Mazars 2022 Food & Beverage Industry Outlook

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Mazars 2022 Food & BeverageIndustry Outlook

Contents04060711122022242MazarsMazars 2022 food & beverage industry outlookAbout the Mazars food & beverage groupSection I: Executive summary/selected highlightsSection II: Organization outlookSection III: Company concernsSection IV: Company strategies and prioritiesSection V: COVID impactSection VI: Methodology and study participant profileFiguresMazars 2022 food & beverage industry outlookMazars3

About the Mazars Food & Beverage PracticeThe Mazars Food & Beverage Practice continuallydevelops new solutions to best satisfy our clients’needs while adhering to the strict guidelines andregulations of the industry. Our consulting servicesinclude lean manufacturing, process improvement,and recall provisions. We can help identifyopportunities to increase inventory turnover, thusimproving cash flow and reducing inventory levelsand spoilage. We assist clients in identifying theirmost profitable products and customers, and indeveloping costing models and analyses that assistmanagement in making effective and timelybusiness decisions.In addition to our consulting capabilities, weare adept at providing a full array of traditionalaccounting, tax, financial, and auditing services.We strive to identify opportunities for our clientsbeyond the financial statement and tax return. Weprovide valuation services, management informationsystems, break-even and return-on-investmentanalyses, profit enhancement programs andfinancing strategies. We are adept at due diligenceand other merger and acquisition services and canassist in strategic planning for future consolidationor exit strategies.4MazarsOur professionals are involved in, and knowledgeableof, all aspects of the food industry and have extensiveexperience in the manufacturing, distribution, retailand marketing areas. We are members of industrytrade associations and frequently attend trade showsand seminars to keep abreast of new products andthe evolving needs of food industry companies. Youwill find our clients throughout the supply chain –they include agricultural organizations, processors,packaging, manufacturers, importers, specialtyproducts, ethnic foods, distributors, supermarketsand restaurants.Mazars provides food and beverage companieswith the specialized expertise required to venturefurther in this dynamic industry environment. Themany leading food and beverage manufacturers,distributors, restaurants and importers who call ustheir trusted advisors are a testament to our deepmarket knowledge and global capabilities. We giveyou a competitive edge to maximize results.Mazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars5

Section I:Executive summary/selected highlights 83% expected sales to increase for theirorganization in 2022 and 6% expected sales to stayabout the same. 25% expected a sales increase ofmore than 20%. 65% expected that new customers would be animportant factor influencing sales growth in 2022.More than half expected that new products (54%),improved sales performance (52%), and newsales channels and/or points of distribution (52%)would be important factors in influencing salesgrowth. Among 15 possible food trends, “Plant basedoptions” was selected most often (by 48%) aslikely to have a positive impact on sales in 2022.Next in line was ethnic/international (37%),followed by functional foods (35%), “Free from”foods (35%), sustainability (33%), and groceryordering and delivery service (33%). 78% have passed at least some of their inflationcosts on to customers. However, only 2% havebeen able to pass on 100% or more of theirincreased costs. Among 13 possible concerns, the top concernwas about shipping costs, container costs, and/or other unexpected fees at the pier, with 54%“Very concerned.” One-third or more were “Veryconcerned” about rising commodity and othercosts (39%), needing to improve their supplychain (39%), delays due to shipping congestion(38%), and truck/driver availability (33%). Nextin line was recruiting/employee retention (29%“Very concerned”).6Mazars More than half reported the following operationsstrategies underway or planned: new productintroductions (60%), digital marketing/socialmedia (58%), and process-improvement activities(58%). Next in line was hiring and retainingemployees/new hiring practices (47%).Section II:Organization outlookWhat percentage change in sales are you expecting for yourorganization in 2022, compared to 2021? The top supply chain priority was cost of goodsfor 22% of the respondents and product deliverytime for 18%. Various other items each had lowerproportions considering them top priority.17% When introducing new products to market inthe future, top factors in importance werehealth and wellness (34% “Very important”),and convenience (33% “Very important”). Based on the current economic climate, morethan two-thirds (68%) expected increasedemphasis at their organization on expandinginto new markets. 36% have implemented compliance proceduresfor labeling laws. 25% have implemented dataanalytics, but 33% plan to utilize data analytics.8%Decrease 31 to 40%5%Decrease 21 to 30%4%2%6%Decrease 11 to 20%Decrease 1 to 10%Stay about the sameIncrease 1 to 10%29%12%Increase 11 to 20%29%Increase 21 to 30%Increase 31 to 40% 52% reported increased salaries/wages as aneffort to attract and/or retain employees. 45% reported planning to increase suppliers inan effort to manage supply chain risk and costsin 2022.nnnnnnnnnnnDecrease over 40%Increase over 40% Combining all categories of increasing sales, 83%expected at least some increase in sales.Figure 1: Company outlook: 2022 vs. 2021 Strategic investments in response to COVIDincluded marketing strategy (43%) and supplychain diversification (41%).Mazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars7

