Consumer Markets – Food & Beverage

The outlook for the U.S Food & Beverage industry remains positive. The sector was valued at $996.56 billion in 2020 and is projected to grow at a compound annual growth rate (CAGR) of 4.1% from 2021 to 2028. This growth is expected to be driven by the continued trend of employees working from home resulting in consumers purchasing more groceries; in addition to plant-based product adoption, the introduction of new products to the marketplace, and customer demand for healthier ingredients. Exhibit 1 shows the Food & Beverage sector’s performance since 2016 relative to the overall economy, comparing sector revenue change to GDP growth from 2016-3Q2020.

The Food & Beverage Industry was faced with new challenges in 2020 due to the COVID-19 pandemic inducing panic-purchasing habits. COVID-19 related lockdowns forced consumers to shift their expenditures from food service to preparing meals at home. As a result, the market saw a surge in the number of non perishables sales as shoppers stocked their pantries with excess goods to prepare for potential food shortages. This trend was reflected in March 2020, when canned soup sales jumped over 200%, frozen food sales spiked to over 40%, and sales of comfort foods like potato chips increased by 30%. Beverages also saw an increase in sales throughout 2020, accounting for 20% of the market share.

Traditionally, food & beverage processors and retailers utilized a “just-in-time” (JIT) model to minimize excess inventory and maximize efficiency. This model proved to be problematic as demand for non perishables and pantry staples fluctuated during the first and second waves of COVID-19, exposing the supply chain and leaving empty shelves across the country. As a result, suppliers have shifted to a “just-in-case” model, increasing their inventory for unexpected events. Consequently, this increased costs and will drive the industry back to the JIT model post-pandemic, with a minor increase in emergency inventory. The COVID-19 pandemic also expedited companies’ plans to eliminate underperforming Stock Keeping Units (SKU), with Coca-Cola eliminating over 200 of its 500 brands like Tab, Zico, and Diet Coke Feisty Cherry in 2020; and Mondelēz International eliminating 25% of its products to focus on higher-performing SKUs.

Looking forward into the projection period, the consumer shift from real meat and dairy to plant-based alternatives is expected to be a sizeable contributor to sector growth. This is highlighted by Unilever’s projections that sales of meat and dairy alternatives will exceed $1.2 billion by 2027, up from approximately $240 million in 2020. The overall meat and dairy alternative industry is expected to exceed $23.8 billion by 2023. This growth will be driven by continued consumer adoption, repeat sales, and improvements in production technology.

Merger and acquisition (M&A) activity slowed in 2020 but is expected to increase during the projection period. This uptick in activity will be spearheaded by strategic buyers and private equity firms who have ample cash on hand and access to reliable financing. Strategic buyers accounted for 83% of total deal value in 2020. Large conglomerates acquiring smaller up-and-coming brands will also drive M&A activity. The only landmark deal of 2020 was Groupe Lactalis S.A.’s purchase of Kraft Heinz natural cheese business for $3.2 billion. The industry also saw McCormick & Co. acquire The Cholula Company Inc. for $800 million, Whole Earth Brands, Inc. acquire Swerve, L.L.C. and Swerve IP, L.L.C. (“Swerve”) for $80 million, and The Chefs’ Warehouse acquire Sid Wainer & Son for $50.45 million. Exhibits 2 show the trends in activity from 2015-2020.

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