Chicago, Illinois - September 16, 2019 - Blueberry Business Group, a leading food industry consulting firm, says a revolution is taking place in the food industry and redefining how it operates.
Blueberry describes three key shifts, each marked by profits that are rapidly moving away from traditional practices to new forms of value at levels unseen in the industry until now.
“First, services are overtaking products in importance to customers and consumers,” says Debra Bachar, Blueberry President. “Food companies are challenged to create growth engines that deliver benefits beyond products themselves.”
Debra explains that services are more complementary to the way consumers live and how customers do business, adding that new products run the risk of sputtering when not accompanied by a broader range of value elements.
“Operating models based on mass production and optimal use of assets are obsolete,” she adds. “Products with service components satisfy expectations after the sales transaction.”
“Those able to master the shift can expect more profit, more growth, deeper moats and a larger share of the market.”
Blueberry points to the rapid rise in power and influence of financial institutions and private investors as the second shift in the food industry revolution.
Bill Pierrakeas, Blueberry Senior Advisor, says, “Financialization emerged as acquisitions, low innovation and management models du jour such as agile and zero-based budgeting failed to create value.”
“A larger share of industry profits are coming from the trading companies and brands between capital owners than from making and selling products.”
In addition to CPGs’ venture capital funds, even supermarkets and foodservice distributors are joining forces with private equity to sponsor accelerator programs for startups and lower their barriers to entry into major segments.
“Dominant manufacturers are under siege from well-funded, early-stage competitors supported by their channel customers,” Bill emphasized.
The third industry shift is competition of another sort coming from the channels.
“Private label and store brands are eating into national brands at a stunning rate, says Debra. “These growth vehicles provide quality differentiation without the stigma of old.”
She adds that industry profits are migrating to channel brands on shelves, in foodservice distribution, online, and at limited assortment discount chains.
With quality tiers ranging from budget to premium, volume is projected to reach 25% of all food and beverage sales, outweighing the deflationary impacts of pricing up to 40% lower than national brands.
“Manufacturer brands no longer command the margin. Channels are reporting earnings growth directly attributable to private label and store brand programs."
Blueberry issues an urgent call-out to CEOs and boards ahead of 2020.
“Food companies must address their catastrophic problem of value creation, getting crystal clear on what’s no longer true, no longer false, and designing strategy for the new industry terrain.”
Incrementalism is no match for a revolution.