The mission statement

We provide stores and restaurants with the right amount of product at the right time, at a price that encourages consumer purchase.

The mission of the food and beverage industry sounds very simple when put like that. But factors such as inflation, supply problems and labor shortages are making things more difficult than ever.

The end of the pandemic should be an opportunity for the industry. And for many companies, that has turned out to be the case. Many of the Food Processing Top 100 companies performed significantly better after the pandemic ended, especially in the meat and beverage sector, with PepsiCo and JBS USA reporting the highest sales increases.

When the economy got back on track, things didn’t go so smoothly. Supply chains struggled to keep up with rising demand, leading to an imbalance between supply and demand, fueling the world’s highest inflation in decades. Household food prices rose 12 % in October from a year earlier.

Food companies have always raised prices to offset the cost of raw materials, packaging and many other necessities. The big question that will likely dominate 2023 is how much of this can be done without arousing consumer resistance, whether at the checkout or elsewhere.

Read: After a record year, what’s in store for US Meat in 2023?

Grocery consumers are changing the way they shop.

Habit changes include lower overall grocery spending, more switching to private brands, fewer impulse purchases, and even a shift toward fast food among consumers who see it as more valuable than eating at home.

One of the most noticeable effects of inflation is the disappearance of food promotions such as coupons, special discounts and package deals. The rising prices change the elasticity dynamics, so that a price point that once resonated with consumers no longer does when it has to be set higher.

Inflation, inflation, inflation…

The biggest driver of inflation is supply chain problems, which cause shortages and pushes up demand and prices. Supply chain issues have plagued much of the the world since early 2021. Shortages are also caused by other factors. Most notably the war in Ukraine, which has reduced supplies of cooking oil and other commodities, and the bird flu, which has caused poultry and egg prices to skyrocket.

Raw materials and packaging are particularly scarce in the food industry. Even the biggest and most influential gamers struggle to find what they need. For food companies lacking critical resources, there are only two basic strategies possible.

Pass on extra costs or find ways to avoid them.

Some companies are looking at ways to do the latter. When General Mills found tapioca his starch difficult to source, Totino’s frozen pizza his rolls had to be readjusted to use cornstarch instead. But if you don’t have a viable substitute for a critical ingredient or other need, you’ll have no choice but to source it where you can get it or give it up.

Shortages have caused supply chain disruptions, especially in the early stages of the pandemic, as many businesses began ordering more supplies than they needed.

Food processors are trying to stabilize the situation through strategies such as diversifying their supplier portfolios, building and maintaining good relationships with suppliers and logistics providers, and strengthening general contracts.

Read: 33% of the UK plan to eat less meat

Is JIT dead?

One of the biggest questions is whether the just-in-time (JIT) model of logistics will continue. JIT has served the food and other consumer goods sectors well for decades, but the imbalance in supply and demand caused by the pandemic has exposed its vulnerabilities.

Online grocery sales have historically been sluggish. While usage spiked as shoppers were forced to quarantine, and then declined again after lockdowns ended.

As consumers struggle with inflation, they develop coping strategies that try to maintain the shopping habits and food preferences they’ve built up over the years. Reports show that low-income consumers are being replaced by cheaper options such as frozen meals, and grocers and the processors that supply them will have to balance that out.

Inflation and tight supplies will be tough challenges for the food & beverage industry in 2023.

Read: Poll Results: What is the most important factor in your meat purchasing decision?

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