newswire.ca – Global optimism in the food and beverage sector is high according to a new report just released by Grant Thornton International Ltd. This international study with a Canadian perspective was released last week by Raymond Chabot Grant Thornton during a conference organized with the Conseil de la transformation agroalimentaire et des produits de consommation.
The new study, A Hunger for Growth: Food and Beverage Looks to the Future, indicates that an improved global economic outlook creates a favourable climate for the food and beverage sector. 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 them also expect profits to increase, with 25% expecting double-digit growth in product sales.
Guy Barthell, Partner in the Strategy and Performance Consulting Group and agri-food specialist with Raymond Chabot Grant Thornton stated, “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 Quebec, in Canada and, increasingly, in newer markets. Furthermore, a future free trade agreement with the European Union suggests that new export avenues could be explored, albeit with a number of challenges that Quebec producers will need to prepare for.”
Because of the geographic and economic proximity to the United States, and because the American food and beverage industry is re-emerging, opportunities also abound south of the border for Canadian producers. Jim Menzies, Grant Thornton’s International Food and Beverage leader and a Partner in the Canadian firm of Grant Thornton LLP, said, “Consumer tastes and trends here in Canada are quite similar to those of the U.S., giving Canadian food and beverage manufacturers a unique opportunity to capitalize on the re-emergence of the U.S. consumer market. Housing starts are up, consumer loan delinquency rates are back to normal, and people are starting to spend again in the U.S. The combination of all of these factors leads to growth opportunities within the Canadian industry.”
With rising optimism comes rising investment. Overall, 64% of Canadian firms expect that 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 product development investment.
Top Drivers of Business Growth in Canadian Food and Beverage Manufacturing
Topping the list of key growth drivers 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%).
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.
Power of retailers is higher than global (53%) and U.S. (47%) numbers, and possibly a reflection of the particularly concentrated Quebec and Canadian retail environment. Canadians were also more likely to indicate that finding skilled workers was a top growth constraint compared with their U.S. counterparts.
Food and Beverage Trends
Canadian businesses are more likely to seek out new channels (60%) than those in the U.S. (44%) and are above the global average of 57%; they are slightly less likely to focus on creating new products than other markets. Around the world, most manufacturers report that they are looking at packaging innovations (nearly six in ten companies).
Trends like organic foods seem to play better with manufacturers south of the border: 54% of U.S. respondents say they will have a positive impact compared to 39% in Canada. On the other hand, U.S. manufacturers are more likely to see the negative effects (37%) from the trend towards healthy/nutritious food and beverages, whereas in Canada, 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 be spicier. In Canada, 53% say ethnic product trends will have a positive effect, compared with only 36% of U.S. respondents.
Canadian respondents are also more likely to expect positive effects from premium and luxury food and beverage trends (69%) than global (60%) or U.S. (57%) respondents, while the U.S. seems to see private-label brands (50%) more positively than Canadian (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 U.S. (43%) predict that food-labelling regulations will have a negative effect on their organization—higher than the global average of 38%.
Those in the U.S. are more likely to see government food traceability regulations having a negative effect (46%) versus 37% in Canada. Twice as many Canadians surveyed say that nutritional guidelines will have a positive effect on their organization compared with respondents in the U.S. (31% vs. 14%).
U.S. respondents are more than twice as likely to expect tax regulations to have a negative impact (75%) than Canadians (33%), whereas Canadians are more likely to report positive effects of R&D tax credits (33%) than in the U.S. (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. U.S. companies are much more likely to use Twitter (29%) than Canadian firms (8%).
Guy Barthell concludes, “If I had one piece of advice for Quebec food and beverage manufacturers, it would be this. Given this positive outlook, plan how you’re going to take advantage of it. Learn to capitalize on consumer trends and focus on innovation in both products and productivity. Innovation will open the door to opportunity and export possibilities, especially in an optimistic growth market.”
A Hunger for Growth: Food and Beverage Looks to the Future examines the global food and beverage sector – financial position, trends and constraints – as well as presents forecasts by specialists around the world. To view the complete study, go to http://www.rcgt.com/en/industries-segments/agri-food/.