Section II:Organization outlookWhich of the following do you expect to influence sales growth foryour organization in 2022?New customersNew productsImproved sales performanceNew sales channels and/or points of distributionImproved online presenceIncreased selling pricesCOVID effect (e.g., vaccinations, fewer restrictions overAcquisitionsDo not expect sales growthWhich of the following food trends are likely to have a positiveimpact on your organization’s sales in 2022?The proportion selectingethnic/internationalfoods was significantlyhigher this year, comparedto 2021 (37% vs. 19%,and this difference wasstatistically significant).Plant based options48%Ethnic/international37%Functional foods*35%Free from**35%Sustainability33%30%Grocery ordering and delivery service33%39%Organic foods28%14%Private brand foods28%Transparency26%Locally grown / produced foods24%Snacking22%Restaurant food delivery***20%Alternative foods17%Cannabis infused9%Ghost kitchens7%65%54%52%52%43%20%Figure 2: Factors influencing 2022 sales growth* Healthy and betterfor you** Allergen free, Glutenfree, Non-GMO*** e.g. Grubhub, UberEats, DoorDashFigure 3: Positive impact food trendsKristen Walters Partner, Food & BeveragePractice LeaderMazars in the USIndustry insightsOver 50% of respondents said that new customers, newproducts, improved sales performance and new saleschannels and/or points of distribution will influencetheir sales growth in 2022. We have seen an increase ininvestment in business intelligence technology to drivethis type of growth. These systems track customeractivity, preferences and engagement, and provide datato better understand customer wants and needs. It alsohelps inform the best markets to target.8MazarsBrian ChoiCEOThe Food InstituteAlso, diversifying sales channels became criticalduring the pandemic – especially for companies thathistorically sold into the food service industry and wereheavily impacted by shut downs. We expect this trendto continue into the future.Mazars 2022 Food & Beverage Industry OutlookIndustry insightsThe results from the latest Mazars survey highlight fourmajor trends that will impact the food and beverageindustry over the next few years: health and wellness,convenience, sustainability, and demographic shifts.Health and wellness is top of mind for most consumers’as shown by the increasing number of consumersgravitating towards plant-forward and functionalproducts. Consumers have also gotten much morecomfortable ordering food and groceries through apps.Sustainability and ESG factors are also increasinglycentral to business strategies, with governments,NGOs, and consumers demandingMazars 2022 Food & Beverage Industry Outlookaccountability. Lastly, the demographic shift in theUS is leading to greater interest in trying new flavorsand cuisines. In 2020, about half of the US populationidentified as non-white, which has led to high growth inethnic foods and flavors. The food and beverage worldis changing dramatically, and companies must adapt tothese new trends in order to succeed.Mazars9

