Outlook-cover-2019

2019 Food and Beverage Industry Outlook

Jan. 10, 2019
From cultured meat to cannabis and trade wars to labeling changes, 2019 will brings new challenges for food and beverage processors.

Happy new … challenges! The new year brings with it a bunch of, shall we say, opportunities to move your food or beverage business ahead, or at least not to get left behind.

2018 saw two seemingly far-off topics – cannabis ingredients and cultured meat – brought to the here and now. There also was some serious realignment of the largest companies. In the past, most purchases brought the acquirer into new markets, but several deals toward the end of 2018 saw big companies shedding recent acquisitions that were going nowhere in favor of focusing on their legacy products and markets.

What will 2019 bring? There are a couple of sure things, foremost among them the preparation needed to meet two landmark labeling changes taking effect on Jan. 1, 2020. Those would be the new Nutrition Facts panel, with its call-out of added sugars, and GMO labeling – although now the preferred term is “bioengineered” or BE.

We can’t recall if global trade has ever been in the spotlight before, but it definitely impacted certain segments of the food industry late in 2018 and probably will in 2019. Then there are the recently perennial discussions of transparency, mergers and acquisitions and how Big Food can get its groove back.

So let’s take a look:

New Labels, New Laws

As we said, there are two things every food processor needs to be working on this year: getting new labels ready for the Jan. 1, 2020 deadline for the new Nutrition Facts panel and the bioengineered food disclosure law.

These in-house venture capital programs may pay off, but slowly and in small ways. But shareholders and activist investors want results now. So there is some serious realignment going on among the big food companies.

Danone wants to be the world leader in plant-based foods, and it acquired WhiteWave to move it closer to that goal. Nestle wants to provide health-imparting foods and beverages, so it jettisoned its North American candy business last year. Hershey wants to be a snack food company, not just a candy company, so it bought Amplify Brands, maker of SkinnyPop.

Mars hasn’t abandoned candy, but pet food is now the company’s biggest product category following a string of acquisitions this millennium.

And some are simply divesting, intentionally shrinking themselves into more focused companies, in many cases going back to their roots.

Campbell Soup went off in a number of different tangents under CEO Denise Morrison, but the interim CEO put most of those on the selling block to focus on soup and the North American market. New, permanent CEO Mark Clouse, who just started this month, is expected to continue that strategy.

Like Campbell, Kellogg has new leadership that, like Campbell, is trying to undo recent purchases to focus on breakfast (not just cereal) and the domestic market. Kellogg is shopping its cookie and fruit snack brands, such as Keebler and Famous Amos, to concentrate on core products.

Hain Celestial, too, has endured a couple of difficult years and also has a new CEO. Mark Schiller in October replaced the only CEO the 25-year-old company has had, founder Irwin Simon, and appears poised to sell off underperforming and tangential assets to focus on natural foods.

So, by the end of 2019, some of the top companies will look very different than they have recently, with some looking like they did decades ago.

Stay close to home

With trade wars, global economic uncertainty and souring relations, the world has become an inhospitable place for American food and beverage companies. As a result, some companies are doubling down on domestic sales.

Among the first things Campbell Soup put up for sale was its international business, which included biscuit-makers Kelsen in Europe and Arnott’s in Australia, along with the company’s manufacturing operations in Indonesia and Malaysia and operations in Hong Kong and Japan. In October, Kraft Heinz agreed to sell multiple Indian businesses to Zydus for $628 million. Two years ago, most multinationals wrote off all their assets in Venezuela.

President Donald Trump’s well-publicized tariffs on certain countries’ goods set off retaliatory tariffs on a wide range of U.S. products, including food – both farm commodities and processed food. The immediate effect was to cause commodity prices to drop in the U.S., which is bad for farmers but potentially good for processors – at least in the short term. But if higher-value/more processed U.S. foods are targeted, it won’t be good for Big Food.

Speaking of the home turf, U.S. consumers expect more from their food and beverage companies. More variety, more food safety, more social responsibility, and they’re willing to pay for it. A lot of trendspotters use the term “conscious consumption.” It encompasses personal health, sustainability, authenticity, organic production, animal welfare, a concern for the viability of producers both at home (the local movement) and across the globe (a living wage for cocoa farmers in Ivory Coast). Read more about conscious consumption in our Formulation Trends article. 

And all that requires transparency. The term seems to evolve a little, and grows, each year, but clearly indicates people want to know more about their food. Food & beverage companies are bigger and more “corporate” than ever, and consumers are further removed from farms than ever before. The successful companies will work in 2019 to bridge that gap.

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