Leaders of food, beverage, and agriculture companies have had their work cut out for them, guiding their companies through a turbulent business landscape. Yet, while the recent upheaval has started to ease, they still face complex challenges heading into 2024.
“The last few years have been challenging for the food and beverage industry due largely to factors that emerged from the COVID-19 pandemic,” said Jim Kenwood, head of Food & Beverage Advisory for PNC Bank. “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.”[1]
Here are five data-backed challenges the industry may face, with guidance on navigating your company through unpredictable conditions to proactively position yourself for continuity, growth, and innovation.
Challenge 1: Cautious Consumers
Although inflation is cooling, shoppers watching their wallets remain price-sensitive. A survey from Morning Consult identified food prices as consumers’ top concern, edging out housing, energy, and other budget priorities.[2] The most recent numbers from the consumer price index, a key inflation gauge, show prices rose 3.1% in January 2024, relative to a year earlier.[3] Food continues to take a bite out of budgets, with four of the six major grocery store food group indexes increasing.
That translates to equally cautious food manufacturers. Although rising costs of ingredients, transportation, and energy are pressuring their bottom line, they have slim margins to boost prices, given widespread consumer vigilance.
Opportunity:
As value-conscious shoppers seek lower prices, food brands may benefit from a pivot to private label offerings, smaller sizes, and reasonable ingredient swaps to lower-cost alternatives. At the other end of the spectrum, brands could opt for upgraded ingredients and unique flavors and offerings to stand out. Many consumers are still making room in their budget for little treats, with a survey from Deloitte finding that 77% reported a splurge purchase, with U.S. consumers four times more likely to say this indulgence was a food or beverage rather than a personal care item.[4]
Challenge 2: Evolving Consumer Behaviors
Today’s fickle consumers have short attention spans and are eager to move on to what’s next. That can confound food and beverage manufacturers, with 36% of respondents to the IDC Food and Beverage Supply Chain Findings and Implications ranking “changes in consumer demands and preference” second as the external concern they believed would have the most impact between now and 2027—barely under the top concern of higher operation costs at 37%.[5]
Many brands have discovered they must move beyond their niche and focus on versatility and flexibility with line extensions and new flavors. They also realize they must build buzz as viral social media turns products into superstars overnight.
Opportunity:
Food and beverage manufacturers can no longer rely on lengthy product development cycles that require extended testing and tweaking. This is where investments in new technologies, including predictive analytics, will be critical as the food industry increasingly adopts agile methodologies.
In addition, brands must prioritize innovation, looking for market gaps to fill and ways to align with trending themes. The ability to ramp up production when a product or category goes viral on social media allows a brand to take advantage of the hype as soon as possible. A small business line of credit lets you quickly pivot to take advantage of opportunities.
Challenge 3: Increased Focus on Food Safety
Recalls and safety incidents tarnish reputations and erode brand credibility. While the spotlight is typically on bacteria, foreign objects, or allergens, there are other reasons to be cautious as consumers become more attuned to unwelcome contaminants, such as microplastics. Former FDA associate commissioner for foods, Dr. David Acheson, predicts managing heavy metals found in soils—including lead, cadmium, and arsenic- will be essential.[6]
In addition, brands should be delving into the FDA’s Food Safety Modernization Act (FSMA), Section 204, which introduces new rules for traceability set to take effect on January 20, 2026.[7]
Opportunity:
Brands should start now to identify best practices for deploying stringent reporting and begin to put digital tracking systems into place to achieve compliance while increasing transparency. They also should be prepared to meet consumers’ desire for more information about their products’ journey to the shelf. Hiring talent who is familiar with governmental regulations and has communication acumen will position you to approach this issue from all angles.
Challenge 4: Transitioning to More Sustainable Packaging
Consumers’ appetite for sustainability continues unabated. According to a survey from PMMI, The Association for Packaging and Processing Technologies, consumers prioritize sustainable packaging features such as recyclability (52%), biodegradability (49%), and refillable/reusable options (41%).[8]
Legislative demands will further drive action; for example, while only six states have currently passed Extended Producer Responsibility (EPR) standards for packaging waste, more may be on the horizon, given that lawmakers considered 43 bills in 14 states during 2023 legislative sessions.[9],[10]
Opportunity:
Packaging overhauls can be costly but necessary. By improving their packaging now, food companies will meet consumer preferences while staying ahead of legislative action. Use it as a chance to rethink your branding and value proposition to stand out on shelves and social media. Upgraded packaging and refreshed logos and brand identities help attract new customers, with those surging sales potentially offsetting part of the investment. small business loans might be a good source of funds to cover talent and supply needs.
Challenge 5: Technology Implementation
Technology investments will continue to be foundational as modern technology allows food and beverage companies to maintain efficiency to meet all the abovementioned challenges, from sustainability demands to new product development.
The “Packaging and Automation in the Warehouses of the Future report” produced by PMMI found that one-quarter of warehouses will install automation by 2027, up from 18% in 2021.[11] And another report from PMMI found that 71% of respondents were using predictive maintenance, with 37% also deploying collaborative robotics “cobots,” which operate alongside human workers.[12] This type of automation eases the workload and alleviates tedious, repetitive tasks, which can also improve employee experience.
Increasingly, food companies will continue to experiment with deploying artificial intelligence (AI) productively and implement it seamlessly into processes. For example, as climate change makes the sector more unpredictable, AI can lend a hand in forecasting crop yields and other areas.
Opportunity:
With so many available tech solutions, it’s challenging for brands to determine where they would have the most effect. As an initial step, conduct an audit to determine where automation would be most beneficial to optimize processes and then implement impactful technology solutions, starting small and growing as needed.
The same philosophy applies to identifying the best avenues to deploy AI and analyzing where your processes and people will become more proficient with the right tools.
Are You Prepared to Capitalize on Emerging Opportunities?
Given these projected industry challenges, companies in the food, beverage, and agriculture sectors must be ready to adapt—to innovate and expand as they address shifting consumer needs. As access to capital and financial resources becomes increasingly crucial, contact PNC to discuss tailored financial solutions to help your business thrive in today’s complex marketplace. Talk to a dedicated business banker today about products and services that will support you in achieving your goals.
