Analysis

Decoding the formula for superior performance

Food & Beverage Industry

To uncover new evidence about what makes companies successful in today’s economy, Deloitte has undertaken a comprehensive research project to identify, decode, qualify, and quantify the management practices which most contribute to sustained and superior corporate performance.

Our study reveals that strategic choices of Super Achievers have been consistent with 3 elementary rules: 1) Prioritize increasing value over reducing prices; 2) Prioritize increasing revenue over reducing costs; 3) Prioritize experimenting new ideas rapidly over developing extensive business plans.

Our three rules and growth strategy map are relevant across industries, across growing or declining markets and  across markets of different maturity levels. This article focuses on the Food & Beverage industry by providing a short industry outlook, summarising key trends, challenges, and opportunities, and illustrating how the three rules are applicable to the Food & Beverage industry.

Outlook for the Food & Beverage Industry

The last couple of years, the Belgian food and beverage industry has experienced considerable volatility in terms of turnover, with a dip in 2009 in the midst of the crisis, followed by a moderate growth, mainly driven by a growing share of export. The industry is following very closely the evolution of Belgian GDP. Exports continue to play a significant role in the food and beverage industry, and reached 52% of the total industry turnover in 2012.

The Belgian food and beverage industry will likely experience further market consolidation as companies are looking to benefit from additional economies of scale and higher productivity levels. The consolidation of the market has been fairly controlled (-2,2% number of employers) over the last decade but specifically harms very small companies that count less than 5 workers. Employment in the industry has, however, been stable over the last 5 years with a 0,1% and 0,2% growth rate in the number of jobs and number of FTEs, respectively.

Surveyed food and beverage leaders are relatively positive about their industry’s outlook. While about a quarter of surveyed leaders believe the industry’s condition will improve in the next 6 to 12 months, close to 60% of them anticipate no major change compared to today’s situation. When looking at mid-term industry outlook, surveyed corporate leaders are slightly more optimistic as 41% of them believe the food and beverage industry will improve.

Key trends, challenges and opportunities

The last couple of years were tumultuous for food and beverage companies. Rising food commodity prices, the economic downturn, the decrease in consumer spending and shifts in consumption patterns are only a few examples of the increasingly complex challenges the food and beverage industry is facing. Despite this challenging environment, the Belgian food and beverage industry remains strong and can tap into numerous opportunities.

·         Shifts in consumer spending in developed countries

·         Growing global appetite

·         Access to new markets

·         Rising food prices

·         Technology and big data

Relevancy of the winning formula in the Food & Beverage Industry

The level of fragmentation of the food and beverage industry has had little impact on the typical profile of a Super Achiever. Indeed, out of the 10 Super Achievers we identified in our sample of 336 food and beverage companies, 1 of them is a large sized company that employs more than 250 workers, 5 of them are medium sized companies that employ between 50 and 250 workers and 4 of them employed less than 50 workers in 2011.

The average Super Achiever in the food and beverage industry has achieved a 12% revenue growth and 19% average ROA over the period 2003-2011, which are significantly higher than the industry averages of 3% and 5%respectively.

 

88% of surveyed corporate leaders in the food and beverage industry agree with rule #1

While faced between offering a better product or a cheaper product, leading food and beverage companies have generally prioritized increasing value over reducing prices, by offering superior non price benefits such as a great brand, an exciting style or packaging, by offering a niche product, or by focusing on sustainability.

Indeed, despite today’s tough global economy, premium foods and beverages remain attractive. Many Belgian food and beverage companies have taken advantage of the sought-after “made in Belgium” image, which allows them to be appreciated internationally while charging a premium. Today’s market also strives to meet more specific dietary needs of consumers, such as frozen products, dairy products and ready-made meals.

 

60% of surveyed corporate leaders in the food and beverage industry agree with rule #2

Over the last several years, many food and beverage producers have been concentrating on cost containment more than on price increases. For many, it is difficult to pass direct costs on to retailers because strong retailers and retailer concentrations push back on price increases, and competition makes it very difficult to price through to the marketplace.

Leading food and beverage companies do find ways, however, to increase their revenue through geographic expansion, innovation, use of advanced technology, or collaborations with companies in the same and other sectors.

 

100% of interviewed corporate leaders in the food and beverage industry agree with rule #3

Food and beverage companies need to quickly react to trends in the industry and the needs of the ever-demanding customer. Finding the right balance between competing opportunities and the agility to get in fast, by launching new products or repositioning existing offerings for example, are important success criteria. An example: high performing food and beverage companies are able to react quickly when specific items on the health agenda change or when healthier alternatives for their ingredients are legalized and become available. Think about companies that replaced sugar by Stevia when it became available and legal recently. Fast decision-making is required in order to manufacture, test, market and promote these new versions. The sector continues to heavily leverage part-time and temporary positions to increase flexibility.

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