There is no doubt that 2022 has been one of the most seismic years the food industry has seen. Food inflation hit a staggering 14.7% in November as the combination of the Ukraine War and labour shortages, among other factors, sent energy costs and ingredient inputs soaring.
Robert casts his view on a number of issues, including inflation and its impact on consumers, plant-based foods and M&A activity, in a discussion with Just Food. The full article can be found here.
Inflation continues to take centre stage…
Robert expects inflation to be a key focus in the year ahead.
“We will still have inflation for much of next year and that will be top of mind, as will wage levels and keeping things on track with trade unions.”
The reaction and behaviour of consumers will continue to be important but ultimately manufacturers will need to do what they can to survive.
Lawson points out that “a lot of customers are going to be hit by affordability issues” and analysts are weighing up what this means for manufacturers of brands as cash-strapped consumers eye cheaper private-label alternatives and turn again to discount retailers such as Aldi and LIDL.
“Consumers may have had enough but manufacturers will not supply at a loss. There will be more pricing but retailers will seek to resist it,” he says. It is tough times out there. Few players have margins enough to survive double-digit inflation.”
Plant-based likely to struggle in the short-term
Lawson sees plant-based products suffering for at least part of 2023.
“For many consumers, plant-based is a choice. Flexitarians can choose how much they flex and they may flex less because there is a lot of pressure on their wallets,” he says.
“But I think plant-based dairy and meat alternatives will come back strongly at the end of the year. It is a long-term trend and high growth and it will have good and bad years.”
M&A to depend heavily on valuation expectations
There has been a sharp slowdown in deal activity, particularly in the second-half of 2022. Robert points to “gaps in valuation” being important here.
“Buyers want to pay less but sellers are reluctant to move down to what the business is worth today compared to a few years ago. The private-equity side of the market has ground to a halt. But businesses are sold because they have to be sold – maybe they have run out of money or the founders are retiring.”
However, the bigger picture points to a fight for survival in some instances
“Some businesses have been burning more than earning and won’t be able to survive. We will see a weeding out of businesses that don’t have the funds to sustain themselves and can’t get funding,” he says.
“There will be a lot of distress out there. I would expect to see a number of small businesses going bankrupt and maybe one or two big ones as well.”
Food Strategy Associates are the leading European strategy consultants to the food & beverage industry. We have a wealth of experience in M&A processes, business growth strategy, and cost optimisation. Please get in touch with us via our website or at firstname.lastname@example.org to discuss how we can help your business in these difficult times.