A recent study by Aberdeen Group finds food & beverage (F&B) enterprises to be “asset intensive, at the mercy of global commodity markets, and face both low margins and high demand variability. Given these industry characteristics, companies must find new ways to achieve operational excellence.” The takeaway? Industry players that aim to stay competitive need to think more broadly.
Across the value chain, various internal and external pressures will continue challenging F&B companies to increase operational efficiency, performance and resilience. Fortunately, those that respond proactively can dramatically reduce costs. Beyond the near-term gain in profits, F&B companies that go beyond the competition can position themselves for long-term success, sustainability and industry recognition.
For F&B companies, here are six key challenges that must be addressed to protect and enhance market share and meet society’s increasing expectations for sustainability. These challenges were highlighted by individual sessions, an industry roundtable on F&B, and one-on-one discussions at last year’s .
1) Food Safety
Each year, approximately 1 in 6 Americans becomes ill and 3,000 die from foodborne diseases, according to data from the Centers for Disease Control and Prevention. When food safety goes awry, F&B companies scramble to contain food contamination as well as the public firestorms that frequently play out in the media. Even a single area of weakness can compromise food safety and result in significant brand and reputational damage.
Due to the dangers to both the public and a company’s reputation, food safety will continue to be priority number one for F&B companies. However, food safety is not a monolithic area of concern, but rather has many dimensions to it. Product design, the sourcing of products from the supply chain, hazards encountered during production processes (addressed by implementing the HACCP preventive approach), quality control, packaging, and other factors all have an impact on food safety. Some (though not all) of these concerns can be mitigated through improved compliance.
2) Regulatory Compliance
The FDA Food Safety Modernization Act (FSMA) is the most sweeping reform of food safety laws in more than 70 years. Signed into law by President Obama on January 4, 2011, the FSMA aims to ensure safety in the U.S. food supply by shifting the focus from responding to contamination to preventing it.
The FSMA rules, which became foundational in 2015 and 2016, have led food companies to prevent hazards through five key elements: 1) preventative controls, 2) inspection and compliance, 3) imported food safety, 4) response, and 5) advanced partnerships. (For more on this topic, check out these frequently asked questions)
But regulations around food safety, in the U.S. and elsewhere, are not the only ones that affect F&B firms. They must also comply with, for example, workplace safety and health regulations, environmental permit requirements, product and chemical regulations, and others. Achieving regulatory compliance can become a daunting task, especially for firms with global operations or selling in global markets. To address this challenge, F&B companies must have an accurate and complete overview of all applicable regulations and regulatory requirements, and be aware when changes in regulations occur.
3) Supply Chain
To analyze the vulnerabilities and risks in the supply chain, food companies must fully understand all the parties involved in producing, storing, and distributing their ingredients and products from farm to fork. Integrating social, governance and EHS principles in supply chain management is complex, but the risks of not doing so are significant.
For example, food retailer Costco Wholesale was sued in a California court in August 2015 for purchasing and then selling to consumers farmed shrimp from Thailand, which are fed a diet of cheap fish caught at sea in areas where unpaid forced labor is widespread. In an with a stakeholder engagement executive at Sedex, Marianne Voss described the financial fallout that can ensue with such a breach in a supply chain.
“While we cannot say it is directly a cause, Costco fell more than 1% in Nasdaq ratings right after the suit and resulting press,” said Voss. Fortunately, companies can mitigate supply chain risks with Enterprise-class EHS management systems, which enable them to collaborate on a global scale by sharing information.
4) Water Stewardship
Agriculture is by far the largest consumer of the Earth’s available freshwater, accounting for approximately 70% of freshwater withdrawals from watercourses and groundwater (three times more than 50 years ago). Since approximately 40% of the world’s food is cultivated in artificially irrigated areas, irrigational needs are expected to increase the global water demand of agriculture by another 19% by 2050.
According to the OECD, farming also contributes to water pollution from excess nutrients, pesticides and other pollutants. Increased pressure from urbanization and industrialization will also provide more competition for water resources. Finally, climate change could affect water supply and agriculture through changes in the seasonal timing of rainfall and snow pack melt, as well as higher incidence and severity of floods and droughts.
As with other sectors, water efficiency in F&B must be maximized across the value chain. Consider, for example, canned fruits. If the food grower does not conserve water or the food manufacturer that puts the fruits in cans uses too much water in its production process, the company or retailer that sells these canned fruits now has a bigger water footprint for the final product. Mitigating the water footprint of food will only grow in importance for food producers and distributors alike.
5) Food Packaging
When you think about a food or beverage, you must think about the “whole product”, i.e. not just the product that will be consumed, but also the packaging and the materials that go in the packaging. The packaging can substantially increase the carbon footprint of the whole product and food packaging can also generate waste. In addition, if there are hazardous chemicals in food packaging, they can come in contact with the food and potentially create a health hazard for consumers. That’s why food contact regulations have been enacted by many countries, including the U.S., the EU, and Canada.
6) Data Consolidation
Alongside the systemic challenges that F&B companies are facing are the organizational challenges that come with mergers and acquisitions. F&B multinationals have multiple brands and business units to manage as well as enormous amounts of data to consolidate. Due to the complexity of consolidation, as well as both compliance and market-based demands, F&B companies that aim to remain competitive must explore technological solutions.
Other relevant challenges exist for the F&B industry beyond those listed in this article, including occupational safety and health, carbon emissions management, etc., but F&B firms must make sure to keep the six highlighted above on their radar screens. Fortunately, can enable a convergence of benefits for F&B companies that are serious about addressing these challenges. To break down silos, meet compliance requirements and enable users to exceed performance goals, implementing an EHS system is the right next move for forward-looking companies.