Food Execs Still Foresee Difficulties
In the KPMG survey of 138 food and beverage executives, 20% expect "significant increases" in financial performance this year versus last, and 58% are expecting "some increase." Only 11% expect a decline in performance. This optimistic view is a result of a noteworthy increase in consumer demand. In fact, 30% said they have already seen a sustained increase in demand for their company's products and services since the economic slowdown, with 44% expecting the increase in 2011, and 20% in 2012 or later.
In sharp contrast with the optimism expressed about their companies' financial performance in 2011 and the recovering economy, 49% of those surveyed by KPMG indicate that they will have difficulty sustaining profit margins. In addition, 45% say they will have difficulty increasing market share.
"These senior financial executives are expressing cautious optimism, but we remain in a state of flux," said Willy Kruh, global chair of KPMG's Consumer Markets practice. "We're still experiencing an erosion of spending, as people are simply spending less, so the focus on cost management going forward is still critical."
In reviewing the responses from the U.S. execs in the survey, Patrick Dolan, KPMG LLP national line of business leader -- Consumer Markets, and U.S. sector leader -- Food, Drink and Consumer Goods, said the execs "are projecting more tepid growth in financial performance this year, but they are more optimistic about increasing market share."
Dolan also points out that U.S. execs indicated that they are more likely to pursue growth organically than through mergers and acquisitions. "U.S. finance execs don't feel an enormous lift from the recovery and have their work cut out in building a growth platform and taking their businesses forward. To remain competitive, they intend to focus on their core markets and look to Asia and Latin America for growth," Dolan said.
The KPMG survey found that the methods for entering new geographic markets will vary. Some 39% of the food and beverage executives responding globally intend to do so by adding additional distribution channels, including online, 37% through mergers and acquisitions, and 29% plan to open new stores. In pursuing domestic growth, 57% will do so primarily through organic growth, 22% through organic and M&A, and 16% through M&A.
While the economic downturn has had a significant impact on profits and growth over the past three years, company execs feel that their firms have been strengthened in many ways. For example, 48% of global consumer finance execs said their cost structures have improved, compared to 14% who say that they are in a worse position, and 43% express that they are in a better position today with suppliers compared to 8% saying worse.
To improve supply chain efficiency and costs over the next two years, the food and beverage execs see investing in production or distribution technology, enhancing distribution structure, decreasing inventory levels, and consolidating suppliers as the greatest priorities.
KPMG's Kruh feels that companies, to generate growth and success in the years ahead, will "need to reconsider and often recast their understanding of customers, markets, and their means of serving them. A key to success will be for companies to harness the vast amounts of data that resides in a company that can derive the insights that lead to new markets, new strategies and new operating models that will ultimately generate growth and profitability," he said.
From the May 17, 2011, Prepared Foods' Daily News.