EY’s Zahra Jamani talks disruption in the food and beverage space
Food and beverage companies are steering through headwinds on all fronts, from inflation to regulatory changes to sustainability pressures. What’s the path forward? With the release of EY’s Q4 Food & Beverage M&A Recap Canadian Grocer spoke to Zahra Jamani, EY Canada partner and senior vice president, mergers & acquisitions, about how food and beverage companies can adapt and grow in the face of disruption.
The food and beverage industry is grappling with economic uncertainty and high inflation, which – as your report notes – reduces companies’ profits and consumers’ buying power. How can food and beverage companies navigate today’s challenging financial environment?
The industry is going through significant change and it’s a coming together of a number of different factors that have impacted these businesses over the past [few] years. [That includes] COVID, COVID-induced supply chain dynamics and a unique inflationary environment that we really haven’t seen in any recent time period. And so, we view that there are six forces that are creating challenges but also opportunities for companies operating in the sector.
Food and beverage companies need to adapt to evolving consumer priorities and find ways to offer consumers more value in products beyond one particular attribute. For example, price is obviously very important given some of the economic headwinds that consumers today are facing, but also catering to things like consumer health, desire for convenience and transparency. Those are ways that food and beverage companies can deliver more value to consumers in a broadly challenging environment.
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As it relates to some of the more internal elements for these organizations, making sure there are robust processes and procedures – whether that relates to procurement, supply chain, logistics – and having all those elements of the business working in a strategic, forward-focused way is going to be critically important.
Can you expand on the major consumer trends driving change in the sector and how brands can meet those needs?
Today’s consumer is focused more on personalization and finding products and companies that are aligned with their personal values around environment, health and ethics – all those top-of-mind areas. There’s evidence that consumers are also willing to pay a premium for products and companies that produce products that are aligned with those values.
They also want a brand that can fit into their busy schedules, resulting in a growing demand for personalized and convenient services. Today’s consumers are also quite willing to try new products and brands, perhaps more so than before. During the pandemic timeframe, with the supply chain issues that were happening, consumers had an opportunity to try new products just based on what was available on shelf. Many of those have stuck, but I think there’s also a bit more willingness to have an open view on new products that are on the shelf. For businesses operating in the sector, catering to these kinds of evolving consumer priorities is incredibly important.
Food and beverage companies face growing pressure from their customers – both retailers and consumers – to embrace sustainable practices in addition to navigating new taxes and regulations. For example, your report mentions carbon border tax and plastic packaging regulations. What should food and beverage companies prioritize in their sustainability efforts?
Again, consumers today are demanding more ethical, more environmental and more health-focused products. As a result, consumers are overall consuming more consciously. And so, for food and beverage companies, this would include things like reducing waste, improving packaging to be more environmentally friendly, ethical and transparent sourcing and supply chain. Digging in on the packaging example for a moment, finding opportunities for new or improved solutions around packaging – whether it’s the use of recyclable material or smaller format to allow for more products to go on a truck to transport the product to a retail distribution site. Those are all good examples of ways that we’re seeing mid-market food and beverage companies make sustainability a top priority within the organization. In many cases, organizations are doing some of these things naturally or inherently. Making that link so that it resonates with the consumer is the next step.
READ: Canadians' food habits change amid climate concerns, EY survey finds
What technologies and trends in the sector are on your radar?
Food and beverage companies have an interesting opportunity to leverage technology through the use of data and analytics, for example, to improve consumer experience. Consumers are looking for a transparent supply chain and transparent product, and technology can really be leveraged to accomplish this. For example, blockchain has been used in some instances to try to provide transparency around the supply chain.
So, I think all those elements are critically important for food and beverage companies. Within the organization, continued use of things like automation and robotics to increase production output and consistency of product and service can be beneficial to the organization from an efficiency and productivity and ultimately profitability standpoint.
READ: How to prepare your business for artificial intelligence
How are these trends influencing mergers and acquisitions (M&A) activity?
Mid-market M&A activity in Canada has continued to be quite active. Many of the factors that have driven M&A growth over the last several years are still very applicable. So, [there are still] strong levels of private equity or financial dollars available. We still see strategic players looking to acquire assets… to help support growth. In addition, leveraging M&A to improve on [elements such as] digitization strategies and sustainability practices are areas where we see interest from an M&A standpoint to bring that to bear within the organization. Within the mid-market space, there are a number of businesses that are first-generation owned and there may not be a succession plan within the organization. And so, having that plan for a transition in place is critically important and ultimately, in many cases, leads to an M&A transaction.
