Food Processing Industry
The food industry is characterized by variation, and different factors must be considered depending on the categories, channels, and geographies in which you operate. It is so heterogeneous that it is almost too simplistic to refer to it as one industry—characterized by many categories and consumption habits that vary widely across and even within individual markets. Strategic planning and a deep understanding of the competitive environment are essential in navigating these complexities.
The food industry’s heart is non-discretionary demand—the fundamental need for sustenance. It is a complex web of interconnected stakeholders, each crucial in driving innovation.
Producers collaborate with processors, who in turn engage with distributors and retailers. However, consumer preferences and power truly shape the industry. These threads are intertwined; regulators closely monitor industry development.
In addition to this highly variable foundation, food products are sold through many channels, with different-length value chains occupied by players ranging from international conglomerates to neighborhood producers.
Challenges of Food Processing Business
1. What impact do price changes have on the company’s products?
- How effectively can the company pass cost increases without impacting product demand?
- Does the company offer products across the price spectrum in the same category or sub-category?
- What is the company’s stock-keeping unit (SKU) strategy?
- How many different package sizes are typically offered in each product?
- How does the company ensure smaller SKUs do not cannibalize larger SKUs?
2. What proportion of the company’s products could be discretionary?
- How much of the product portfolio can be classified as fully nondiscretionary versus moderately discretionary?
- What is the mix of volumes and revenues between these categories? How do the margins compare?
- How are these demand shifts identified or predicted?
3. What is the role of the retail channel in influencing demand for the company’s products?
- How extensive is the company’s presence in the retail channel in its key markets?
- How much presence do the company’s products have on the shelves of leading retail chains?
- How much increase in demand is observed from rises in shelf space presence?
- What is the impact of a reduction in shelf space presence?
- How much control/influence does the company have on the size and positioning of shelf space?
4. What factors are expected to drive structural demand growth?
- What products are likely to continue to see per-capita demand growth?
- What new product types are expected to see strong demand?
- How does the company propose to drive structural growth?
- Does the company intend to enter new markets or product segments? If so, what challenges are anticipated?
5. How are the culinary preferences of customers in critical markets evolving?
- Are significant changes occurring in customer culinary preferences?
- If so, what are these changes? What is the impact on the market and the company’s product portfolio?
- How does the company intend to leverage these opportunities?
6. What is the impact of changes in customers’ food attitudes?
- From a health perspective, what are consumers’ perceptions towards packaged and processed food?
- How are these trends evolving?
- What kind of foods do customers consider healthy?
- Has the company observed a significant increase in demand for fresh, natural, and organic foods?
- How is the company’s product portfolio being affected by these trends?
7. What is the impact of private-label products?
- What is the market share of private labels in key product offerings? How is this trend evolving?
- How much brand power does the company have to help compete against private labels?
- How is this affecting relationships with retailers?
- How much impact is anticipated from the proliferation of private-label products?
- How does the company plan to manage this?
Our Services Applied to the Food Processing Sector
Strategic Planning, Positioning, and Growth Strategy Options
- Financial Planning and Analysis
- Profit Maximization
- Managing working capital, which involves locking up funds for raw materials, is crucial for navigating seasonal fluctuations.
- Capacity Planning vs Order-to-delivery-to-Cash
- Capital Budgeting and Planning
Formal Growth Strategy and Market Expansion
- Market Penetration and Market Development
- Enhancing revenue through analytics
- Market Development through Market Entry Feasibility Study
Commercial Excellence
- Pricing Strategy
- Segmentation
- Revenue Enhancement
- Sales and B2B, B2C, D2C Analytics
- Retail Channel Analytics
Demand Planning and Forecasting
- S&OP Process Design
Supply Chain Network and Efficiency
- 3PL Partner Selection, Warehousing Efficiency
- Distribution Network
Fundraising Advisory
- New Avenues for Financing
- Growth Equity (Private Equity)
- Bond and Credit Rating
- Equipment Finance
Analytics
- Sales and Customer Analytics
- Product and Customer Profitability Analysis
- Supply Chain Analytics and IoT
- Financial Analytics
The analysis is divided into granular levels to understand the issues and synthesize the opportunities.
