"The challenge for many companies up and down the food and beverage supply chain is not in knowing if the need for improvement exists, but in making the effort to improve,"stated Tony Parke, a Grant Thornton partner.
The study found that like other industries, food and beverage makers are battling the effect of rising gas prices on transportation costs, the need to reduce operating expenditures and cost of goods, and the need to manage industry-wide consolidation.
Food and beverage manufacturers expect to face price pressures from upstream supply chainproviders. A Grant Thornton study early in spring 2005 found that 95 per cent of all plants reported that the price they paid for raw materials and components had increased in the past year.
"Yet, just 65 percent indicated that the prices they charge their customers had increased,"the analyst stated. "That lopsided scenario will challenge industry executives now and well into the future."
The US food and beverage industry accounts for $500bn in gross output, according to Grant Thornton.
In a paper the analyst identified three major trends that offer growth opportunities for thesector. One is a renewed focus on product development and innovation.
"Innovation is critical as food and beverage manufacturers strive to understand customers, develop market-winning products and differentiate themselves fromcompetitors," the analyst stated.
Another trend driving growth is the continued demand for healthy foods and for ethnic foods. A growing number of products are flooding the markets to address health issues such as maintaining wellness and eliminating obesity. Changing demographics in theUS have increased the availability and desire for ethnic cuisine, the analyst found.
"Few industries are more sensitive to their customers' whim than the food and beveragesector," stated Jim Maurer, Grant Thornton's national managing partner for the consumer and industrial products practice."And while many factors may enhance or hinder success among food and beverage firms - in restaurant, grocery stores, fast food chains, etc. - consumers and their buying habits can change the outlook for this sector, and its constituent firms, at dizzyingspeeds."
Another trend lies in opportunities in foreign markets. Global prospects are enticing, especially for firms willing to take on identifying overseas opportunities and their challenges.
About 85 percent of respondents in the Grant Thornton study indicated no one retailer accounted for more than 10 percent of their revenues.This is a dramatic confirmation that retailers are carrying fewer product lines and brands and are catering to customers with limited financialresources, the analyst stated.
"This offers opportunities for no frills and private label products," Grant Thorntonstated. "Yet, both branded and private labels are impacted by shelf space, placement and slotting fees. For many small- and mid-cap food and beverage manufacturers, a primary concern is making sure consumers can find their products."
The paper also notes that a strong brand continues to be a major asset. In fact, there has been the periodic re-emergence of older brands, albeit often branded and marketed in new ways.
"The focus on product development, branding and marketing is especially important for small and mid-cap firms where a product or brand can make or break the company,"stated Dexter Manning, a Grant Thornton partner and the firm's leader of the national food and beverage industryanalysis unit.
Like most US industries, the expansion in food and beverage is likely to come from industryconsolidation, Grant Thornton stated. About three-fourths of food and beverage firms report that they anticipate an increase in merger and acquisition (M&A) activity through 2005 and in 2006.
"We anticipate M&A will be focused around company deals generated by companies not thriving and looking to sell in whole or divest of underperforming assets and line deals companies looking to grow market share in a segment or expand to hot areas, such as healthy, organic and ethnic foods,"statedGeorge Shaw, Grant Thornton's managing partner of corporate finance. "Some venture capital money is also targeting food and beverage companies and makers."