As the curtain begins to close on 2022, the only thing that businesses in the food processing industry can count on is – uncertainty. How should food processors look ahead to 2023 under these uncertain conditions? Here are six variables to watch.
Written by Bob Grote, CEO
As the curtain begins to close in 2022, the only thing that businesses in the food processing industry can count on is – uncertainty.
After more than two and a half years of battling COVID, issues including supply chain struggles, inflation, rising energy prices, currency issues, and a war in Eastern Europe have also come into play. If there’s been one constant, it’s volatility.
Despite the ups and downs that have impacted processors, we as an industry have continued to strive to feed consumers amidst the many variables – and obstacles – we’ve faced.
As we head into the end of the year, how should food processors look ahead to 2023 under these uncertain conditions? Here are six variables to watch.
1. The economy: All eyes remain focused on the economy.
While some economists say we’re not technically in a recession yet, the first two quarters of 2022 showed negative growth. That, by definition, is a recession. So, depending on which economic expert you follow, we are either already in a recession or one is coming. Jamie Diamond, chief executive officer of Chase, predicts a recession could be here in the next six to nine months.
Along with the looming recession, rising production costs are driving higher prices. With diesel fuel prices up, the cost of transporting everything is also higher. When the price to manufacture and transport goods rise, there’s a trickle-through effect.
As demand for goods slows from its peak, competition will catch up, which will help stabilize price increases. But that won’t fix everything.
What else can food processors do to combat inflation?
Staying flexible to make changes as market conditions shift is vital to the health of their bottom lines. It may not be what the industry wants to hear, but those that stay nimble have the best chance to come out ahead.
2. Acquisitions in the industry: Faced with yet another set of challenges after all they’ve dealt with the past few years, a recession could mean the end for some in the industry.
One path some will take is acquisition. In a recession, opportunities will arise to acquire companies. As volatile conditions wear down some business owners, may be looking for a way out, making it an ideal time for larger companies to acquire the smaller players.
3. Diversification: As people change their eating habits based on their ability to purchase food during a recession – their paychecks may not go as far, so patterns may shift - there will be opportunities for food manufacturers to meet consumers where they are.
What might this look like? They might change the way they produce items, and even introduce new products to appeal to the needs of consumers. Some examples of food products that might become more desirable during a recession include shelf-stable foods and meals, snacks, and restaurant food packaged to go.
This product diversification allows producers to experiment to see which new offerings might stick even after a recession.
4. Partnerships: As smaller food brands attempt to pivot to serve consumers who are eating more meals at home as a way to cut expenses due to inflation or a recession, they may want to consider teaming up with smaller partners who can pivot with them. Smaller partners may be able to provide more customization, working more closely with producers to meet their unique needs.
Processors can also turn to partners and suppliers to help fill labor gaps by outsourcing professional service work in areas such as engineering design, maintenance, and so forth.
In addition, brands of all sizes are looking to contract manufacturers to assist in the production of items. Working with these contractors helps even larger producers expand without the need to build an expensive plant. Some will even purchase equipment needed for specific production jobs on behalf of contractors.
Brands might test out a new product by collaborating with a contract manufacturer, for example, to see if it will catch on before taking production in-house. This helps them gauge how successful it may be before taking on the risk involved with gearing up to process it internally.
5. Labor and automation: Regardless of market conditions, the bottom line is that food still needs to be made. Food processors more readily adopted automation when labor availability plummeted during COVID.
The need for skilled workers prevails, especially in manufacturing. Labor issues may intensify, as many workers who left may not return to the industry. Some may have accepted early retirement offers, while others may have turned to other types of work during COVID shutdowns. Meanwhile, there continues to be a shortage of younger workers joining the industry.
Watch for automation to help fill the void. It’s not about replacing workers, as they’re leaving the industry regardless, but it IS about driving efficiency, which will increase throughput and, in turn, productivity – and profits – will rise.
Looking for automation solutions beyond our industry
The key will be to think about automation differently. Consider what workers are doing and how automation can be used to make that process more efficient. What steps are involved in taking ingredients and getting them into the package?
This shift toward automation is already happening in the restaurant industry. The entire process is being rethought. For example, with fast food, much of the process can be automated to send out the meal or item the consumer ordered.
There’s an opportunity to think differently and see gains. Perhaps food processing companies will learn from practices the restaurant and retail industries are currently experimenting with.
6. Innovation: The food processing industry is seeing technological developments that could significantly change how we do business. New technology is being developed to help producers scale up, regardless of the labor shortage.
We’ll see more players in the robotics sector, for example. These advances will help processors streamline to increase efficiency so they can do more with fewer workers. The use of robotics can also help create more sanitary conditions, as well as accomplish tasks human workers may not want to do (e.g., assembling sandwiches in a cold, damp working environment).
Food Processors Will Have to Ride Out the Challenges That 2023 Promises
As everyone in the food processing industry continues to do business in an uncertain environment, staying nimble, focusing on the challenges at hand, and carefully selecting who we partner with will help us see the coming year through – and maybe we’ll come out stronger on the other side.