TORONTO--(EON: Enhanced Online News)--Global optimism in the food and beverage (F&B) sector is high according to a new report just released by Grant Thornton International Ltd. The new report, A 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. The new found optimism from producers in the sector is leading 90% of them to expect revenues to increase in the near term. The vast majority of producers also expect profits to increase; 25% of such producers expect double digit growth in profits.
Jim Menzies, Grant Thornton International’s Food and Beverage leader and a partner in the Canadian firm of Grant Thornton LLP, said: “Food and beverage companies are fired up. After a few challenging years, business leaders are anticipating a period of growth and increased investment. The focus for investment is on efficiency gains to ensure that profitability keeps pace with growth and on new product development in order to cater to changing trends and tastes here in Canada and, increasingly, in newer markets.”
Because of geographic and economic proximity to the United States, and because the American food and beverage industry is re-emerging, opportunities abound for Canadian producers. Continues Menzies, “Consumer tastes and trends here in Canada are quite similar to the US, giving Canadian food and beverage manufacturers a unique opportunity to capitalize on the re-emergence of the US consumer market. Housing starts are up, consumer loan delinquency rates are back to normal, and people are starting to spend again in the US. The combination of all of these factors leads to opportunities for Canadian growth.”
With rising optimism comes rising investment. Consistent with global figures, 64% of Canadian firms expect investment in plant and facilities will increase over the next 12 months. Eighty-three percent of global producers expect investment in equipment to rise over the next year, with Canada slightly higher at 90%, and 84% of Canadian producers also plan to increase their investment in product development, in line with the report’s global predictions.
Canadian food manufacturers and producers don’t seem to have quite the same kind of aggressive M&A plans as their US and global counterparts—16% of US companies and 15% of global companies surveyed are predicting an acquisition on the horizon, while only 6% of Canadian respondents expect an acquisition in the next 12 months. In fact, Canadians are slightly more likely to expect they'll be sold (8%) compared to 5% globally, and an additional 8% of Canadian respondents say it's likely there will be a partial sale or recapitalization (in line with global average of 7%), and 6% predict the sale of a unit or division (globally 5%).
Top drivers of business growth in the Canadian food and beverage
Topping the list is access to a skilled workforce, being mentioned by 75% of Canadian respondents. Rounding out the top five are new technology (64%), quality of suppliers (52%), exports (50%), and new equipment (39%). Acquisitions, at 25%, didn’t make the top five.
Constraints to growth
When asked to rank the top constraints to growth, Canadians ranked the power of retailers (60%), challenges finding skilled workers (42%) and government regulations (40%) as the top three. Canadian respondents were more likely to rank all three as stronger constraints than US or global counterparts. Power of retailers (60% in Canada) is higher than global (53%) and US (47%) numbers, and possibly a reflection of the concentrated Canadian retail environment. Canadians were also more likely to indicate that finding skilled workers was a top growth constraint compared to the US. Government regulation is viewed as a more significant constraint in the US (54%) than in Canada (40%), but both are higher than the global average (29%).
Food and beverage trends
The US is more likely to report creating new products within the same line or sector (82%) than Canada (70%), which falls below the global average of 80%. Around the world, most manufacturers report that they are looking at new packaging innovations (nearly six in ten companies). Canada is more likely to seek out new channels (60%) than the US (44%), putting it more in line with the global average of 57%.
Trends like organic foods seem to play better with manufacturers south of the border: 54% of US respondents say it’ll have a positive impact compared to 39% in Canada (which is more in line with the global average of 36%). On the other hand, US manufacturers are more likely to see the negative effects (37%) from the trend towards healthy/nutritious food and beverages, whereas in Canada, 31% think the impact will be negative and 69% think it will be positive. This might be reflective of overall healthier products available to health-conscious Canadian consumers.
When it comes to ethnic food and beverages, the Canadian melting pot seems to have more flavour. In Canada, 53% say ethnic product trends will have a positive effect, while in the US, only 36% think this trend will have a positive impact.
Canadian manufacturers are slightly more likely to expect positive effects of the trends towards convenience foods (45%) than in the US (39%). Canadian respondents are also more likely to expect positive effects from premium and luxury food and beverage trends (69%) than global (60%) or US (57%) respondents, while the US seems to see more positive in private-label brands (50%) compared to Canada (31%) and global (36%) respondents.
Impact of government
The report indicates that the industry is sensitive to the impact of government actions. A large number of companies in Canada (45%) and the US (43%) predict that food-labeling regulations will have a negative effect on their organization—higher than the global average of 38%. Those in the US are more likely to see government food traceability regulations having a negative effect (46%) versus 37% in Canada. On the other hand, twice as many Canadians surveyed (31%) say that nutritional guidelines will have a positive effect on their organization than those in the US (14%). When it comes to nutritional health targets, respondents in the US are much more likely to report some negative effect (25%) than Canada (8%). In fact, 35% of Canadians think it will have a positive effect, compared to 22% in the US.
US respondents are more than twice as likely to expect tax regulations to have a negative impact (75%) than Canadians (33%). When it comes to the effect of government employee healthcare regulations, it's not surprising that the US, with Obamacare on the front pages, was the big outlier, with 71% reporting a negative impact. This is vastly different to 14% in Canada and 25% globally. Other government initiatives are more favourably viewed in Canada. US respondents are much less likely to report positive effects of farm subsidies (2%) than Canadians (14%) and other manufacturers around the world (9%). Canadians are more likely to report positive effects of R&D tax credits (33%) than in the US (23%).
Food and beverage manufacturers are more likely to turn to social media platforms like Facebook (49%) and their own website (78%) over traditional media like print advertising (46%). These numbers are even stronger in Canada, with 84% using their corporate website, but print advertising (48%) still wins out over social media (42%) in Canada. US companies are much more likely to use Twitter (29%) versus Canadian firms (8%).
Menzies concludes: “If I had one piece of advice for Canadian food and beverage manufacturers, it would be this. Given this positive outlook, plan how you’re going to take advantage of it. Leave behind the constraints of being in ‘survival mode’ and put the focus on innovation in both products and productivity. Innovation will open the door to opportunity, especially in an optimistic growth market.”
A free copy of the report is available at www.grantthornton.ca.
About Grant Thornton LLP
Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. We help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services. Together with the Quebec firm Raymond Chabot Grant Thornton LLP, Grant Thornton in Canada has approximately 4,000 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms operate in close to 100 countries worldwide.