FOOD AND BEVERAGE MANUFACTURERS FACE DYNAMIC CHALLENGES
Food and beverage manufacturing is one of the largest and most crucial sectors in the United States, generating a staggering $1.8 trillion in annual sales. The sector's 22,407 food production facilities employ over 1.5 million workers nationwide and account for 15.4% of all US manufacturing workers. However, as we enter 2024, the industry faces a challenging landscape. New regulations, cybersecurity threats, and shifting consumer behaviors threaten the sector's growth potential. On top of that, ongoing supply chain disruptions, a renewed focus on the environment and demand for sustainable products, and a significant worker shortage are exacerbating these challenges.
Despite these obstacles, there are bright spots on the horizon. Inflation is decreasing, industry experts project modest volume growth in 2024 after three years of declines, and new technologies are helping manufacturers improve efficiency, cut costs, and streamline compliance challenges. To understand the challenges and identify potential solutions, we conducted an in-depth study of the sector. Check out our whitepaper summary for key findings.
CHALLENGES THAT FOOD AND BEVERAGE MANUFACTURERS FACE
Food and beverage manufacturers face a series of complex challenges, ranging from inflation and supply chain disruptions to regulatory pressures and rapidly changing consumer preferences. By exploring some of these challenges in more detail, manufacturers can begin to plan ahead and position themselves to thrive in 2024 and beyond.
1. RENEWED FOCUS ON THE ENVIRONMENT
Sustainability initiatives have taken a backseat since the pandemic began. However, as supply chains stabilize and inflation subsides, we can expect a renewed focus on environmental issues in the food and beverage industry by 2024. Climate change, plastic packaging, and water availability and use are the three major issues that need tackling. Sustainable packaging is the most likely to have a significant impact on the industry in the short term, with almost half of consumers prioritizing recyclability, biodegradability, and refillable/reusable packaging. However, transitioning to sustainable packaging materials is not easy. Recycled materials are costlier, supply can be sporadic, and quality can vary. Striking a balance between sustainability, efficiency, and profitability will be a major undertaking in the coming years.
2. RISING INFLATION
Inflation has been a major concern for consumers since the pandemic hit. While it has gradually subsided from its peak of 9.1% in June 2022 to 3.14% in November 2023, it still remains nearly triple what it was before the pandemic. In fact, 92% of consumers have reported spending less, including on essential goods such as groceries and utilities.
As we move into 2024, food and beverage manufacturers will be faced with the challenge of finding ways to temper costs to keep products affordable for consumers. According to PNC’s 2024 Outlook: Food and Beverage Industry, businesses were able to manage inflationary pressures in 2023 by passing cost increases to consumers. However, many have now priced their products to the point that demand has become elastic and increasing prices further is no longer a viable strategy.
In addition to managing costs, manufacturers must also address other factors influencing consumer behaviors, such as increased demand for healthier options and transparency in sourcing and manufacturing processes. This means having access to more information and being able to communicate it in a way that stakeholders understand.
As we navigate the challenges of the post-pandemic economy, it is important for food and beverage manufacturers to stay ahead of the curve and adapt to the changing needs of consumers.
The last few years have been really challenging for the food and beverage industry, due largely to factors that emerged out of the COVID-19 pandemic. But in some ways, 2024 is shaping up to be an even more dynamic environment, as consumers and businesses alike are trying to find ways to deal with persistent inflation. Wage increases have not kept pace with cost inflation, which means that real disposable incomes are down. This is leading to shifting patterns in consumer demand, which makes demand planning difficult for businesses to manage.” – Jim Kenwood, Head of Food & Beverage Advisory, PNC Bank
3. WORKER SHORTAGES AND SUPPLY CHAIN DISRUPTION
Food and beverage manufacturers are facing a critical shortage of qualified workers, with the situation expected to worsen by 2024. Factors contributing to the shortage include the "Great Resignation" caused by the COVID-19 pandemic, the early retirement of experienced workers, and competition for skilled candidates. As of August 2023, over 600,000 manufacturing jobs remain unfilled. To attract candidates, the industry needs to offer greater flexibility and hybrid work arrangements. Automation through low- and no-code development tools can help improve the employee experience and increase productivity. Additionally, geopolitical crises such as the war in Ukraine have caused supply chain disruptions that will continue to impact the industry. As the industry faces ongoing challenges, it will be critical to find innovative solutions to address the shortage of skilled workers and ensure the continued success of food and beverage manufacturing.
Moreover, the possibility of the war in Gaza expanding into a larger regional conflict could negatively impact global supply chains. In short, ongoing worker shortages and supply chain disruptions are dynamic challenges that will require careful monitoring and planning to successfully navigate in 2024 and beyond.
4. REGULATORY CHALLENGES
The food and beverage industry is always evolving, with new guidelines and laws to keep up with. One change that's been making waves is the FDA's revised definition of "healthy." The final rule, expected in 2024, will only allow products that meet specific nutritional restrictions to make a "healthy" claim. This has caused concern for manufacturers that have traditionally labeled their food as "healthy," such as Kellogg's Raisin Bran cereal.
In addition to the "healthy" rule, there has been considerable regulatory activity around unsafe food additives and food contact substances, including state-level bans and labeling restrictions. And with the deadline for complying with FSMA 204 - the Food Traceability Final Rule - approaching, organizations need to start taking steps now to ensure they meet the new record requirements by January 20, 2026.
Manufacturers in the food and beverage industry need to stay informed and proactive in order to achieve and maintain compliance with these changing regulations. It's a dynamic industry and staying ahead of the curve is key to success.
Food and drink manufacturers are increasingly falling prey to cyberattacks. Cyber criminals perceive the sector's cybersecurity to be relatively lax compared to heavily regulated industries such as banking or defense. With the rapid adoption of new digital technologies and smart equipment, many of which are maintained by third parties, vulnerabilities that cyber criminals can readily exploit are created.
5. CYBER SECURITY CONCERNS
Cyberattacks can take many different forms, including data breaches, ransomware, and phishing schemes. According to IBM's latest annual report, the global average cost of a single data breach is a substantial $4.45 million. Ransomware and phishing attempts are other common threats that can target employees throughout all levels of an organization.
But technology alone will not protect manufacturers from threats. Organizations need to implement strict processes and security protocols. Regular assessments of third-party networks to review their protocols, adhering to applicable data protection regulations, and establishing policies around access control, are just a few best practices that can help.
Working with ethical hackers to identify and remedy vulnerabilities before they can be exploited is another best practice. It's time for the food and drink manufacturing industry to take cybersecurity seriously and implement the necessary measures to protect themselves from cyber threats.
DOES IMPROVING COST MANAGEMENT HOLD THE ANSWER?
Tackling challenges in the F&B industry can be daunting. But, there are ways to mitigate their impact while capitalizing on opportunities. One constant in these challenges is that they create additional costs. That's where controlling, reducing, and optimizing operations comes in.
Energy management is critical to profitability, and contextual data can help manufacturers adjust usage and reduce overhead costs. Improving data gathering, knowledge sharing, and intelligence can make regulatory compliance easier and less costly. Tracing materials through the supply chain gives manufacturers critical data to make better decisions and improve compliance. Predictive maintenance is also critical to controlling costs. But, how do you know which solutions are right for your organization?
Contact Value Driven Solutions today. We have worked with some of the most notable food and beverage manufacturers in the world.
772-722-8811
Operational Excellence for Food & Beverage Manufacturing.
