...and somebody like a General Mills or Coca-Cola can, of course, exert whatever pressure they need to keep their supply chain coming. But if you were a smaller company, you probably had more difficulties and it wasn't a great year for small companies. But the question will be whether they can sustain the sales growth that they've endured during 2020, whether that'll continue into 2021.

Also, a kind of an oddity, there were few big acquisitions last year. I mean, Mars bought Kind late in the year, and earlier in the year, Ferrero bought the Keebler cookie and cracker business from Kellogg, but there were no real blockbusters, I think, during the year, which is kind of odd too when you consider how low interest rates have been. But I think the big companies were busy just trying to keep up with demand and, you know, maybe they'll look to acquisitions during 2021 because certainly, interest rates are going to stay low throughout this year.

You know, this pandemic started in China and I was at the financial analyst meeting in February and companies like, I think General Mills and PepsiCo were talking about, they were warning the financial analysts early in February that there was some little flu going around in China and, "We're going to close our plant in Wuhan, yeah, probably just for like a week. You know, it's not a big deal. It's never going to affect our U.S. sales, but we just want to warn you, financial analysts, that our Chinese sales are probably going to be a little depressed for, you know, maybe this first quarter."

But you know, obviously, it's spread throughout the world, and I think a lot of companies are rethinking overseas production. There's a lot of uncertainty in the world and with trade issues with China. China is not the, you know, the pot at the end of the rainbow that it used to be. Pay scales in China are growing, Chinese competition is growing, so it's not an automatic place where you can make the cheapest and good quality products anymore. So, I think there's going to be a movement to on source, to bring a lot of production back to the United States or at least to countries that we feel more comfortable with.

Another thing that comes out of the, you know, business side, and someone mentioned it earlier that everybody's been working from home. We right now are working from home, aren't we? And it caused, to some extent, a pause in R&D. I think, as I said earlier, that a lot of companies just wanted to hunker down and produce more of the familiar products that people were buying, but that caused the pause in R&D. But also we did some stories recently about R&D teams that were having to work remotely and, you know, Zoom meetings are helpful, but they're not as good as in-person contact. And especially when you get into the tasting and going back and forth about a new potential food product, working remotely is not as good as working in the lab and in the office.

Pan: That's really true. And it was also mentioned to me that that's a factor in building new relationships between processors and retailers during the pandemic. You can't really go visit people in stores anymore and trying to sell a new product over a Zoom call just isn't as effective, so that's another reason why there's a big or a better bond between retailers and larger processors because they have those relationships already in existence.

Erin: And shameless plug to all people listening. Pretty much half, at least half of our 2020 Food For Thought podcast episodes, because we did actually, I spoke to all three of our R&D teams, and that was one constant. I definitely kept asking how COVID impacted that product development and R&D cycle. And yes, I know with our processor of the year, they talked about, you know, they really took to Zoom. And even when we did a report on our formulation trends, one of our recent podcasts as well, talking about those relationships of not being able to go and meet face-to-face and just that impact, yeah, you can only have so much fun over a video call or so much relationship building and networking over a video call. So it'll be interesting to see how that goes back.

But Dave, you were saying about just the relationships and the networking and the digital side of things.

Dave: Well, speaking of the digital side of things, one more business and plant operations impact of the pandemic is, and especially maybe in the meat plants, there's going to be, I think, a look toward more automation, not only because it increases flexibility in manufacturing, but if you can take workers out of some of these processes...a robot, they're not going to call in sick and they're not going to be affected by the pandemic.

And there also was a lot of remote monitoring of equipment and troubleshooting. So, this pandemic forced food companies, who have, you know, in terms of the big picture of industry, food has probably been a little behind in terms of automation in the higher levels, like the industrial Internet of Things, but the pandemic forced a lot of progress in that area. And I think the experience has been good. So, that's probably something that's going to carry into this year.

