What business issues and opportunities are trending for food and beverage companies in 2021?

Consumer preferences: The pandemic has changed us

Consumers’ tastes, preferences and behaviors have changed due to the pandemic and will likely continue to evolve through 2021. Simple, natural and immunity-boosting ingredients are an important component of their buying decisions. According to Innova Market Insights’ October 2020 research, six out of 10 global consumers look for food and beverages that support health. Foods with immunity-boosting properties like probiotics in yogurt and turmeric in herbal teas, for instance, are appealing.

Likewise, the plant-based movement continues to grow even as demand shifted to retail during the pandemic with closed or minimally operating restaurants. Consumers want sustainable and affordable proteins with additional nutrients and have tried these items as they cook at home. Plant-based beverage options, once soy only, are now also readily available from a variety of sources including almonds, oats, peas and hemp. In addition, increased demand for alternative food diets like vegan and keto have spawned innovative offerings in a variety of categories.

At-home dining will remain above pre-pandemic levels as behaviors and routines adopted by consumers during the pandemic will continue into 2021. Grocery and food delivery platforms will continue to play an important role in meeting consumers’ demand for convenience. Food companies that develop and market products that appeal to convenience while also offering unique and innovative flavors will also be poised for success. The key to understanding the impacts of changing preferences and behavior shifts will be for businesses to frequently and effectively assess consumer buying data and habits. Understanding shifting consumer preferences allows food and beverage companies to be nimble and pivot quickly to adjust to market pressures.

Data-based decisions: Innovation, transparency and flexibility

Using acquired consumer and business data for better business decision-making will be necessary for food and beverage companies to thrive. Creative solutions that meet consumer preferences around sustainability and transparency, like natural ingredients or eco-friendly packaging, for instance, continue to be on the rise. In addition, companies may pull back on certain products in lieu of saving costs and focusing on more profitable items. Likewise, some companies may implement direct-to-consumer strategies to reach customers or pursue innovative ways to automate repetitive processes or improve production, back-office processes, supply management, fulfillment and delivery. Understanding supply chain analytics provides the flexibility to pivot as consumer preferences shift. Companies have learned a great deal from the challenges brought on by the pandemic in 2020; in particular, they have recognized the importance of quick transitions and implementations. Harnessing the power of data analytics and technology solutions will be critical to combat supply and demand shocks.

Food safety, transparency and sustainability: Good for consumers and business

Transparency into how and where food is made will be key for middle market food businesses. With today’s instant access to information, consumers are increasingly interested in ingredients and processes and are more willing to pay a premium for authenticity and sustainability. Likewise, it will be more important than ever for food and beverage companies to pinpoint safety issues immediately; technologies like blockchain will continue to gain traction driven by both compliance demands and consumers’ interest in transparency. Food companies will need to be mindful of waste reduction as consumers demand sustainable, transparent production and packaging in the products they purchase. Regenerative farming practices, upcycling, biodiversity, and organic farming and food production will also continue to rise per consumer demand. However, speed-to-market, quality control and safety must all be a part of this process; margins and profitability must also be weighed.

Rising costs: Adapting quickly to business demands

In 2020, food and beverage businesses overcame a variety of pandemic-related challenges from supply chain disruptions to tightening workforce challenges. Many found that decisions that once took several months were often made in days to meet customer demand. The middle market food and beverage companies that could quickly adapt had strong results. Still, in 2021, challenges persist such as a tightening labour force with associated cost demands, the rise in e-commerce and strains on trucking capacity, higher shipping costs, and more. Food and beverage companies will benefit from a tailored digital strategy to optimize operations and keep rising costs under control.

Mergers and acquisitions: Add-ons bring differentiation

While on-trend food and beverage companies are still attractive to both private equity firms and large brands, it’s anticipated for 2021 that the M&A landscape will be smaller with add-on acquisitions that provide additional market share or entrance into new segments rather than multibillion-dollar, debt-heavy mergers. Companies may undertake acquisitions in segments that have better prospects, such as businesses offering health foods, snack bars and ready-to-eat meals, even if they’re outside their traditional business. In addition, there will be opportunities for middle market companies to find under-served categories and branding opportunities to differentiate and fill in the gaps where bigger brands may be forced to scale back SKUs—stock keeping units. Also, some companies will look to spread their investments across smaller brand acquisitions to round out product and geographic portfolios versus investing in their own research and development to help save time and money, as well as reach new consumers.