Ramping up food and beverage investment

Jim Menzies on the key findings from our 2013 food and beverage report

Is there light at the end of the tunnel for the food and beverage sector? Certainly our new  report on the health of the sector – ‘Hunger for growth: Food and Beverage looks to the future‘ – suggests so. This follows a tough few years in which businesses have had to grapple with falling demand even as transport and energy costs rise, and public scrutiny and the regulatory burden increases.

Based on a survey of 250 food and beverage businesses in six economies, the report finds that three-quarters of businesses are planning to ramp up investment. Increasing R&D activity, bringing new products to market and designing more efficient practices will allow businesses to capitalise on emerging trends. Likewise, developing digital platforms and a social media presence is becoming increasingly necessary for the sector as it looks to engage with younger audiences, build trust in its supply chains and demonstrate ethical credentials.

This is as is important as it is welcome. Those producers which invest resources in improving the quality, productivity and efficiency of their inputs will be best placed to latch onto growth opportunities.

How businesses finance this investment is another matter. Those without the requisite cash reserves (around half those in our survey) will need to be resourceful in finding funding and look at a range of options from bank lending through to private equity investment. M&A to build capacity, or to acquire key skills or processes is another option and could help generate economies of scale.

Another key takeaway from the report for me is that globalisation continues apace in the sector. Global trade has stagnated somewhat in the years since the financial crisis, but the average food and beverage businesses we spoke to expect to see exports double as a proportion of sales over the next couple of years. Large emerging markets such as China, India and Southeast Asia are the obvious targets as businesses look to diversify revenues across regions. But working across borders always entails risk, especially in this sector. I would advise businesses to do their homework on local rules and regulations before making any big decisions.

An increasingly global outlook and a commitment to investing in the long-term growth potential of businesses can only be good news for the sector. And it’s important to remember that the strength of the food and beverage sector is a good gauge of the health of the wider economy. If consumers are starting to ramp up purchasing then a more sustained recovery should not be too far away.

Jim Menzies is Global leader Food and Beverage sector at Grant Thornton.