Over the last few years, the food and beverage industry has faced no shortage of challenges. The COVID-19 pandemic, which brought shutdowns and widespread supply chain issues, left many businesses scrambling to develop new strategies for survival. Now, even as pandemic-related constraints have eased, ongoing macroeconomic volatility has many food and beverage businesses looking for solutions to contend with elevated inflation and interest rates, and a tight labor market.
Inflation is the primary factor behind some of the most pressing pain points for many food and beverage industry businesses. As prices have gone up for essentials such as rent, energy, packaging, wages, products, and more, food and beverage providers have largely responded by passing these increased costs on to consumers. However, according to Jim Kenwood, head of Food & Beverage for PNC Bank, this strategy is successful only up to a certain point. “Companies are starting to realize that their customers are becoming stretched, and consumer demand is not going to keep up with ongoing price increases,” Kenwood said. “In order to manage costs, businesses need to shift away from focusing on prices and instead adopt strategies to invest in productivity and efficiency.”
Part of this investment may involve turning to technology, particularly to help businesses with cash management. Digital treasury management tools can help businesses realize efficiencies in terms of payables and receivables, as well as gain insight into their overall cash position to better manage their working capital. But businesses can also put innovative treasury technology to work to address specific needs that are critical in the current economic environment. “Think about real-time payments or earned wage access, for example,” said Kenwood. “At a time when businesses are struggling to find and retain employees, being able to offer on-demand pay through real-time payment-enabled solutions can be a real competitive advantage for our clients and help them stand out as employers. These opportunities to introduce efficiency can also make a big difference in terms of combatting inflationary pressures.”
Despite ongoing high inflation, some food and beverage businesses are continuing to thrive and find themselves poised for growth. Though merger and acquisition (M&A) activity has slowed in the industry, some sectors continue to pursue consolidation, particularly in the convenience store and beer distributorship sub-sectors. “In a lot of these cases, these are smaller businesses whose owners are ready to move on from operating in a challenging environment,” Kenwood said. “They may see M&A opportunities as a good way to exit their business, while also protecting the people who work for them.”
While the outlook remains uncertain for the industry as macroeconomic turbulence continues, Kenwood sees reason for optimism. “We learned from the pandemic that food and drink is essential to the economy. It’s a defensive industry, and there will be ongoing demand,” said Kenwood. “However, what’s likely to happen is we will see shifts in consumption patterns as these economic headwinds continue to affect consumers.” Some likely examples include a possible uptick in spending on private-label products rather than premium-priced national brands, as well as a flight to fast-food, quick service restaurant options over more expensive, on-premise dining.
Ultimately, finding success in the face of ongoing economic pressures will depend on a willingness to stay informed and find ways to evolve. “With challenges come opportunities for businesses in different parts of the value chain,” said Kenwood. “In order to thrive, you need to have a good idea of where the shifts in supply and demand will occur and how to manage them. That’s where relying on trusted financial relationships with advisors who know the ins and outs of their industry, such as PNC’s Food & Beverage group, are critical to navigating changes.”
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PNC’s Food & Beverage team combines industry and financial experience with local relationship management to offer tailored financial solutions to Food & Beverage companies across the value chain. For more information, click here or contact your Relationship Manager.
