food

Survey: Food, Beverage Execs Cautiously Optimistic

KPMG

Senior executives in the food and beverage industry expect to see revenue and profitability improve this year and next, and also expect their industry to recover ahead of the overall U.S. economy. However, they are also now projecting that economic recovery is further off than previously hoped -- sometime in 2012.

Those are two key results of a new Industry Pulse survey from KPMG, conducted in April and May among 61 food and beverage company CEO's and other C-level executives.

About two-thirds of executives reported that revenue and profitability have improved in comparison with a year ago -- a marked improvement over last summer's survey, when fewer than a third reported that these measures were up versus the previous year. In addition, 51% said they expect to increase employee headcount this year, although by just 1% to 3%. (Just under one-quarter expect to have to cut headcount, and 26% expect no change.)

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However, they are on average projecting full U.S. economic recovery to be 2.2 years away, whereas in last year's survey, the average projection was 1.9 years. Asked what factors would most accelerate overall recovery, 70% cited increased hiring as a result of improved business conditions, and 66% cited improved consumer confidence.

"The findings validated that industry trends are more positive. But given the lack of real improvement in the unemployment scenario, it's not surprising that these executives now expect overall economic recovery to take longer -- some projecting even beyond 2012," comments Patrick Dolan, KPMG LLP national line of business leader and consumer markets/U.S. sector leader for Food, Drink and Consumer Goods.

The most pressing immediate concerns for food/beverage businesses are discounts driven by market competition (cited by 46%), followed by recognizing/responding to customer needs/trends (11%) and the growth of private labels (11%).

Factors cited as most likely to hinder the industry's recovery include high national unemployment (64%), decreased consumer confidence (49%), increased government regulation (34%) and overcapacity of store space (30%).

Asked to name the biggest drivers of their companies' revenue growth over the next one to three years, 89% cited product innovations and 82% cited innovative merchandising strategies. Further, in line with last year's results, nearly two-thirds (61%) said that their strategic focus is now on investing for growth. However, 39% said they are still focused on cost cutting.

"Food and beverage companies have continued to invest in innovation through the recession, recognizing that this is their key to growth" in the face of consumers' still-cautious spending and desire for deals, notes Dolan. "But it's significant that many -- probably most -- are also still focused on cost-cutting to one degree or another, which seems prudent. It could be that they fear a double-dip recession, or that they've made cost-cutting/streamlining progress but realize that there's still work to be done. They are trying to achieve sustainable margin improvement in still-challenging times."

Despite their concern about current discounting, 67% said that "perceived value" is the most important factor determining where customers will buy, versus just 20% citing price. However, as Dolan notes, the perceived value emphasis ties into their focus on product innovation as key to driving the sales volume and pricing increases needed for growth.

Interestingly, asked what other specific factors or tactics they see as potentially enhancing the recovery of the industry, 39% cited consumers' increased mobile use of the Internet, 34% cited increased online shopping, and 28% cited increased outsourcing of technical/business procedures.

The first two seem to come under the broad headings of innovative merchandising and/or marketing, observes Dolan. "We know from our discussions with food and beverage executives that they are very interested in using mobile, the Internet and other newer channels to enhance brand image, connect more closely with the consumer, and perhaps even sell some products online," he says. "They are also very curious about the potential of shopper marketing technology, meaning reaching consumers by mobile in the store, at point of purchase."

Not surprisingly, given the huge growth potential in emerging markets in contrast to the relative stagnation domestically, 43% reported that their companies have already expanded into emerging markets. Among these, the regions most-cited as having been entered were Latin America (25%), China (23%) and Brazil (18%).

About 21% of survey respondents work for food/beverage companies with annual revenues exceeding $1 billion, 46% for companies with revenue in the $250 million to $1 billion range, and 32% for companies with revenue under $250 million. Clarion Research Inc. conducted the survey and compiled the data for KPMG.

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