Shifting challenges unique to the food industry
Food and beverage companies are facing sweeping industry changes as consumer preferences shift to more local, specialized products. This evolution impacts all aspects of running the business, including supply chain, account management and manufacturing practices. Food and beverage processors must adapt to keep up with the needs of both their consumers and retail partners.
During a recent panel discussion, select executives of family-owned food and beverage companies that recently faced ownership transitions shared their succession paths and views on the current opportunities for middle-market companies: The panelists included:
- Tom Walzer – CEO – Saco Foods, LLC
- Dimitri Pappas – Founder/Owner – Orchard Solutions
- Jonathan Del Re – CEO – Lacas Coffee Company
In an excerpt from Challenges of growing and transitioning a private food and beverage company, the panelists discuss the unique challenges their companies have faced and how those complexities have shifted over the last few decades.
What are some of the unique challenges you have seen in the food industry, and how are they different today versus 10-20 years ago?
Jonathan Del Re: Decades ago, our company had restaurant and diner customers, which would buy 300 or 400 pounds of coffee per week. But now, most of our larger street accounts – DSD accounts – are roughly half that size. The average sales in pounds of coffee per account has shrunk.
Furthermore, there is an industry saying that “less coffee now goes down the drain” because there is a lot of technology, soft heat, air pots and even K cups that extend product life and reduce waste. While all this leads to more efficient use of coffee, which is favorable to the customer, the trends require roasters like us to produce and sell less coffee to our traditional customers.
More recently, the trend of a smaller slice of the population demanding premium products with a story is driving industry thought leadership. Millennials are driving broad market interest in where things are from, ethical and sustainable sourcing, fair trade, and organic products. All of these concepts used to be, I wouldn’t say fringe issues, but not mainstream issues. They have now become mainstream issues and they’ve changed the way our customers buy and what they ask from their vendors.
There has also been a proliferation of micro roasters and very small operators that are good enough to service one or two accounts here and there, but they don’t have the scale to really do much more even though they make a good product. They are capitalizing on the market demand for local, niche products. And consumers are willing to spend $6 for a sustainable coffee product when a similar uncertified product could be had for half the price. This is not what my generation did, but it is what the millennials are doing – and it appears to be an enduring trend.
Dimitri Pappas: An area where there is a challenge, but also an opportunity, is that there is more market segmentation and channel proliferation. Consumers are demanding different items – ethnic foods, organic foods, more convenient foods, more authentic foods (i.e., farm-raised, local) – and retailers serve different customer bases. Wegmans’ customer, for example, is very different than Dollar General’s. This introduces complexity from a manufacturing and a supply chain standpoint, but it also provides an opportunity for smaller, more nimble food companies that can customize their offerings to reflect what retailers and consumers are demanding.
Tom Walzer: Retailers are demanding more just-in-time inventory, and thus requiring smaller case sizes. Therefore, we have more logistic costs per case with this strategy and need to figure out how to wring out efficiencies in these demands to make sure there is less product on the shelf that turns quicker and gives the retailer a greater ROI while finding ways to maintain or grow our margins.
A revolutionary change in the marketplace is a traditional grocery retailer is no longer just a brick-and-mortar, on-the-shelf retailer. Consumers can now order online, pick up in store or home deliver. We have to adapt our product’s value proposition to win in-store, online and in-home delivery.
There is also the challenge of figuring out how to get consumers to pick up products that tend to be more impulse purchases off the shelf in an electronic manner. How do we get into the basket, not only in the store, but via e-commerce. This is a new challenge that we are working through.
Today, one of the biggest challenges is taking a specialty food CPG company and repositioning it to be successful not only in traditional grocery channels, but in non-traditional grocery channels, such as: drug, club, DIY/home goods, dollar and convenience channels of trade. Those are all new amazing channels for us, with tens of thousands of doors that traditional grocery manufacturers like Saco Foods had never considered before. What channels are best for our products? How do we reposition our product offering to be successful in that given channel? Where do we make investments for the best ROI? If we answer these strategic questions and execute with excellence, we will create transformational growth for Saco Foods.
For more information on this topic, or to learn how Baker Tilly Capital specialists can help, contact our team.