The COVID-19 pandemic has revealed significant risks and profitability constraints in the supply chain. Cost reduction has traditionally been the main focus in this area, but COVID-19 is changing how we look at supply chain optimization. We need to emphasize continuity, viability, availability, and location. Investors have been demanding better returns on investment by limiting their investment, but it may be time for serious investment and even vertical integration when considering supply chains.
FP&A, with a strong awareness of operational needs and a causal model of economic realities, can be a competitive advantage for a company. Expanding the capabilities of FP&A beyond external financial reporting results by developing more robust models for internal decision support and operational systems integration is a top priority.
Business viability of a food producer
Demand Factors.
The analysis includes identifying the proportion of a company’s product portfolio that can be categorized as fully non-discretionary or moderately discretionary. It also involves inquiring about the distribution of volumes and revenues within these categories.
- How do these compare, and have any shifts in demand been identified or predicted?
- Explore the impact of price changes on the company’s offerings. Does unit demand alter when prices alter, and how does this affect different products in various markets?
- The retail channels play a crucial role in shaping the demand for specific food products. We’ve all witnessed prominent displays of dry goods in the center of supermarket aisles.
- How much do these arrangements cost? In tandem, does the producer have a say about how its products are positioned and packaged by leading retail chains?
- Examining the producer’s hold in the virtual world is increasingly essential: Does it operate its e-commerce channel or rely on third-party platforms to manage sales?
Future Demand
Investigate the issues or events that will drive structural demand growth.
- How saturated is the per capita consumption of the company’s products in its markets?
- Please assess the projected increase in demand for the company’s products and ascertain which products will maintain their popularity among customers. Additionally, analyze the company’s business plan to determine its intention to enter new markets and comprehend the associated challenges.
Competitive Position.
With a deeper understanding of the business, delve into the structure of the market(s) within which it operates.
- How much competition does the company face? What are the barriers to market entry?
- What is the company’s overall share of the market?
- How significant is the threat from private labels?
Customer, Product, and Brand.
- Has the product influenced public opinion, led to recalls, or been involved in health controversies?
- Has the company ever faced regulatory action for violating food safety practices?
Innovation.
Consider new product launches and frequency and cannibalize existing volumes. Consider the consumer’s health and inquire about sugar—and fat-related regulations.
- Do they exist in the company’s markets?
- If not, are there plans to introduce them?
Performance against its peers.
After the competition, examine performance against its peers.
- What are its margins, expense ratios, and cash flows?
- Have organic volume growth rates been achieved?
- What is the investment strategy?
- Can the company pass on input cost increases to the customers?
- Is the company’s supply chain vulnerable to external disruptions like geopolitical issues or natural disasters?
ESG and Energy.
Food production is energy-intensive. Special attention to environmental, social, and governance issues is highly recommended.
- Has the firm invested in recycling programs or raised consumer awareness about food wastage?
- Does the firm put profit first or treat its suppliers fairly?
- What’s more, how much money is spent on minimizing the release of pollutants?
1. Demand Drivers
- Discretionary and Non-discretionary Mix
- Impact of Price changes and Price Band
- Presence and Control of Retail Channel
- Stock Keeping Unit Strategy (SKU)
- Customer Perception and Food Attitudes
- Marketing Strategy, Ecommerce Presence
2. Market Position
- Market Concentration Levels, Barriers to Entry
- Competitors Market Share, Private Label Strength
- Pricing Power Compared to the Scale
- Retail Network concentration and Pricing Pressures
- Food Labeling Regulations
- Product Testing and Approval Regulations, Taxes
3. Structural Influences
- Per-capital Consumption and demand (Peak and saturation levels)
- Anticipated Incremental Demand
- Evolving Culinary Trends
- Increasing sugar and Fat content and Tax Regulations
- Private Label Trends, E-commerce Growth Trend
4. Company Performance Metric
- Organic Growth Volume
- Supply Chain Risk
- Product Innovation Strategy, Product Portfolio Diversity
- New Product Launch, Product Lifecycle Management Strategy
- Pricing Power, Amount Input Cost Passthrough
- Margin Sensitivity to Commodity Prices and Fx, Hedging Strategy
- Gross, Operating and Net Margins
- Development and Marketing Costs, Retail Channel Costs
- Sales, General and Admin Costs
- Accounts Receivable (DSO)
5. ESG
- Health and Nutritional Product Strategy
- Sustainable Supply Chain Practices
- Environmental Initiatives and Practices
- Emissions and Consumption Reduction Initiatives
- Fair Treatment
Challenges
Delving deeper into the industry’s challenges, we can categorize them into external and internal factors, revealing the complexity of the industry’s landscape.
