Food Industry 2016

2016 graphiBlueberry Business Group issues seven business activities that from our perspective will frame the food industry environment in 2016.

As context, the stressors in 2015 were more intense than anticipated. It was a year of mega mergers, big-headline consolidation outcomes, and financially strained retailers. Included were a good number of shocks and lightning strikes. Every square inch of real estate was evaluated for better utilization. Extended payment terms put a squeeze on cash flow. Acquisitions took on a new definition: The stripping out of costs, competition, and time.

Our list below is directed towards an audience of One, the CEO. Only the CEO can create/force alignment around the organizations’ strategies and operating plans.

Your company may already be incorporating one, some or all of these activities into your 2016 plans. Your customers and competitors are doing so as well. Reactions to ripple effects are essential features of every plan.

Corporate energy in 2016 will be directed towards driving revenue growth while protecting earnings as margins shift from “here” to “there” between all members of the industry.

Organizations are re-envisioning business and eliminating unnecessary complications while spending only on what is proven to drive growth or expand margin. Zero based budgeting has grown in sophistication and now includes time discipline and selective agendas. Savings fall to the bottom line or are re-allocated to customer-facing areas of the business and new technology.

Leading the corporate governance movement claiming “bloated expenses and lackluster growth” (Bloomberg), interventions are taking hold to improve shareholder returns. With over $300 billion in available funds (Bloomberg), activist attention may turn to food companies in Europe. CEOs are confronting unwanted interventions with goals closely aligned with market realities and delivering on them swiftly.

A volatile customer consolidation environment and changing consumer behaviors are outpacing underlying growth. Acquirers are seeking more bolt-on acquisitions and “reverse synergy” targets. Rather than automatically folding growth brands into core businesses, more effective value-creating post-acquisition practices should prevail.

Turnover is accelerating in numbers while key vacancies remain open for a year or longer. Each new strategy requires an assessment of relevant skills to execute. Leaders are addressing internal dysfunction contributing to exodus or defection; companies are becoming recruitment machines.

Rightsizing principles are being applied to asset reduction, plant closures and consolidation, inventory levels, overhead and labor. Blanket manpower cuts are increasingly considered unwise in light of future workload needs and limited availability of talent pools.

Since 2010, over $570 million in venture capital funds (Forbes) have been invested primarily in early-stage food start ups, nurturing small regional players as nimble sources of innovation in new product categories. Venture capital will continue transforming the food industry. “Big Food” is quietly launching their own funding units to get a leg up on emerging brands and future category leaders.

Customers are skittish as digitally empowered consumers continue cruising new routes and channels. Channel customers are redefining supplier selection criteria, avoiding those that do not contribute appreciably to growth. Manufacturers are apportioning resources to gain occupancy in growing niches, staying alert to changing consumer appraisals of new and established brands, products and service features. Deep discount brick and mortar players loom on the horizon.

Here’s to a productive 2016 as the push for growth continues!

The Latest In Food Industry Investor Activism: Trian, Nelson Peltz and Sysco

investor-relationsActivist investors are taking aim at a growing number of competitively-advantaged but underperforming food companies. Bill Ackman and Mondolez. Sardar Biglari and Steak & Shake and Cracker Barrel. Jana Partners and ConAgra. Berkshire and Heinz and Kraft, Berkshire’s funding the Burger King and Tim Horton’s merger. Starboard Capital’s ouster of Darden’s board of directors.

And as of last Friday: Trian, Nelson Peltz and Sysco.

Peltz has a food industry background. As a young man he managed his grandfather’s food distribution business. Trian’s past and present investment portfolio includes Wendy’s, Heinz, Mondolez, Domino’s, Dr Pepper/Snapple, PepsiCo, Cadbury.

High-roller investors devour money-making ideas like fried chicken on Sunday…but with business sophistication unfamiliar to an industry plagued with outdated thinking, incrementalism and broken customer relationships. Despite the mania of activities, few companies are actually growing. Accumulating costs are outpacing revenue gains, cost cutting is not falling to the bottom line, and all are experiencing shrinking incremental returns on a variety of investments.

Enter the activist investor

They use their clout to bring about divestitures, splits, management ousters, mergers…whatever it takes to generate more value.

Sweeping changes usually start by demanding better governance:

  1. Overturning boards with new criteria for directors possessing exceptional knowledge and engagement in long term strategy; and,
  2. New management with uniquely unclouded insights, not the re-treaded solutions seen today in company after company.

Not all activists prevail but many have been more successful in recent years than in others–though it is unclear why. Our opinion is that food industry leaders have generally been slow to transform. Boards have not been sufficiently involved in redirecting strategy or raising the bar on performance. Shareholders have lost confidence and are now willing to get behind changes in how things are run and done.

