What isn’t set to change or grow in the food and beverage industry in 2012? For instance, food safety will be a growing concern; more food and beverage companies are moving into the huge market potential of China; and sales of private label products are set to continue with the growth they have experienced over the last few years. 2012 is going to be a big challenge for this industry.

One more area of interest is mergers and acquisitions. This activity will be increasing this year as available cash and financing are becoming more available.

However, a more recent trend is that very large companies are splitting up. In 2012, some of the biggest American food companies will divide themselves, according to this Foodprocessing.com article. The companies in question include Kraft Foods Inc. and Sara Lee Corp. This is fairly recent news, and we may see more of these splits as the year continues.

For more on the big challenges we’ll be seeing in the food and beverage industry in 2012, read this new article written by Tompkins Associates experts: Strategies to Transform Your Supply Chains in 2012 for the Food & Beverage Industry.

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Jim Tompkins

Photo Credit: Michael Karshis 

Ketchup, french fries, soft drinks, cereal, milk, coffee, and sugar. No, this is not my grocery list; it’s just a sampling of food and beverage (F&B) items that have become more expensive in the past six months.

But this is not surprising, given unsteady commodity prices and economic uncertainty. In fact, when we published the Top 11 Priorities in 2011 for Profitable Growth in the F&B industry, mitigating commodity price increases and controlling operating costs were two of the top items.

Now, Tompkins Associates’ experts have taken a mid-year look at these priorities to see if our predictions are coming true and to catch what we may have missed earlier. It is true that commodity price surges and higher transportation costs are affecting F&B supply chains; however, we did not predict that it would happen so quickly or exactly how companies would respond.

Integrating commodity purchasing and logistics strategies has become a top priority for F&B companies in the cost-cutting arena. How are they accomplishing this? One way is through Direct Store Delivery (DSD) of products, using strategic network designs and supply chain solutions to both sell and distribute directly to the point of sale.

DSD has been used extensively in the fresh food supply chain for products such as milk and bread in which the number of days until sold is an issue. But in today’s economic climate, I am seeing wider use of DSD among some of the larger companies that want better control over costs.

And retailers are pleased with DSD vendors, according to a study conducted earlier this year via the Food Marketing Institute and Grocery Manufacturers Association.

So is DSD a trend for the future or a temporary response to price increases? Regardless, scrutinizing the supply chain and distribution channels to improve operations is always a smart choice when it comes to beverage and food distribution.

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Transform Your Fresh Food Supply Chain

Tame the Global Food Supply Chain

More on Trends and Challenges in the Food and Beverage Industry

Photo Credit: Steve Snodgrass

Global supply chains are feeling it. Retailers and consumers are feeling it. We see it on the supermarket shelves and in the produce aisles. We talk about it over lunch.

As commodity and oil prices continue to rise, so do food prices. A harsh winter for much of the world, coupled with uncertainty in oil-producing countries and an overall greater demand for food, has led to a recent surge in food prices. Mix this with a spoonful of dampened consumer confidence and dash of slower economic growth, and this can quickly become a very bitter dish.

So what can you do – as a supply chain leader in the food and beverage industry – to minimize this impact within your operations and on your customers?

I recently discussed this issue with a food company executive, and he had some interesting insights to share:

• Organizations are doing what they can to avoid passing on cost increases on to consumers; however, consumers are now seeing price hikes of anywhere from 3% to 12%, depending on the product.
• His organization (like others) is more closely examining their supply chain processes to find ways to offset costs, including technology enhancements and packaging changes.
• Companies are applying best practices to transportation in order to minimize fuel costs, focusing on freight management and outsourcing to LSPs.
• When feasible, some segments of the food and beverage industry (such as produce) are sourcing locally to contain rising costs.

Given the above points, it seems clear that now is the optimum time for food and beverage companies to give their supply chains a “health checkup” and find further ways to cut costs.  Passing price hikes on to consumers and shrinking package sizes are limited tactics in today’s marketplace. For long-term success, supply chain strategy is the best place to look.