- Increased flexibility:- An increasingly volatile and unpredictable Indian economy requires manufacturers to build more flexible and efficient operating machines.
- Increasing competition from international players also forces manufacturers to spend more on R&D activities, market reach, and finding new ways to improve customer productivity. Industries increasingly demand world-class technologies for better fuel efficiency, higher productivity, and profitability.
- Rapidly changing Market Demands:- Customers and industries constantly evolve, leading to shifting market demands and preferences. Manufacturers must innovate and adapt to meet changing needs without compromising quality or efficiency. To maintain profitability, companies can assemble operational excellence teams to stabilize costs by eliminating process constraints and increasing production efficiency.
- Digitization:- Industry 4.0 pushes a digital transformation, offering new opportunities to address challenges. Manufacturers must leverage digital technologies for growth and resilience in today’s competitive global landscape. Digitalization involves integrating technologies to enhance value creation, improve efficiency, reduce costs, and drive product and service delivery innovation.
- Rising Operational Costs and Energy Prices:- The manufacturing sector is heavily reliant on capital and energy. Energy price fluctuations can significantly impact operational costs and profitability. The industry faces high operational and maintenance costs and challenges in networking with financial institutions and accessing timely loans for modernization and expansion.
- Service and Product Quality:- A comprehensive approach requires providing services and producing quality products to achieve high performance in a competitive business environment. Companies must find new ways to maintain and acquire the leading edge by improving their branding, visibility, and marketing strategies.
- Global Supply Chain Complexity:- In an interconnected world, expanding supply chains involve diverse stakeholders across continents, posing logistical, regulatory, cultural, and geopolitical challenges. Globalization intensifies competition, making it harder for manufacturers to stay profitable.
- Access to Capital:- The availability of capital will be the biggest obstacle to increasing India’s manufacturing GDP. With an incremental capital-to-output ratio between 4.5 to 6.0 (which could become more favorable with productivity gains), India’s manufacturing sector would need investments totaling $1.0 trillion to $1.5 trillion over the next seven years to double its GDP in the same timeframe, if India also raises its GVA capture in these value chains by 25 percent.
- Sustainability (ESG):- Due to global pressure for greener practices, sustainability has become crucial for the machinery and equipment sector. Manufacturers face demands for environmentally friendly machinery and sustainable supply chains. This industry must rethink traditional methods and materials to incorporate sustainable practices throughout production and machinery output.
Key Success Factors
- Lack of Differentiation:- Raw and lightly industrialized products are distributed through food establishments and retailers with traditional layouts and established consumer patterns. These products are known for their flexibility, narrow profit margins, and reliance on cost-to-service efficiency to achieve competitive pricing.
- Challenges in Value Capture:- Unique products must have a tremendous in-store presentation to be successful. They rely heavily on shipping costs and make enough of the product to keep profits up. High-quality products and excellent in-store experience are even more critical for pricier products, whether they’re unique or not.
- Channels and Distribution:- Some products are sold in specific places, while others are available in many different types of stores, such as retail, pharmacies, and sports chains. Suppliers must decide where to focus their efforts carefully to meet customer expectations.
- Value Chain:- In food service and retail, shopper behavior can differ significantly within a category. Achieving success in both channels can be challenging across many industries due to the additional value-adding steps a product can have. Our experience across the entire value chain and your business knowledge proves highly beneficial.
