Food Industry 2015: Turbulence and Sailed Ships

Food industry CEOs are still not seeing the results they want in revenues, market share, profitability and innovation.

Many still hold only superficial knowledge of new and evolving events affecting outcomes.

In hindsight, these CEOs relinquished their responsibility to carry out an accurate, first-hand examination of the impacts that a mature, evolving industry will have on their businesses.

Despite seismic shifts, a number of executive teams were too imbedded, insular and disbelieving to bring about anything but incremental change. New industry behaviors were  “floated” on top of long-standing operating models and the same year-over-year strategies.

The market will leave these companies behind in 2015. For the rest, steps to avoid the unthinkable must be taken swiftly, boldly and accurately.

A high level review of 2014

  • Amid overall economic recovery and consumer optimism, layoffs, cost cutting and slow growth were widespread in the food industry.
  • The quality of sales, earnings and investments were not great: high cost and low mileage from new units, new stores, new products, new opportunities.
  • Inserting low-value funds into the supply system continued despite new practices that, at their core, seek to eliminate non-value elements in service to operators and consumers. Trade spending was up in foodservice, down in retail.
  • RFPs designed to extract every bit of savings stretched resources on all sides of the table, distracting and pulling them away from other growth initiatives.
  • Billions of dollars that once flowed through broadliners and traditional retailers migrated towards alternative routes, channels and outlets.

Headline-grabbing acquisition announcements were outcomes of underlying issues above.

Expect the same and more in 2015

  • The nature of supply chain competition will change. Major rivals will be publicly-owned. Expect M&A announcements every quarter (look for a few surprises in 1Q).
  • Scrutiny over trade spending levels between merging supply chain entities will pressure manufacturers for highest rates.
  • Fresh, forward-moving brands and products bolted on to global portfolios will require patience and nurturing in order to scale to the masses.
  • Traditional research sources will be grow obsolete, replaced with “Aha” insights as tools that unlock new opportunities.
  • Snacking accounts for half of all eating occasions. E-commerce and doorstep delivery will continue creeping up on bi-weekly supermarket shopping.
  • Operations excellence will continue as table stakes to offset the price tag and risk to customers that switch out suppliers.
  • The cost of doing business will be higher than ever for everyone–backing up hard on manufacturer margins.

Clearly, “a few new things” in 2015 strategy pipelines just won’t do.

Time is running out to transform thinking, leadership and business practices of the past. Unfortunately, that ship has already sailed for some now finding themselves in the process of painfully managing business contraction.

In 2015, three overarching food industry themes belong in every CEO wheelhouse and should be integrated into every organizational strategy:

Resource Optimization: Re-profile executive and leadership positions with broader, best-in-class attributes better suited to deliver results on a grand scale. This may include separating long timers as legacy behaviors, practices and attitudes must be refreshed to fuel momentum. A departure from the way most companies are used to working, only those without blinders or dependencies can execute a successful resource optimization plan.

Consolidation: You’ve heard us say that Consolidation is code for “stripping out” in many forms: supply systems, retailers, manufacturers, brands, products, practices, functions. Work-around plans crafted and mastered by A-team executives must be driven to avoid fallout and maximize outcomes from every form of consolidation: when customer decisions favor competitors, when competitors are folded into global portfolios, and especially, when customers themselves acquire or are acquired.

Shared Growth: Hitting targets or delivering growth over last year alone isn’t enough. Competitive advantage and staying power have new meanings: 1) Growing categories, not just items; 2) Improving customer market share, not just your own; 3) Understanding how trading partners make and lose money and managing to win-win. The purely transaction mindset is dead.

How will you confront these themes to keep your organization alive and out of the market’s rear-view-mirror? It’s a major challenge for even the best leaders.

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