Against the backdrop of a stagnant economy, food and beverage companies have significant cash on the balance sheets, and intend to increase capital spending on new products, mergers and acquisitions and technology to fuel growth, according to a recent survey by KPMG LLP, the U.S. audit, tax and advisory services firm. While investing in growth, executives remain focused on costs and efficiency, and indicate their companies are placing increased emphasis on talent management and regulatory compliance.
In KPMG’s 2012 Food & Beverage Industry Outlook Survey, 68 percent of industry executives indicate that their companies have significant cash on the balance sheet – up from 63 percent in KPMG’s 2011 survey – and nearly half (47 percent) say their companies’ cash positions have improved from last year.
“The food and beverage sector has experienced some positive momentum in the past year,” said Patrick Dolan, KPMG’s national line of business leader – Consumer Markets, and U.S. sector leader – Food, Drink and Consumer Goods. “The improved cash positions at many of these companies will allow them to be more aggressive to drive growth and innovation – both organically and inorganically.”
Fifty-nine percent plan to increase capital spending over the next year, with the highest priority investment areas being new products or services (39 percent), and the acquisition of a business (38 percent). In fact, 62 percent of executives indicate that their companies are likely to be involved in a merger or acquisition in the next two years.
Executives also identified technology (36 percent) as a significant area of investment, including cloud computing and data analytics, which executives say will help reduce costs, enhance interactions with customers and suppliers and accelerate time to market.
Data analytics was also cited by executives as a key aspect of their business strategies, which they say their companies use to gain insight on customers, for brand and product management, and to help make pricing decisions. In evaluating their firms understanding of data analytics, 17 percent said their firms had high data analytics literacy and 22 percent felt that their companies were rapidly moving toward higher literacy. On the other hand, 35 percent categorized their firms as about average when it comes to using analytics and literacy and 22 percent felt they were behind their competitors.
“Those companies that embrace data analytics as a business imperative can gain a competitive advantage in the rapidly evolving global digital economy,” added Dolan. “Harnessing the vast amount of data that resides in a company can drive the insights that will allow them to interact with consumers more effectively, help to optimize operating models and rationalize portfolios, as well as potentially reveal information related to new markets and strategies.”
Cost Reductions, Operational Efficiency Remain Priorities
Forty percent of the executives indicate operational improvements and making significant cost reductions will be their key initiatives over the next two years. Most point to pricing concerns and input costs as the most significant threats to revenue growth and profit margins.
“In this environment, companies cannot simply focus on growth, they must continue to find ways to eliminate costs and improve operational efficiencies, including optimizing SG&A and supply chain costs to combat the impact of volatile input costs,” said Dolan.
When asked to identify the top initiatives for company management in terms of time, energy and resources, executives in the KPMG survey stated that significantly improving operational processes is the top priority (26 percent). Organic growth (22 percent) ranked second, followed by significant cost reductions initiatives (17 percent).
More of a Focus on Talent Management and the Changing Regulatory Environment
Respondents in the 2012 KPMG survey indicate they are more focused on talent management/retention initiatives compared to last year’s survey results, with an increased emphasis on compensation and training. Additionally, the number of executives who cited a lack of qualified labor as the most significant growth barrier facing their companies over the next year more than doubled year over year – 16 percent in 2012 versus just seven percent in 2011.
This year’s survey results also indicate companies are proactively addressing changes in the regulatory environment, such as the Food Safety Modernization Act, as well as federal tax policies and healthcare reform. They are also proactively addressing risk management related issues.
Cautiously Optimistic on Revenue and Employment Growth
Fifty-eight percent of executives surveyed say revenues are up from last year, and 72 percent expect revenue will continue to rise this year. Similarly, 53 percent say their companies will increase the number of U.S. employees. However, the increases in revenue and hiring are expected to be modest and, consistent with last year’s survey, nearly a third (31 percent) do not expect their company’s headcount to ever return to pre-recession levels.
“With concerns that decreased consumer confidence, continued high national unemployment, and increased government regulation are hindering a full sector recovery, executives are tempering expectations,” concluded Dolan. “In fact, in this year’s survey executives have pushed back their estimated timeline for economic recovery to 2014 or later, as opposed to 2013 last year."
THE KPMG FOOD AND BEVERAGE INDUSTRY OUTLOOK SURVEY
The KPMG survey was conducted in May 2012 and reflects the responses of 103 senior executives in the food and beverage industry. Based on revenue in the most recent fiscal year, 23 percent of respondents work for institutions with annual revenues exceeding $10 billion, 34 percent with annual revenues in the $1 billion to $10 billion range, and 43 percent with revenues in the $100 million to $1 billion range.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International.”) KPMG International’s member firms have 145,000 people, including more than 8,000 partners, in 152 countries.
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