Funding the Response to Disruption in the Industry

Historic disruption is happening across the food and beverage industries. Changes in consumer preferences and rapid consolidation have created a challenging business environment for many companies. Response to these pressures can’t happen fast enough, especially for companies that have historically dominated the market. Shrinking margins and revenue declines mean there is less cash on hand to invest in innovation – and that’s driving companies to find new ways to improve cash flow. – Tom Roberts, SVP Global Marketing, PrimeRevenue.

The shifts happening across the food and beverage industries are seismic. Consumer preferences for healthier, fresh and less-processed fare are stronger than ever. Additionally, consumers are demanding greater transparency in labeling and sustainability across the supply chain. These dynamics are requiring bold change – particularly from established food and beverage companies that seek the agility to quickly adapt to these pressures. Changes typically require:

Repositioning and rebranding. Many companies are investing in rebranding and repositioning initiatives to align their products with consumer preferences. One example is the Lean Cuisine brand. Backed by a multimillion-dollar packaging and advertising investment, the brand has worked diligently to shed its highly processed food and “diet” positioning in favor of modern eating and healthy lifestyles.

Acquire or sell off lines of business. For some companies, a fast response to changing consumer preferences and demographics has been to acquire new lines of business. This is illustrated in dairy giant Danone’s $12.5bn acquisition of WhiteWave, a maker of plant-based milk products. On the flip side, other companies are selling off existing business units so they can use the proceeds to reinvest in more promising areas of growth. One notable example is Nestlé, which continues exploring the sale of its U.S. confectionery business.

Innovate. Whether an established market leader or new player, food and beverage companies realize the future of their businesses requires a commitment to real innovation. Newer categories such as organic/natural energy drinks and the meal-kit market are proving the profit door is still wide open for companies that invest in consumer-focused R&D.

Funding Change Through Working Capital Optimization

To respond to the disruption occurring across the food and beverage industries, companies need to focus on unlocking working capital currently trapped in their supply chains in a way that doesn’t negatively impact their balance sheets. Forward-thinking companies are using supply chain finance programs to optimize cash flow efficiency and uncover the capital needed to invest in innovation, strategic acquisitions, and product repositioning and rebranding. One example is Kellogg’s, which disclosed that its supply chain finance program paid for a $330m investment in a strategic, multi-year initiative to reposition the company’s brands to meet consumers’ evolving tastes.

Food and beverage companies will continue to use supply chain finance programs and providers to generate billions of dollars in cash flow improvements. These programs will also help suppliers improve cash flow without increasing debt. That’s an important consideration given these critical business partners are also navigating the same disruptions as their largest customers, but usually have less access to affordable capital.

The Outlook

The transformation happening across the food and beverage industry will continue over the next decade. Current industry pressures will be exacerbated by the uncertainties in the world credit markets and the geopolitical and economic instability happening across the globe. To mitigate these risks across their supply chains, more businesses should turn to supply chain finance programs that will allow them to be better positioned to survive and thrive amidst changing market dynamics.

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