The food and beverage industry is being disrupted by significant consumer, product, brand, and distribution trends. Even though many of these trends are not necessarily new, disruptions since the emergence of COVID, followed by the war in Ukraine, have dramatically accelerated industry’s response.
Before COVID, the beverage industry was largely focused on improving overall equipment efficiency (OEE). Today different use cases require targeted, individual measures to resolve them effectively—particularly around sustainability.
Sustainability is an underlying thread connecting many changes. For example, a sustainable diet means that the product must be considered natural and clean and have little or no sugar or alcohol. A sustainable environment translates to use of recyclable packaging and reduced environmental impact. And a sustainable supply chain means a shorter and ethical supply chain.
In addition to these sustainability trends, customer demographics are also creating more challenges. By 2026, Generation Z—born between the mid 1990s and ~2012—will be the largest generation on the planet. The result? More than $50 billion in buying power. Offering them the right products will require having an in-depth understanding of exactly what they are looking for and how they are looking for it.
And these demographic factors don’t always relate to the taste or quality of products. Gen Z consumers are looking for a different buying experience with respect to their predecessors. They prefer customized experiences, local brands, and personalized products, and they put more weight on value affirmation, connectedness, authenticity, and local heritage. They seek out brands that have strong values, and 41% of them do not trust big brands compared with 31% of Millennials.
This will impact the food and beverage market and require big companies to adapt and diversify their product offering. This is already happening through acquisitions of local companies to satisfy the growing requirement of product “identity.” This is already a well-known phenomenon in the beer industry, where many craft breweries have been acquired by multinational corporations but are left to operate in their usual way.
Small players, such as Tito’s in vodka, Innocent in smoothies, NOCCO in fitness drinks, and Chobani in yogurt drinks, are stealing market share from big players with yearly revenue growth of up to 20%. They win by following six mantras:
- Establish a sharp value proposition.
- Focus on an authentic brand.
- Build an asset-light business model.
- Be fast to launch and slow to expand.
- Maintain a risk-taking mindset.
- Think before you spend.
To respond, the big fish need to adapt and learn how to share the ocean with these smaller players. Large, established companies are starting to reflect the brand image of these smaller companies and imitate their strengths to protect their market shares. Five countermoves that can help companies stay competitive and relevant:
- Rethink new product development and rollout.
- Fight against the status quo internally.
- Look for organizational models that favor brand power.
- Find the best-suited brand venture model.
- Create a more flexible asset model.
This huge reorganization of the market, the need to create customized experiences for customers, and find different or unconventional ways to promote and distribute products, impact not only the marketing approach of food and beverage companies, but manufacturing operations as well.
Flexibility, fast adaption, small production lots, rapid and efficient changeovers, efficient quality controls, increase in the number of raw materials and SKUs, targeted deliveries, optimized demand planning, and production scheduling, are all part of the technical challenges most food and beverage companies must now confront strategically.
Originally published on Automation World – Sep, 2022
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