Which is a tip for every CEO and board, regardless of size or structure, to incorporate a similar mindset into their organizations:

  • New leadership and capability criteria
  • Refreshed strategy in the new paradigm, backed by new business and operating models
  • New budgeting practices; in particular, zero based budgeting

Now, looking ahead after Friday’s announcement of Trian’s 7% stake in Sysco, what may the industry expect? In Blueberry’s opinion, possibilities include:

  • One or several top Sysco executives “spending more time with family”
  • Another look at Sysco’s transformation initiatives to revise, accelerate or abandon
  • Divesting any business that puts a drag on Sysco earnings
  • Push for faster market share growth via high margin local and regional accounts secured by multi-year supply contracts
  • Global sourcing
  • Rationalized accounts and national contract business
  • Another run at acquisitions which could include vertically integrating suppliers, a national broker, cash & carry, or an alliance with a major e-commerce company to better conform to customer preferences and reduce headcount
  • Heightened pressure on manufacturers to better leverage their awarded positions by growing Sysco share with increased spend and low prices to improve gross margins.


Manufacturers and the industry at large will be impacted by Friday’s announcement, if not directly then by competitors and new supply systems bolstered by an inflow of investments, channel customers consolidating and demanding more from suppliers, and customers continuing to experiment with new sources of value.

All of this is complicated by the certain awareness that the value from traditional activities and business streams continue eroding faster than ever.

Friday’s headline gave manufacturers–indeed all industry members–a new lens with which to view their 2016 strategies and plans. These investors move fast to make changes and extract immediate value.

Cascading impacts on your business are unavoidable. We highly recommend urgent action to avoid getting caught in the crosshairs.

The Importance of Relevance

apple.relevanceThe food industry is running short on Relevance.

Thanks to Professor David Aakers, Blueberry preaches Relevance over Preference to our clients.

  • Relevant organizations are obsessed with evolving customer behavior. They identify and act upon the new factors customers and non-customers are willing to invest in to experience value.
  • Those marketing Preference go head to head only with competitors in their sets and along factors assumed (often incorrectly) as important to customer groups.

Most in the food industry still compete on Preference and are likely heading toward decline.

A few compete on Relevance. They will surely survive and shape the future.

To food & beverage CEOs, questioning their organization’s relevance may seem absurd. But the relationship between manufacturers and customers is broken. Executives generally cannot name today’s 8-10 new factors creating customer value. As a result, strategies, plans, innovation, hiring and other business practices are built on quicksand.

While Relevance has soup-to-nuts business application, consider the example shared by Professors W. Chan Kim and Renée Mauborgnein, founders of Blue Ocean Strategy, in the development of a product: Yellow Tail wine.

To non-wine drinkers and younger consumers, wine is confusing and pretentious: descriptions, aging, prestige of vineyards, types of grapes. Wine makers John Casella and Peter Deutsch could have assumed these were relevant factors when setting out to find another place to play.

Instead, they busted assumptions and identified new factors relevant to many wine and non-wine drinkers.

Yellow Tail offers only Red and White varieties. Laid-back, sweeter, easier to purchase, alive and fun. Casella and Deutsch captured a large pool of new followers from two non-customer groups: millions of soft drink and water drinkers.

Same thing happened when Cirque du Soleil converted circus lovers from Barnum & Bailey, theater-goers and TV couch potatoes.

You get the picture. Retail CPG companies have gotten the picture. Foodservice is in the early stages of getting the picture.

Manufacturers are at a crossroads with a choice to make: Relevance or Preference? Shape the future or risk oblivion?


Much is written about Trust in leadership. Trust has many facets.

Here’s one: Fairness.

Fairness is a polite word with powerful synonyms: integrity, decorum, goodness, honor, duty, humanity, decency, give and take.

And its antonyms pack a real punch: deception, bias, falsehood, immoral, lying, rudeness, disregard, disrespect, wrong.

There are always occasional life-isn’t-fair situations. In this case, I’m talking about chronic bias, partiality and imbalance of fairness as a pattern that creeps into organizations or business relationships.

Fairness is defined as equal application of values. It’s root word is rendered as “what is right”. There is no distinction between what is right and fairness.

For those on the receiving end, the documentary, “Monkey Puzzle” confirmed how hard-wired fairness is in all of us. When a monkey’s companion received a tastier or larger food reward for performing an identical task, the first monkey became agitated, refused food and chose to go hungry rather than accept the lesser reward.

Fair treatment outranks self-interest.

Humans have a similar built-in mechanism. Studies show that people revolt, act out and subtly ‘punish’ leaders who treat them unfairly. Journalist and political commentator Brit Hume said, “Fairness is not an attitude. It’s a professional skill that must be developed and exercised.”

When there are double-standards in an organization–one set of rules for executives, another set of rules for everyone else–people notice. They become frustrated and distracted.

As the CEO, it would be wise to think honestly and deeply on this topic. Self-scrutinize whether you promote fair and consistent application of values, or whether you overlook or make excuses for violators in your organization’s high places. Do you turn a blind eye to avoid uncomfortable and hard decisions with your direct reports when warranted? Do you inconsistently and selectively apply values while subjecting others to the deflating experiences of double standards?

If Yes, it is imperative to understand that you may have indeed earned ‘punishment’ from others in covert forms as expressions of their mistrust. Stop blaming them and hold yourself accountable first. Take another look at the synonyms and antonyms to fairness above. Decide to take steps to change, grow and stand tall as a leader.

Fairness may not be as sexy as wielding power but in the end, the path to gaining, maintaining and recovering Trust from others is paved in it.