Section II:Organization outlookSection III:Company concernsHow much has your company been able to pass along inflation coststo the consumer? That is, of the higher cost you have experienceddue to inflation, how much of that was added to your selling price?To what extent is your organization concerned about thefollowing factors?2% 7%7%0%15%1 to 4%5 to 9%5%12%7%10 to 29%30 to 49%50 to 74%75 to 99%20%25%100% or moreNot applicable – have not experiencedrising costsnnnnnnnnnShipping costs, container costs, pier fees4.354%Rising commodity and other costs4.139%Improving supply chain4.039%Delays due to shipping congestion3.938%Truck / driver availability3.833%Recruiting / employee retention3.629%Increasing product and customer profitability3.620%Improving operations3.522%Cybersecurity3.522%Increasing sales3.420%COVID effect3.213%Ability to develop new products / services2.810%Product / service innovation2.74%Figure 4: Inflation costs passed on in selling priceRobert LibertoCEO & OwnerGourmet BoutiqueIndustry insightsGourmet Boutique, like most companies, isexperiencing rising costs throughout the organization.Labor, raw materials and logistics have seen thegreatest cost increases. Our number one raw materialcommodity (chicken) increased almost 270% in thepast year compared to the prior three-year average.By negotiating a favorable contract with our chickensupplier, we were able to keep our pricing competitivein the market even after the increases. We alsomaintained very high service levels which is mostimportant to our customers during these times wherethe supply chain is unreliable.Very ConcernedFigure 5: Average rating of company concerns Respondents were asked to rate their concernabout 13 different factors using a five-point scalefrom “Very concerned” to “Not at all concerned.”The averages in the chart above are based oncoding 5 “Very concerned” through 1 “Not atall concerned.” For example, the highest averagerating was for the factor involving shipping costs(4.3). The wording for this item was shortened inthe chart above for better readability, but the fullwording was “Shipping costs, container costs,and/or other unexpected fees at the pier.” Nearly four in ten were “Very concerned” aboutrising commodity and other costs, improvingsupply chain, and delays due to shippingcongestion (full wording: “Delays in productarrival due to shipping congestion”). However,these items differed slightly on the average rating,with rising commodity and other costs having thehighest average among these three items.We implemented two price increases during 2021 and amuch larger one in January of 2022 to offset the actualcost increases and anticipated inflation for 2022.10MazarsMazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars11

Section IV:Company strategies and prioritiesWhich operations or strategies are underway or planned foryour organization?New product introductionsDigital marketing/social mediaProcess-improvement activitiesHiring and retaining employees/new hiring practicesUpgrading capital facilitiesUtilization of data analyticsSupply chain innovationMove from JIT inventory and shipping to more robust model*Leadership successionMajor ERP implementation60%Regulation updating –e.g., clean labeling, transparency, FSME18%Acquisitions16%Which of the following supply chain characteristics is yourorganization’s top priority for improvement?58%4%58%47%4% 2%22%9%44%38%36%11%27%24%18%20%14%16%Figure 6: Operations strategies underway or plannedCost of goods22%Product delivery time18%Knowledge/information sharing16%Food safety14%Developing an alternative supply chain11%Food quality9%Sustainability4%Order processing4%Traceability/tracking capabilities2%Figure 7: Supply chain priorities The most often selected, underway orplanned, operation/strategywas “New productintroductions,” followed closely by digitalmarketing/social media.12Mazars* Full wording: “A move from just in time inventoryand shipping to a more robust inventory modeldue to supply chain issues”Mazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars13

Section IV:Company strategies and prioritiesHow would you rate the importance of the following to yourorganization when introducing new products to the market inthe future?VeryimportantModerately Somewhatimportant importantNot veryimportantBased on the current economic climate, what do you expect for yourorganization in 2022 for each of the following?Not at allimportantConvenience33%35%23%9%0%Health and wellness34%32%14%13%7%Direct to consumer32%26%21%13%Ethnic/niche markets27%27%17%Sustainability12%41%Private label28%21%IncreaseNo changeDecreaseEmphasis on expanding into new markets68%23%9%8%Investment in product innovation58%38%4%29%0%Capital expenditures58%33%9%33%12%2%Profitability to shareholders/owners55%40%5%23%18%10%Number of employees51%44%5%Figure 8: Importance when introducing products to marketFigure 9: Expectations based on current economic climate Respondents were asked to rate the importanceof six different factors when introducing newproducts to market in the future. The averagerating was based on coding 5 “Very important”through 1 “Not at all important.” More than half expected an increase in 2022for each of the five items in the table above. Thehighest result was 68% expecting an increase onemphasis on expanding into new markets, basedon the current economic climate.14Mazars Health and wellness had the highest proportionrating “Very important” (34%), followed closely byconvenience (33%).Mazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry Outlook Small proportions expected a decrease for eachitem, although sizable proportions expectedno change.Mazars15

