Food and beverage export opportunities drive new appetites for investment
Driven by rising optimism and new export opportunities in emerging markets, three quarters of food and beverage companies are poised to increase investment in the growth of their companies over the next couple of years. According to a report from Grant Thornton, the new found optimism from companies in the sector is leading 90% to expect revenues to increase, with a third predicting sales growth of over 10%. However, Grant Thornton cautions that the growth is unlikely to generate an upsurge in jobs across the sector.
The new report, ‘Hunger for growth: food and beverage looks to the future’, points to a fresh direction for the global food and beverage sector amid an improved global economic outlook. Companies are focused on generating growth whilst maintaining and enhancing profits. Over half of business leaders in the sector anticipate an increase in profitability of over 6%. A quarter think growth of over 10% is likely.
Jim Menzies, global leader food and beverage at Grant Thornton, said: “Food and beverage companies are fired up. After a tough few years of trading, business leaders are anticipating a period of growth and want to increase investment. The focus for investment is on efficiency gains to ensure that profitability keeps pace with growth and new product development in order to cater for tastes at home and, increasingly, overseas - where companies are seeing significant growth opportunities.”
As companies look to meet margin pressure with innovation, they will keep full time hiring in check. Although a huge majority of companies anticipate growth, only half of business leaders are looking to hire more workers as part of these plans.
Jim Menzies said: “Food and beverage business leaders are being spurred by a sense of opportunity and expectation on exports. On average (median) over the next two years producers are expecting exports to double as a proportion of their sales, as they look to diversify revenues across regions. South East Asia and China are the top target markets for these new exports. This opens opportunities, but taking on local companies will present companies with new challenges.”
Although the outlook for exports vary by region, the overall trajectory is upwards. Food and beverage businesses in Australasia currently export a median average of 15% of goods and expect this to rise to 25% in two years. In Europe the expectation is to increase from 7% to 10% and in North America from 4% to 8%.
Equipment, new product development and IT top the list for investment priorities, as companies drive efficiency, work to improve logistical planning and develop new foods and drinks for target markets. 26% of companies intend to increase investment in equipment by 10% or more and 20% plan the same increase in new product development. Regionally the greatest appetite to invest in equipment is being shown by business leaders in North America (86%) and Australasia (85%), followed by Europe (77%). However, for investment in new product development the outlook is relatively even between Europe (81%) and Australasia (79%), with North America (86%) showing the greatest enthusiasm.
Food and beverage companies look for funding and strategic partnerships
The report shows that few food and beverage companies are planning to fund investment through cash reserves and instead will tap sources of credit such as banks or form partnerships. Approximately half (52%) will require additional funding, although the sources will vary according to the local environment for credit. Nearly half (48%) of food and beverage executives are considering merger and acquisition opportunities as a way to strengthen their market position over the next 12 months.
Jim Menzies commented: “Those companies who can’t finance expansion plans through their cash reserves will need to be resourceful in finding funding and look at a range of options from bank lending through to private equity investment. We’re also likely to see companies being more strategic and looking for opportunities to partner or acquire other producers. This will enable them to get greater leverage in market prices and generate economies of scale on the production side of their businesses.”