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Jim

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Food & Beverage Solutions

Top 11 for 2011, Food & Beverage

LSP Supply Chain Consortium

As I see it, food and health go hand in hand. Luckily, all the food and beverage (F&B) companies that I am in contact with see it the same way.

Most of you have probably already heard that the FDA is developing controls to reduce health risks in the food industry.

In fact, the FDA Food Safety and Modernization Act that was recently signed into law establishes the first major reform of the food and beverage industry since 1938. Now, there will be new approaches to food safety as food processors and producers must meet the law’s requirements.

This intensified focus on food safety makes it one of the Top 11 Priorities for Profitable Growth in 2011 for the F&B industry. Industry-wide trends toward global food safety certifications are gaining steam, and this will drive new technologies to improve visibility from the field to the store shelf.

With growing government regulation, food and beverage leaders will need to become even more proactive in understanding and addressing changes. It is critical to realize how to maximize hidden benefits of new regulations.

Accompanying food safety on the list of Top 11 Priorities is the consumer push for fresh and organic products. As sourcing and quality continues to test suppliers, distributors and retailers, the industry will need to place greater emphasis on achieving high volume growth while increasing margins in this lucrative market segment.

This year will prove to be one of the more dynamic, if not challenging, times for the food and beverage industry. Learn more about the top priorities for the food and beverage industry and see how your 2011 goals compare.

How do you see your operations performing in relation to these top priorities in the coming months? What would you add to this list?

P.S. If you are interested in Top 11 Priorities for other business sectors, you can see more here.


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Jim


More Resources

Top 11 Priorities for Profitable Growth in 2011

Top 11 Priorities for Food and Beverage Companies in 2011 

Global Trade Management and Supply Chain Visibility

Photo Credit: Leslie Seaton

The day after this post was published on Dec. 8, the US House of Representatives passed the food safety act, which helps the Food and Drug Administration prevent foodborne illnesses. The legislation has already passed in the US Senate. - Jim

Food producers, wholesalers, grocers, associations and others involved in food and beverage supply chains have made real progress this year in the fight against food-borne illnesses.

Salmonella, botulism and similar illnesses are serious business and have resulted in the loss of human life, an increase in health care expenses due to sicknesses, and high costs to the industry’s image and bottom line.

In fact, a 2010 report conducted by Ohio State consumer estimates that food-related illnesses cost the US $152 billion annually. You can browse a map that shows costs per state and per case, as well as the number of illnesses per state at the Produce Safety Project’s website.

Increased food safety is particularly important for fruit, vegetables and produce that are not always cooked before being eaten. So understandably, produce has received the bulk of the attention lately and is getting some special attention in the regulatory arena.

Basic produce traceability law has existed in the US since the 1930s, and the European Union also legally requires traceability for food. The Produce Traceability Initiative, though voluntary, is now being endorsed and followed by many companies as a way to ensure electronic traceability through the produce supply chain. The goal is to have every case of produce traceable by 2012.

This is good news because when illnesses do break out, every link in the supply chain that was involved in moving produce from the field to the kitchen table is examined. Without traceability, this is a time consuming process that can cause others to get sick in the time it takes for the contamination to be located.

Of course, big news on the food front in the last month is that the Food Safety Enhancement Act of 2009 has advanced in the Senate. This bill imposes new planning and record-keeping requirements on food producers and gives the FDA greater power to recall tainted food.  But there are some legitimate issues in the language and workings of the bill, so if remains to be seen how it will play out in the coming year. 

In another example of industry taking the lead, the Rapid Recall Exchange from the Food Marketing Institute, the Grocery Manufacturers Association and GS1US has received kudos from supermarkets and food manufacturers. Several grocers have added recall alerts to their websites, and new bar codes are helping retailers show consumers how to track the origins and expiration dates of their purchases.

I strongly believe that a joint industry-regulatory approach is the best way to improve safety in the food and beverage industry and prevent illnesses. So, congratulations to the companies and groups who are taking on this important mission and let’s keep up the good work.


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Jim

Solutions for Food and Beverage

RFID Consulting

Photo Credit: Samuel M. Livingston