Section IV:Company strategies and prioritiesPlease indicate your company’s implementation of the followingWhat efforts has your company made to attract employees andimprove employee retention?Wave IIimplementedPlan toimplementUnder reviewbut no actionNoplansCompliance procedures for labeling laws36%17%9%38%Research and development27%26%18%29%Utilization of data analytics25%33%22%20%Equity infusion/sale21%9%9%61%Sustainability reporting16%19%28%37%Succession plans12%27%17%44%New ERP systems12%19%24%45%Robotics and artificial intelligence (AI)10%17%7%66%Increased salaries/wagesProvide FT or PT remote work optionsIncrease benefitsHiring bonusesRetention bonusesOther52%30%27%16%16%20%Figure 11: Efforts to attract/retain employeesFigure 10: Initiatives implemented/planned 36% reported implementing complianceprocedures for labeling laws, compared to28% in 2021. 52% reported increased salaries/wages in aneffort to attract employees and improve employeeretention. One in five wrote in an “Other” response. The mostcommon entry was that their organization has donenothing to attract/retain employees.Steve FlyerPartner,AUA Private Equity PartnersIndustry insightsAfter a robust and record setting year of M&Aactivity in 2021, it is expected that 2022 will be anequally strong year for corporate acquisitions anddivestitures. While the first quarter of 2022 may bea bit slow out of the gate as companies continue toreconcile some of the challenges they faced in thesecond half of 2021 including persistent inflation,uncertainty around supply chain, and the increasingchallenges and concerns around labor, the M&Aactivity will steadily pick up throughout the year. Mostof the deal activity in 2022 will by buoyed by favorableand historically low interest rates and active debtmarkets (even in the face of rising interest rates) aswell as the increasing levels of dry powder that privateequity firms possess and need to deploy. Expectationis that M&A activity will exceed 2021 activity.16MazarsIn addition to the enormous appetite of private equityfirms to acquire new portfolio companies, manycorporations are also facing the need to grow top lineand this is driving dealmakers to seek acquisitionsthat will expand into new products, new services,and new geographies as well as acquiring oradopting new technologies, automation anddigitalization. Challenges in the M&A marketwill derive from continued labor shortages, aninflationary environment and on-going supply chainissues. However, many investment professionalsbelieve that the second half of 2022 will see supplychain challenges easing and, in addition, ongoinginvestment in automation will lead to less reliance onlabor markets. All in all, most dealmakers believe thatcontinued need for growth and innovation alongsidestrong consumer demand for products and serviceswill drive significant M&A activity in 2022.Mazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars17

Section IV:Company strategies and prioritiesHow is your company planning to manage supply chain risk andcosts in 2022 vs. 2021?Increasing suppliersSourcing domestic or more local inputsFinding alternative productsNo changeOtherGiven that the COVID has been in the US for approximately 18months, please indicate which of the following best reflects yourorganization’s operations over the past 18 months.45%30%30%9%23%7%31%18%Figure 12: Efforts to manage supply chain risk/cost24%18%Sales have increased in normal channels31%Sales have pivoted to other channels18%Sales have decreased due to certain sectors 24%shut down – e.g. food service and restaurantcustomers not ableto openEmployees felt safe in going to theoffice/facility18%None of the above apply9%Figure 13: Efforts to attract/retain employees*COVID has been in the US for 18 months atthe time the survey was administered. 31% indicated that sales increased in normalchannels over the past 18 months, while 24%indicated that sales have decreased due to certainsectors being shut down.18MazarsMazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry Outlook 18% reported that sales have pivoted to otherchannels. When asked in an open-ended manner todescribe the other channels, several mentioned ashift to more retail sales.Mazars19

Section V:COVID impactPlease indicate which of the following you expect to be yourorganization’s top priority in terms of technology solutions inresponse to COVID?16%34%9%11%12%18%Where will your organization invest in 2022 from a strategicperspective in response to COVID?Customer experience34%ERP solutions18%Human capital management12%Cybersecurity11%Accounting and management solutions9%None of the above16%New product development/product lifecycleSupply chain diversificationMarketing strategyCustomer diversificationCash flow management and debt structuring43%41%36%27%11%Figure 15: Strategic investments in response to COVIDFigure 14: Top priority technology response to COVID Among five possible areas of technology responseto COVID, “Customer experience” was selectedmost often as their organization’s top priority inboth 2021 and 2022.20MazarsMazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars21