Erin: For sure. One of the things you've mentioned as well is, you know, the consumer analyst meeting, and I remember that, I remember you were at the meeting and mentioning in an email, you know, "Back to the office, hey, people are talking about this." You know, we were posting a couple of articles about COVID at the time, and now here we are, over many months later, and less than 11 months later, here we are. So, and you also mentioned something about international relationships and kind of where we are in the world and how we are working with other, you know, just global trade. There's a lot to unpack there too.

But let's do ourselves a favor and put the pandemic aside for a second, and let's talk about 2021, which, you know, the whole gist of why we're here today. Let's talk about what's coming up in 2021. Dave, give me your thoughts on that.

Dave: Yeah. Well, the new year is underway and vaccinations, to bring the pandemic back into the picture for a minute, vaccinations are well underway. So, it'll probably be not too long, hopefully, that we at least achieve herd immunity and, you know, before too long, you know, maybe near total inoculations. So, that's the bright spot going into the new year.

In a couple of days, there'll be a new presidential administration taking over and, you know, Biden and Harris and the Democrats, in general, are perceived to be probably more pro-labor unions than the administration in the past, probably a little more lax on immigration too. And while the labor situation will financially be a negative impact for some of the big food companies, in terms of worker retention and worker recruitment, having a better, a happier labor force will probably, you know, serve them well. You know, $15 an hour minimum wage, if that ever comes to be, again, will hurt financially, but probably feel pretty good when you have a lot of qualified workers who are happy to work at your company.

The stock market responded very positively to the Biden election, you know, back in November and December. So, the bigger financial markets seem to be comfortable with the new administration.

There are two regulatory issues, labeling-type issues, that are coming up this year. One is the nutrition facts panel, which should have been done last year. The effective dates for different companies were actually during 2020, but because of the pandemic and because the FDA had other things on its mind last year, the enforcement of that was pretty lax, but the FDA has already sent out some notifications. It's going to start enforcing the new nutrition facts panel in 2021, and they're going to be pretty strict about that.

The other labeling issue is, this is the year finally to get your act together on the bioengineered foods or GMOs. The effective date for that is actually January 1st of 2022, but obviously, you have to get the new labels printed and figure out what strategy, what tactic you're going to take on that. So, those are two regulatory labeling things that have to be done this year.

And again, on the issue of worker recruitment and retention, it's going to be interesting to see how companies continue this work at home thing. Again, the three of us are working from home and I don't know that I'll ever go back to an office. It's working pretty well for both me and my employer. So, companies are going to have to invest in some technology to make sure that works well. Workers seem to be happy doing it, that can't hurt in terms of recruitment and retention. So, working from home, not a thing for factory workers, of course, but for office workers, executives, and maybe even the R&D teams, that's something that's going to have to be accommodated in the new year.

And you know, despite all the things we talked about, and trying to remove, again, the pandemic from the discussions, still the million-dollar question is going to be, how will consumers consume and buy foods in this new year? So, it'll be a question of whether or not they go back to high-end products and exciting ethnic products and sampling new and exciting things that supposedly were going on, you know, more than a year ago, or whether they've rediscovered their love of frozen foods and boxed macaroni and cheese dinners, and simple things from trusted brands.

Erin: Well, 2021 is definitely going to be an interesting year to watch just to see how we unravel and kind of unpack from, you know, everything that 2020 brought us.

Dave: Yeah. Hopefully, it will be a little less interesting than 2020.

Erin: It'll be interesting to watch, you know, you brought up to the R&D element. And so, a lot of people being at home, I wonder if the R&D teams, also working a little more remotely, might play into some of the development, some of the products that are developed early 2021 and going forward. It'll be interesting to watch for sure.

But with that, especially from our respective home offices, I want to thank you both for sitting down with me today. It's always informative to listen to both of you, Pan and Dave. You have so much knowledge and intelligence about food and beverage industry.

From everyone on the Food Processing's Food For Thought podcast team to everyone listening, thanks for joining us. And we will talk to you again.