Section VI:Methodology and study participant profileThe Mazars Food & Beverage Industry Outlook was developed toseek the views of industry leaders and decision makers. This reportis meant to explore industry trends and build a knowledge base ofthe challenges, opportunities, best practices, and critical factorsshaping the future of the food & beverage industry.Profile of food & beverage industry study participants Mazars conducted the 2022 Food & BeverageIndustry Outlook survey, coordinated byAmplitude Research, an independent researchfirm, using an online survey methodology. Thesurvey was open between November 3 andDecember 22, 2021. The goal of the study was toexplore different views, strategies, priorities, etc.,in the food and beverage industry. Industry: The category of the food and beverageindustry with the largest proportion of studyparticipants was manufacturing (40%), followedby wholesale distribution (16%), and restaurant/food service (13%). (Those who indicated that theywere not in the food and beverage industry werenot qualified for this study and were not asked tocomplete the survey.) Mazars provided a list of contacts to invite to takethe survey. Amplitude Research sent an e-mailto each contact. The e-mail included a link thatcould be clicked on to take the survey. Also, a linkto the survey was placed on the Mazars website,blog, and social media sites that visitors to thoseplatforms could use to participate.22Mazars Some of those who responded to the survey didnot go all the way to the end but their responseswere used in the analysis of the questions theyanswered. The number of respondents for eachquestion ranged from approximately 40 to 60,depending on where each question was in thesurvey. The majority of the job titles reported byrespondents were high level, including (indescending order by the number of respondents)CEO, President, Owner, CFO, Director, and VicePresident – although there was representationamong less senior job functions (e.g., “Manager”)as well. All responses to the survey were anonymous toMazars. Study findings are only published basedon aggregated results for the total sample.Mazars 2022 Food & Beverage Industry Outlook Sales: Study participants represented a range ofannual sales volumes — on the low end, 34% hadsales of less than 5 million. On the high end, 4%had revenue of 500 million or more. Employees: 66% of participants reported fewerthan 100 employees, while 5% reported morethan 1,000.Mazars 2022 Food & Beverage Industry Outlook Ownership: 93% of participants described theirownership structure as private. Sales activity: 58% of the respondents hadnational sales activity, 44% had regional sales,and 36% had international activity. Plans for the sale of the company: 52% ofrespondents had no intention to sell, although29% were not sure. 7% expected to sell within 1-2years, while 12% expected to sell within 3-5 years. Plans for acquiring a company: 53% ofrespondents had no intention to buy, although22% weren’t sure. 15% planned to buy a companywithin 1-2 years, while 10% expected to do sowithin 3-5 years.Mazars23

FiguresPage 7 - Figure 1: Company outlook: 2022 vs. 2021 Expected change in salesPage 8 - Figure 2: Factors influencing 2022 sales growthPage 9 - Figure 3: Positive impact food trendsPage 10 - Figure 4: Inflation costs passed on in selling pricePage 11 - Figure 5: Average rating of company concernsPage 12 - Figure 6: Operations strategies underway or plannedPage 13 - Figure 7: Supply chain prioritiesPage 14 - Figure 8: Importance when Introducing products to marketPage 15 - Figure 9: Expectations based on current economic climatePage 16 - Figure 10: Initiatives implemented/plannedPage 17 - Figure 11: Efforts to attract/retain employeesPage 18 - Figure 12: Efforts to manage supply chain risk/costPage 19 - Figure 13: Sales change due to COVIDPage 20 - Figure 14: T op priority technology response to COVIDPage 21 - Figure 15: Strategic investments in response to COVID24MazarsMazars 2022 Food & Beverage Industry OutlookMazars 2022 Food & Beverage Industry OutlookMazars25

ContactKristen Walters, Partner, Food & Beverage Practice Leader, Mazarskristen.walters@mazarsusa.comAbout MazarsMazars is an internationally integrated partnership,specialising in audit, accountancy, advisory, tax andlegal services*. Operating in over 90 countries andterritories around the world, we draw on the expertiseof more than 44,000 professionals – 28,000 inMazars’ integrated partnership and 16,000 via theMazars North America Alliance – to assist clients of allsizes at every stage in their development.*Where permitted under applicable country lawsMazars USA LLPMazars USA LLP is an independent member firm ofMazars Group, an international audit, tax and advisoryorganization with operations in over 90 countries.With roots going back to 1921 in the US, the firm hassignificant national presence in strategic geographies,providing seamless access to 28,000 professionalsaround the world. Our industry specialists delivertailored services to a wide range of clients acrosssectors, including individuals, high-growth emergingcompanies, privately-owned businesses and largeenterprises.www.mazars.us

22 Mazars Mazars 2022 Food & Beverage Industry Outlook Section VI: Methodology and study participant profile The Mazars Food & Beverage Industry Outlook was developed to seek the views of industry leaders and decision makers. This report is meant to explore industry trends and build a knowledge base of

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